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SCOTUS Rules “Objective Reasonable Factor” Important in Copyright Fee Awards

June 21, 2016 | Posted in : Fee Award, Fee Award Factors, Fee Entitlement / Recoverability, Fee Issues on Appeal, Fee Jurisprudence, Fee Shifting, Fees as Sanctions, Prevailing Party Issues

A recent law.com story “Supreme Court Tweaks Rules for Attorney Fees in Copyright Cases,” reports that the U.S. Supreme Court on recalibrated the law of copyright fee shifting, telling the U.S. Court of Appeals for the Second Circuit that it was placing too much weight on the objective reasonableness of parties’ litigation positions.

“The court of appeals’ language at times suggests that a finding of reasonableness raises a presumption against granting fees,” Justice Elena Kagan wrote for a unanimous court in Kirtsaeng v. John Wiley & Sons,” and that goes too far in cabining how a district court must structure its analysis.”

Instead, lower courts must also give due consideration to all other circumstances relevant to granting fees, including the “Fogerty factors” articulated by the court 22 years ago: “frivolousness, motivation, objective unreasonableless, and the need in particular circumstances to advance considerations of compensation and deterrence.”

While the decision could make copyright fee awards in the Second Circuit slightly easier to obtain, it may have the opposite impact in circuits such as the Fifth and Seventh, which employ a presumption in favor of fee shifting that losing parties must overcome.

“In those jurisdictions where fees are routinely awarded to prevailing plaintiffs in copyright cases with little consideration for the reasonableness of the defendant’s position, courts will now have to take a different approach,” said Haynes and Boone partner Jason Bloom.  “That being said, the Supreme Court has still left lower courts very broad discretion in deciding whether to award fees.”

Reed Smith counsel Matthew Shiels and other IP attorneys said the Supreme Court actually aligned fairly closely with the Second Circuit by emphasizing a losing party’s objective reasonableness as an important factor.  But as with recent patent decisions, the high court is “going out of its way to protect district court discretion when it comes to awarding fees or enhancing damages.”

This was the second time the Kirtsaeng case came before the high court.  John Wiley & Sons Inc., a major textbook publisher, sued Supap Kirtsaeng in 2008 for copyright infringement.  Kirtsaeng, a foreign student in America looking to subsidize his education, imported textbooks purchased by his family in Thailand and then resold them for a net profit of about $100,000—of which about $37,000 involved the sale of Wiley textbooks. Wiley won a $600,000 judgment against Kirtsaeng.

In the case’s first go-round at the Supreme Court, Kirtsaeng successfully defended against Wiley’s infringement claim.  He argued that the “first sale” doctrine under the Copyright Act applied.  That doctrine allows lawful owners of a physical copy of a book to sell the copy without permission of the copyright owner.

On remand Kirtsaeng sought fees under Section 505 of the Copyright Act, which states simply that courts “may … award a reasonable attorney’s fee to the prevailing party as part of the costs.”

The district court found that Wiley’s suit was not “objectively unreasonable” and that the other Fogerty factors did not override it, so no fees were warranted.  The U.S. Court of Appeals for the Second Circuit affirmed, holding that “substantial weight” was properly given to the reasonableness of Wiley’s infringement claim.

On their return to the high court, Kirtsaeng and his lawyers at Orrick, Herrington & Sutcliffe argued that the objective reasonableness factor favors copyright plaintiffs because a losing defendant “will virtually always be found to have done something culpable.”  They also proposed adding a new factor: resolving an important, close legal issue in such a way as to “meaningfully clarify” copyright law.

Kagan rejected the “close case” factor, saying it was not clear that adding it would encourage parties to litigate cases to judgment.  “Fee awards are a double-edged sword: They increase the reward for a victory—but also enhance the penalty for a defeat,” she wrote.

She further disagreed that placing substantial weight on objective reasonableness would favor plaintiffs.  Judges make assessments of reasonableness every day, she wrote.  “All of that said,” she added, “objective reasonableness can be only an important factor in assessing fee applications—not the controlling one.”

Because district judges in the Second Circuit appear to have “overly learned” from the appellate court’s substantial weight test and made that factor nearly dispositive, the court remanded Kirtsaeng for a new hearing on fees.  “We do not at all intimate that the district court should reach a different conclusion,” she added.

Orrick partner E. Joshua Rosenkranz argued the case for Kirtsaeng.  Partner Thomas Bondy, who worked with him on the case, said the team is pleased the high court agreed that fees aren’t foreclosed whenever the losing party’s claim is at least barely reasonable.  “We look forward to renewing our fee request to the district court on remand, pursuant to the readjusted fee-shifting framework articulated in today’s Supreme Court decision,” he said.

The upshot of the decision is that copyright fee awards will now turn in large part on the strength of the losing party’s claims or defenses, said Dorsey & Whitney IP partner J. Michael Keyes.  “The weaker those claims or defenses, the stronger the case is for an award of attorneys’ fees to the prevailing party,” he said.  But district judges will still have to consider “all the circumstances of a case and assess them in light of the Copyright Act’s essential goals.”

Kirkland & Ellis partner Dale Cendali said the decision provides nationwide clarity as to the appropriate test.  “It also should give comfort to lawyers and their clients that they should not be at risk of a fee-shifting award if they are taking reasonable positions based on existing law and do not otherwise engage in some form of litigation misconduct,” she said.