United States: Litigation Alert: U.S. Supreme Court Addresses Attorney's Fee Awards In Copyright Cases

Last week in Kirtsaeng v. John Wiley & Sons Inc., the Supreme Court held that district courts have wide discretion to grant attorney's fee awards but should give substantial weight to whether the losing party was objectively unreasonable.

Who is Kirtsaeng?

Supap Kirtsaeng won an earlier Supreme Court decision that his purchase of textbooks overseas did not infringe the 17 U.S.C. § 109 distribution right of John Wiley & Sons Inc. when he brought them to the United States for resale. His sales fell under the 17 U.S.C. § 109(a) exception to liability for copies lawfully made (commonly referred to as the "first sale doctrine"). Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013).

Fogerty and Attorney's Fees in Copyright Cases

After winning the case, Kirtsaeng sought his attorney's fees under 17 U.S.C. § 505, which states that a "court may [] award a reasonable attorney's fee to the prevailing party as part of the costs." The Supreme Court last addressed when such fees should be awarded over two decades ago in Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994). There, the Supreme Court instructed that a court may not award attorney's fees "as a matter of course" (id. at 533-534) and may not treat prevailing plaintiffs and prevailing defendants differently (id. at 522-525). In Fogerty the Court also cited with approval four non-exclusive factors within a Third Circuit opinion: (1) frivolousness, (2) motivation, (3) objective unreasonableness (both factual and legal), and (4) the need to compensate or deter. Id. at 534, n. 19 citing Lieb v. Topstone Industries, Inc., 788 F.2d 151, 156 (3d Cir. 1986). The Court stated that these factors "may be used...so long as such factors are faithful to the purposes of the Copyright Act." Id.

In the wake of Fogerty, different circuits of the U.S. Court of Appeals applied different tests to determine fee awards in copyright cases. Some circuits gave greater weight to certain factors among the four in Fogerty and other circuits considered additional factors. See Inhale, Inc. v. Starbuzz Tobacco, Inc., 739 F.3d 446, 449 (9th Cir. 2014)(evaluating "the degree of success obtained"). Some even "routinely awarded" the discretionary fees. See General Universal Sys., Inc. v. Lee, 379 F.3d 131, 147 (5th Cir. 2004). Kirtsaeng sought over $2 million in attorney's fees but the district court denied fees and the Second Circuit affirmed the denial.

Objective Reasonableness Is Important but Not Determinative

In its new decision the Court first addressed the purposes of the Copyright Act to frame the factors to consider in awarding fees. The Court found it "well-settled" that the Copyright Act enables "access to creative works by striking a balance between encouraging and rewarding authors' creations and enabling others to build on that work." Fee awards to plaintiffs reward creative authors while fee awards to defendants deter overbroad or chilling assertions of copyrights. The Court held that the fee provision itself supports this dichotomy. That "the court may [] award a reasonable attorney's fee to the prevailing party" suggests that plaintiffs and defendants should seek the award equally. 17 U.S.C. § 505.

The Court confirmed the utility of the four "nonexclusive factors" footnoted in Fogerty: frivolousness, motivation, objective unreasonableness, and compensation or deterrence. The Court then held that the objective unreasonableness of the losing party's position in litigation is "an important factor" that "carries significant weight" or "substantial weight." Heightened weight of this factor encourages parties with strong legal positions to continue litigating even if they (as plaintiffs) do not seek large fees or (as defendants) may endure a costly defense. Conversely, any party with a weak case may be deterred by the specter of two sets of fees.

Nevertheless, the Court ruled that objective unreasonableness is not a "controlling" factor, and courts "must view all the circumstances of a case on their own terms, in light of the Copyright Act's essential goals." Even if the losing party's conduct is reasonable, there is no presumption against fees. Such a bright-line rule would "cabin" the district court's broad discretion. The Court specifically identified two instances where these "other factors" might tilt the balance: (1) litigation misconduct and (2) where the party has been overzealous as a plaintiff in asserting copyright claims or as a defendant involved in "repeated instances of copyright infringement." (For this the Court cited Viva Video, Inc. v. Cabrera, 9 Fed. Appx. 77, 80 (2d Cir. 2001) and Bridgeport Music, Inc. v. WB Music Corp., 520 F. 3d 588, 593–595 (6th Cir. 2008)). In these instances, the court may grant a fee award even against a party with reasonable defenses. The Supreme Court's approval of Bridgeport may be instructive. In Bridgeport, the Sixth Circuit permitted fees despite the losing party's argument having some legal merit, holding that "objective reasonableness is not an impenetrable shield against fees and costs." Id. at 593-594. Bridgeport also found relevant Bridgeport's dubious litigation in companion cases, which further incentivized the Sixth Circuit to deter Bridgeport from "questionable litigation tactics." Id. at 595.

The Court did warn against unfettered discretion, where a court's "utterly freewheeling inquiries" would prevent parties "from predicting how fee decisions will turn out" and thus whether to litigate. But the Court did not worry about hindsight bias in determining objectively unreasonable behavior. Mere liability is insufficient to find a legal defense unreasonable. The Court stated that it would be an abuse of discretion if a court "confuses the issue of liability with that of reasonableness."

After giving this guidance on copyright fee awards the Court remanded the case because the district court did not appreciate the full scope of its discretion. The Court instructed the district court to "giv[e] substantial weight to the reasonableness of [the losing party's] position, but also tak[e] into account all other relevant factors."

Relation to Other Recent Decisions

The Court has recently taken a similar approach in two cases involving patent law. In 2014, in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), the Court addressed the statutory standard for fee awards in patent cases. (The standards in patent and copyright law differ: the patent statute calls for awards in "exceptional" cases.) Last month, in Halo Elecs., Inc., v. Pulse Elecs., Inc., Nos. 14-1513, 14-1520 (June 13, 2016), the Court addressed a court's discretion to award enhanced patent damages. In both Octane Fitness and Halo the Court rejected unduly rigid rules that limited a trial court's discretion. Taking Kirtsaeng along with those cases, the Court has repeatedly sent a strong message of support for trial court discretion — while acknowledging that discretion is not boundless — in decisions about certain statutory remedies that depend upon appraisal of the litigants' positions and conduct.

The Application to Future Copyright Cases

The Supreme Court gave only a few examples of a losing party's objectively reasonable litigation that could still warrant a fee award against it. The Court justified its decision on the grounds that it made the issue of fee awards more "administrable," but there remains ample room for vigorous debate over the considerations that will apply to fee awards. Lower courts may continue to shape the law inconsistently for years before the Court weighs in again.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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