Copyright is happening all over the place!
Now, a slight digression from the stemwinder I’m about to release here on fee shifting in copyright cases. I’m going to “hook it up,” Your Honor, don’t worry. See, Ray Dowd reports that the Supreme Court is going to hear the Costco-Swatch copyright case, which involves the question of the applicability of the first sale doctrine to copyright where the item in question was first “sold” abroad. That’s an issue I’ve recently gotten very involved in, too–very involved. But that’s not what I’m writing about right now. Maybe we’ll talk about that some time as well. But this is another copyright issue, and I just need to get my two cents in, and the Ray Dowd-Eric Goldman juxtaposition here (trust me on this) reminded me…
I had dropped a link to this update by Eric Goldmanon developments concerning the topic of fee shifting in copyright in favor of successful defendants, and more particularly relating to the Offer of Judgment Rule (see below) in my missive of last Friday (just scroll down if you dare). In that purple thicket it’s almost a throwaway, and the issue of fee-shifting could well get lost in the sauce–but that issue really deserves consideration, and thanks to SCOTUS (and Ray) I am now compelled to raise it here on its own. Here are excerpts from Goldman, discussing the recent decision in UMG Recordings, Inc. v. Veoh Networks Inc.:
Copyright law contains a statutory fee-shifting/”loser pays” provision (17 USC 505) that, in specified circumstances, gives the judge discretion to award attorneys’ fees to a copyright lawsuit winner. Veoh decisively won a 512(c) defense against UMG’s copyright infringement claim, so Veoh applied for its attorneys’ fees under 505. The court, exercising its discretion, declined to award them. . . .
Not surprising. Just as bad cops don’t typically serve time, plaintiffs don’t often get sanctioned with fees for filing cases that turn out to be meritless, even when the statute permits it:
I think the judge’s decision is a fair application of the statute, but consider its consequences. UMG helped drain Veoh’s coffers through the litigation, yet the court does not impose any disincentives for plaintiffs to bring such a lawsuit. As a result, UMG walks away from the lawsuit while Veoh goes belly-up.
Well, that’s why it’s maybe not such a fair application–“exercise of discretion,” that is. But here’s the thing:
The next part of the ruling confused me, and maybe my litigator friends can help me understand it. As a fallback position, Veoh asked for its attorneys’ fees under FRCP Rule 68. Rule 68 tries to encourage litigants to settle their disputes by providing a penalty for refusing a reasonable settlement offer. If Party A proposes settlement terms and Party B declines (because it expects to do better in court), but the ultimate judgment is less favorable to Party B than the proposed settlement, Party B has to pay Party A’s costs that accrue post-settlement offer. Rule 68 makes a lot of sense from a game theory standpoint, but I’ve been told by litigators that it doesn’t mean much in practice, and this case might illustrate why.
I’m not sure it actually does. The main reason it doesn’t mean much in practice is not the interesting legal twists–see below–but rather the fact that very, very few cases actually get to a final judgment. Well, one of the twists is kind of a stinker, too:
The court doesn’t provide the terms of Veoh’s Rule 68 settlement offer, but because Veoh won the case, any settlement offer Veoh made by definition was better for UMG than the actual results UMG got. Therefore, on its face, Rule 68 seems to say that, at minimum, UMG should pay Veoh’s costs post-settlement offer.
But not. Yeah, what kills you here is that if you win, Rule 68 doesn’t do anything for you at all. You have to lose! Just not so much. As one treatise describes it, it’s meant to prevent a defendant that recognizes that it is liable from having to watch chargeable “costs” run up while litigation keeps going and going. Thus it’s not available as a hedge to the “maybe not so liable” defendant–which certainly sounds like a very questionable policy.
Here’s the interesting part. Are attorneys’ fees ever a “cost”? Usually not. Oh sure–attorneys’ fees might sound like “costs” to a mere person, but the law in this area distinguishes between “fees” and “costs”–which is why you often see the presumptively non-redundant phrase, “fees and costs.” So while we all want fees, if we’re lucky what we get is “costs”–pretty modest gruel.
There is an exception, however, under the cases. That is where a statute defines them as a “taxable” cost to the losing side. Does copyright do that? Yes, and no. Eric continues, regarding the Veoh case–I’ll repeat the last sentence where I broke off, to reestablish the flow:
Therefore, on its face, Rule 68 seems to say that, at minimum, UMG should pay Veoh’s costs post-settlement offer. However, the court looks at the interaction of copyright law’s 505 fee-shifting provision and Rule 68 and, in effect, concludes that 505 moots Rule 68. The court says it couldn’t find any on-point precedent (I haven’t double-checked, but this was the first time I recall seeing any discussion of this interaction), so it cites an analogous case for the proposition that Rule 68 was not designed to expand the bases of fee awards. Thus, because the court had already concluded that Veoh wasn’t entitled to a fee award under the Copyright Act, that eliminated any Rule 68 cost award.
Right. We faced this in the Arizona suntan lotion case: The Ninth Circuit says there’s pretty much never any way for a copyright defendant to benefit from Rule 68. In another link to Ray also cited on Eric Goldman’s site (begrudgingly, by the way–I don’t think fairly), the former wrestles with the problem, which I think is also put very well by David Gingras, who writes as follows:
[In] Champion Produce, Inc. v. Ruby Robinson Co., 342 F.3d 1016 (9th Cir. 2003) . . . [t]he court tried to outsmart everyone else by saying that . . . [attorneys’] fees can only be awarded as costs under 17 USC § 505 to the “prevailing party”, and they felt that a defendant who made a $20k or whatever offer of judgment under Rule 68 but then lost at trial in which the plaintiff received a judgment of only $19,999 could not be considered as the “prevailing party” and thus could not recover fees as part of the mandatory costs award under Rule 68. Of course, this completely ignores the purposes of Rule 68 and it rewards plaintiffs who reject settlement offers and seek to roll the dice at trial.
Yep–which makes it hardly a roll of the dice at all for the plaintiff in a situation such as this, which is nearly always more financially able to play at the $1000 table anyway.
In the Designer Skin case in Phoenix, we thought we had a reasonable way around this–at least at the 17 USC § 505 level, if not regarding Rule 68–by the way. Read More…