Does the RIAA let defaulters off the hook?

The Recording Industry Association of America wants accused file-swappers to know that not responding to a federal copyright infringement complaint is a bad idea.

When we last looked into this issue just over a month ago, we found something surprising: the only two Americans who took their file-sharing lawsuits all the way to a jury verdict owed far, far more money per song at the end of the trial than if they had never shown up to court in the first place. Those who defaulted eventually found themselves on the hook for $750 per song—the smallest amount of statutory damages possible—and they saved themselves months of stress. Those who fought all the way through trial racked up plenty of legal fees in addition to a pair of outrageous judgments.

The chart below illustrates the huge disparity in terms of money owed per song (allegedly) infringed.

All of which raised the question of whether defendants were simply better off by not even showing up to court. And when a copyright lawyer suggested to us that the recording industry might not even be making the effort to collect these default judgments, we were intrigued. But it’s not true.

Defaulting: it’s not cheap

Unfortunately for those who never responded to RIAA complaints, defaulting has significant downsides that actually make it a bad option for most accused file-swappers.

First, while getting off with the minimum statutory damages might seem like a bargain compared to Jammie Thomas-Rasset’s $1.92 million verdict or Joel Tenenbaum’s $675,000 penalty, settling is typically cheaper than not showing up. It’s also much easier on the recording industry, which doesn’t need to pay as many outside lawyers and can avoid having to go through an extended collections process.

That’s why the recording industry is so keen on making clear that they are prepared to offer a really good, Walmart-style pricebusting deal to anyone who is willing to come clean and put some cash on the table.

“It’s never going to be in someone’s interest to take a default, rather than settle,” RIAA lawyer Jennifer Pariser told me. “If the person genuinely has no assets or is experiencing personal hardship, we would absolutely work with him or her to come up with something reasonable or we might simply dismiss the case. If a person is able to settle, we would still settle at the beginning of a lawsuit for a fraction of what we would get in a default.”

This appears to be generally true, though getting there can be complicated. In most cases, the recording industry’s federal copyright complaints focus on 10 songs or so, meaning that a default judgment would be in the ballpark of $7,500. Settling the case before going to trial reportedly leads to payments of around $4,000.

Unless the recording industry thinks someone is yanking their chain, however. This was illustrated vividly in one of the cases that we reviewed against a Tufts University student named LaShaana Straw. Back in January 2007, a Tufts user was detected by recording industry investigators with 2,800 sound recordings in a LimeWire share folder. In May 2007, the recording industry, at this point having only an IP address, sent a letter to the university, asking them to forward it to Straw.

This apparently worked, because Straw contacted the recording industry’s “settlement representatives” on May 22, but said that she would need to speak to a lawyer before agreeing to a settlement offer. Nothing more was heard from Straw until August 6, at which point she called the recording industry again after a subpoena had been issued to find out who she was. This time, Straw said that she would talk to her parents and call back.

On September 5, Straw wrote a letter to recording industry lawyers saying that she would like to discuss a settlement. But when she called them again on September 23, Straw declined the offer and was told that the lawsuit against her would proceed.

That lawsuit was filed in Massachusetts federal court on January 28, 2008, and it ended up consolidated into the same docket with the Joel Tenenbaum lawsuit. The case proceeded slowly after this; court documents reveal that the recording industry could not find Straw to issue a summons, and the private investigator sent to her dorm room reported that Straw had gone abroad for a semester.

She was eventually located in June 2008 and was personally served with the summons, which prompted more action. On July 2, Straw again called the recording industry about a settlement. This time, she was told that the recording industry wanted $10,700 but would accept $5,350 so long as all of the money was received within six months. The recording industry’s account of this moment makes clear how pressure was applied.

“Plaintiffs believe this settlement offer to be more than reasonable under all the circumstances of the case, bearing in mind the statutory damages and other relief to which Plaintiffs would be entitled under the Copyright Act, which provides for minimum money damages of $750 for each copyrighted recording that has been infringed. In this case, Defendant’s shared folder included 2,890 audio files, many of which were owned or exclusively licensed to Plaintiffs and were being infringed.”

In other words, this was a bargain. If the case went to trial, the industry could always move to amend its complaint, tacking on a few hundred songs and driving the price up dramatically. Straw agreed to settle on July 7.

