On June 16, 2016, the Supreme Court of the United States unanimously held that, when determining whether to award attorney's fees under § 505 of the Copyright Act, courts must give substantial—but not dispositive—weight to the "objective reasonableness" of the losing party's position.
Supap Kirtsaeng, a citizen of Thailand, noticed publisher John Wiley & Sons sold textbooks abroad less than they cost in the United States. Kirtsaeng took advantage of his observation by enlisting family and friends still in Thailand to purchase the less expensive textbooks, ship them to the United States, where Kirtsaeng sold them for profit. Wiley sued Kirtsaeng, claiming he violated Wiley's exclusive right to distribute the textbooks. In a case that went up to the Supreme Court, Kirtsaeng prevailed under the "first-sale doctrine" and returned to the district court victorious, seeking over $2 million in attorney's fees under § 505 of the Copyright Act.
Section 505 of the Copyright Act allows attorney's fees to be awarded to the prevailing party, and the Supreme Court, in Fogarty v. Fantasy, Inc., 510 U.S. 517 (1994), created a list of factors that should be considered when making a fee-shifting decision. Included amongst these factors are frivolousness, motivation, and reasonableness.
The district court denied Kirtsaeng's motion to award attorney's fees, finding that "the imposition of a fee award against a copyright holder with an objectively reasonable litigation position will generally not promote the purposes of the Copyright Act." The Second Circuit Court of Appeals affirmed the district court's decision to place substantial weight on the reasonableness of Wiley's ultimately losing position.
Recognizing additional guidance was appropriate to avoid decisions based on "judicial whim or predilection" that may occur when governing standards are vague, the Supreme Court granted certiorari on the issue of whether the reasonableness of a losing party's argument should be given substantial weight when awarding attorney's fees.
Both parties agreed that the ultimate decision must support the purpose of the Copyright Act: to enrich the general public through creative works by "rewarding authors' creations while enabling others to build on that work." Wiley, defending its win in the courts below, maintained that providing substantial weight to reasonableness best serves that purpose. Kirtsaeng asserted that giving "special consideration" to whether a lawsuit "meaningfully clarifies copyright law" should be the prevailing standard.
In a relatively short opinion, the Supreme Court agreed with Wiley for two reasons, holding that "objective reasonableness" merits substantial, but not dispositive, weight.
First, Wiley's method better serves the purposes of the Copyright Act by empowering a rights holder (or alleged infringer of a copyright) to bring suit, no matter how low the stakes, because fees will be shifted. Wiley's method also disincentivizes rights owners from brining frivolous suits and those obviously infringing from continuing litigation because such parties will likely be liable for both party's fees. Accordingly, the Court held, both creators and users benefit from the substantive rights provided by the Copyright Act under Wiley's position. The Court rejected Kirtsaeng's approach, holding that it rests too much upon a particular party's level of risk-aversion, with those more risk-averse avoiding law suits in fear of having to pay double attorney fees and those less risk-averse bringing more.
Second, the Court found that Wiley's position is far easier to implement because a district judge already must determine the strength of each side's argument in the course of litigation. Following Kirtsaeng's theory, district court judges would need to engage in the unfamiliar action of judging the jurisprudential value of their rulings.
The Court went on to vacate and remand the case because language from the Second Circuit decision seemed to imply objective reasonableness deserved dispositive weight, rather than "substantial" weight. The Supreme Court included the caveat that the district court need not reach a different conclusion.
The case is Kirtsaeng v. John Wiley & Sons, Inc., No. 15-375, 2016 WL 3317564 (2016).
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