United States: The Supreme Court's Take On Kirtsaeng II Will Impact Attorneys' Fees Decisions In Copyright Matters

The landmark copyright case Kirtsaeng v. John Wiley & Sons is back before the US Supreme Court, this time on the issue of the appropriate standard for determining whether to award attorneys' fees to a prevailing party. Whatever its outcome, this decision will have important implications for plaintiffs and defendants alike in copyright and possibly other intellectual property cases.

In 2013, the Supreme Court decided Kirtsaeng v. John Wiley & Sons I, a dispute over gray-market copyrighted material (plaintiff publisher's textbooks) produced overseas for foreign markets but imported to the United States and resold without plaintiff's permission. Publisher John Wiley & Sons sued the defendant, a graduate student who had legally purchased the books overseas and sold them for a profit in the United States, on eBay, for copyright infringement. The Supreme Court concluded that the "First Sale" doctrine (codified at 17 U.S.C. §109(a)) applied and that defendant could not be liable for copyright infringement, thereby reversing the Second Circuit Court of Appeals' decision to the contrary. Kirtsaeng I, 133 S. Ct. 1351 (2013).

On remand, the defendant, Mr. Kirtsaeng, sought to recover his attorney's fees as the prevailing party.  After both the district court and Second Circuit denied his claim for fees, Kirtsaeng successfully petitioned the Supreme Court to hear his case again, this time arguing that the Second Circuit's standard for awarding attorney's fees in copyright cases "splits with the approaches of the other courts of appeals" and is inconsistent with Supreme Court precedent. (Granting petition for certiorari, January 15, 2016; Dkt. No. 15-375). The parties' positions are summarized below.

Petitioner Under the Copyright Act, a "court may ... award a reasonable attorney's fee to the prevailing party." 17 U.S.C. § 505. Kirtsaeng asserts that the various circuits' application of this statutory language has varied widely, from simply asking "whether the prevailing party's claim or defense furthered the interests of the Copyright Act, with no presumptions one way or the other" (Ninth and Eleventh Circuits), to applying a presumption in favor of a fee award for prevailing parties (Fifth and Seventh Circuits), to applying some or all of the four "nonexclusive factors" (i.e., "frivolousness, motivation, objective unreasonableness ...[,] and ... considerations of compensation and deterrence") listed in Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994) (Third, Fourth, and Sixth Circuits).  Kirtsaeng contends that the Second Circuit's approach is unique among the circuits:  while acknowledging the four factors mentioned in Fogerty, the Second Circuit places "'substantial weight' on whether the losing party's claim or defense was objectively unreasonable—which is to say, whether the losing party's claim was clearly without merit or devoid of legal or factual basis." According to Kirtsaeng, this creates a "presumption against awarding fees."

Kirtsaeng further asserts that the Second Circuit's standard makes fees for prevailing defendants "a rare punishment against plaintiffs who brought frivolous, baseless, or unreasonable lawsuits."  As such, it is allegedly contrary to the Supreme Court's decision in Fogerty, which rejected a "'dual' standard" treating prevailing plaintiffs "differently" from prevailing defendants. 510 U.S. at 520, 533. Because "a successful defense of a copyright infringement action may further the policies of the Copyright Act," defendants should "be encouraged to litigate them to the same extent that plaintiffs are encouraged to litigate meritorious claims of infringement." Id. at 527. Kirtsaeng argues that the Second Circuit's approach is "not evenhanded" on its face (because its opinions "speak... only to the objectively reasonable claims of a copyright holder, not of those by an accused defendant"), and its "practical effect is that prevailing plaintiffs much more easily obtain fee awards than prevailing defendants (emphasis added)."

Respondent Publisher Wiley argues that Kirtsaeng's "description of an elaborate multi-faceted circuit split" combines "a caricature of the law of the Second Circuit with exaggerated descriptions of differences with other circuits." According to Wiley, what Kirtsaeng characterizes as a circuit "split" amounts to nothing more than courts "using their best judgment" in applying "the equitable multi-factor" test approved in Fogerty. Far from being an "outlier" among federal appellate courts, the Second Circuit's emphasis on Fogerty's "objective reasonableness" factor is derived from "examining the approaches of other federal appellate courts. . . . Indeed, a review of section 505 cases reveals that every circuit emphasizes objective reasonableness." Nor does placing substantial weight on whether a party's actions and arguments were objectively unreasonable disfavor prevailing defendants, argues Wiley. "While [Kirtsaeng's] defenses may have furthered" the purposes of copyright law, "so did [Wiley's] claims," and it was "within the district court's discretion to decide how to strike the right incentives balance under section 505."

In short, the courts below did not rely on "objective reasonableness" alone or rely on an unfair presumption, Wiley contends. Instead, they "specifically considered and applied all four Fogerty factors," focusing on "how the facts and incentives at play in this case related to the purposes of the Copyright Act. . . .[T]he weight the Second Circuit places on objective reasonableness is fully consistent with treating plaintiffs and defendants evenhandedly as Fogerty mandated. It encourages the presentation and litigation of reasonable arguments by both plaintiffs and defendants to clarify the law of copyright."

Both parties contend there are also important public policy considerations at stake. Kirtsaeng asserts that the evenhanded approach to fees mandated by Fogerty is "particularly important in David vs. Goliath cases like this one," in which the plaintiff "brought its substantial resources to bear . . . against impecunious individual defendants and then engag[ed] in scorched-earth litigation tactics to force those individual defendants to give in and settle." Yet it is equally true that the law was still unsettled and not clearly on Kirtsaeng's side when Wiley sued. The Supreme Court itself had split 4-4 on the same First Sale doctrine issue in Costco Wholesale Corp. v. Omega S.A., 562 U.S. 40 (2010) not long before Wiley brought suit. As a result, it may be difficult to characterize Wiley's election to sue as "unreasonable."  Assessing fees in such circumstances could deter the bringing of meritorious copyright cases that are necessary to test and set the boundaries of the law, argues Wiley.

Regardless of whether Kirtsaeng is correct in describing the circuit courts' standards as widely varying, or whether Wiley is correct in characterizing the alleged circuit "split" as essentially the petitioner's invention, the Court has now taken up the standard for awarding attorneys' fees in copyright cases. This case bears close attention to see what impact the resulting decision will have on the recent trend in intellectual property cases toward adopting a "loser pays" approach (cf. Octane Fitness, LLC v. Icon Health & Fitness, Inc.,  572 U.S. ____ (Dkt. No. 12-1184; 2014)).

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