But the judge wasn’t pleased. In September, when a stipulated verdict of $10,700 was presented to Judge Nancy Gertner, she issued this note: “The parties’ Stipulation to Judgment is DENIED. The proposed settlement amount is among the highest the Court has seen in these cases, and the Defendant has not appeared before the Court since she was served with the Complaint on 6/14/2008. The Plaintiffs are directed to inform the Court whether Defendant was represented by counsel in reaching the proposed settlement agreement and what settlement conferences took place.”

That note prompted the recording industry to explain all the above details, including the fact that it had actually agreed to take only half the amount printed in the stipulated judgment. That explanation didn’t make Gertner any happier. In November 2008, she denied the deal again.

“The parties’ Stipulation to Judgment is DENIED. Plaintiffs request that the Court approve a Stipulation requiring the Defendant to pay $10,700, yet state in their Response that they have agreed to accept half that amount, $5,350, in full satisfaction of the monetary portion of the proposed judgment. The Plaintiffs do not provide any reason for this highly unusual arrangement, and the Court will not approve a stipulation which fails reflect the actual terms of the agreement. The Plaintiffs must present to the Court a proposed judgment which accurately states the amount the Defendant will be required to pay to settle the claims.”

When that was eventually done, the settlement was official and the lawsuit was finally withdrawn in early 2009.

In the end, despite the long and winding road to a settlement, Straw ended up paying $5,350. The original complaint had listed nine songs, including “Rock Wit U” and “Cleanin Out My Closet,” which would have been worth $6,750 plus several hundred dollars in fees if Straw had defaulted. And, as the recording industry implied, more songs could always be added to the complaint.

And who is Straw? According to Tufts, she was a public service Tisch Scholar and spent 2007-2008 “working with 4th and 5th graders of the Ingalls Elementary School in Lynn, facilitating an after-school health club… Beyond the city limits, she will ensure that the students are adequately prepared to meet with law makers during a state-wide advocacy day at the State House to tell them why school based health centers are important to them, and to let law makers know what they can do to help keep the centers open.”

Into collections

The bottom line appears to be simple. If you’re liable, settle. If you didn’t do it, go ahead and fight The Man in court—it’s the only way to get out of a fine altogether. But defaulting seems to have few advantages.

Still, default judgments might be a better deal than settlements… if the recording industry doesn’t actually collect on defaults. This has been suggested to us as a possibility, but the recording industry makes clear that it does intend to collect, even from those people who really don’t want to be found.

“No one wants a default judgment on their record,” says Pariser. “It can ruin your credit indefinitely. It’s also not an easy way to avoid paying. We use a collections firm to try to recover on all of the default judgments we get.”

That firm? Caine & Weiner, which has been around since 1930 and specializes in “global receivables solutions.” Translation: these are some high-class repo men.

That means letters, phone calls, and hassles, though wage garnishment appears to be off the table. In some states, there’s also a threat of contempt of court. In Massachusetts, for instance, the local sheriff will issue a summons to defaulters who do not pay their fine. The defaulter is required to show up for a hearing “relative to property and ability to pay,” and failure to appear at this point can result in a further judgment of contempt of court.

The bottom line appears to be simple. If you’re liable, settle. If you didn’t do it, go ahead and fight The Man in court—it’s the only way to get out of a fine altogether. But defaulting seems to have few advantages.

On the other hand, defaulting looks like genius compared to the Tenenbaum strategy of pressing on all the way to court, involving lawyers in the case for years, only to admit on the stand during the trial that you had in fact been lying all along and that you were ready to accept full liability. A $675,000 verdict in such a case might well be an outrage to justice (and we believe that it is) but, leaving the morality of the judgment aside, it’s also really bad tactics.

How many defaults?

Still, the disparity between the default judgments and the jury verdicts remains troubling. If the recording industry is willing to accept $750 statutory minimums—and even less in settlements—then why would it not provide the juries in both cases any guidance about a monetary award? Throughout both trials, the music industry lawyers refused to say what they thought a proper damage award might be, always saying that it was in the jury’s hands and the piracy was killing the music business.

I put the question to Pariser. Even as a matter of strategy, one might think the RIAA would ask for modest amounts of money so that it could avoid the hugely negative publicity that followed both verdicts.

“If someone, knowing they are guilty, denies liability for years, dragging out the legal process and causing us to spend huge sums to prosecute the case, obviously we’re not going to take minimum statutory damages and the end of the day,” she told us. “The message can’t be that you would be no worse off fighting us for two years than settling at the beginning. That would be vastly unjust to the people who, realizing their mistake, came clean and settled up front.”