The new fuzzy logic of copyright damages

What’s all this about the Supreme Court and copyright damages?

So we got that part over with.  Now, I have written a bit about the first-sale aspects of prior iterations of the Kirtsaeng case, and a bit about copyright damages, myself.  Now, however, thanks to the Supreme Court, it’s two great tastes in one candy bar!  So here’s part of what Rajit Kapur of Banner & Witcoff has to say (footnotes omitted):

KapurRajit-53433-4414_CYesterday, the U.S. Supreme Court ruled in Kirtsaeng v. John Wiley & Sons, Inc., No. 15-375, that it is appropriate for a court to give substantial weight to the reasonableness of a losing party’s position when deciding whether to award attorney’s fees in a case brought under the Copyright Act as long as “all other relevant factors” are taken into account. In delivering this opinion for a unanimous Court, Justice Kagan essentially adopted a more flexible and expansive version of the approach advocated for by Wiley (the copyright owner), which primarily turned on whether a losing party’s arguments were objectively reasonable. . .

After Kirtsaeng lost at trial, the case ultimately reached the Supreme Court, which ruled in a 6-3 decision that Kirtsaeng’s actions did not constitute copyright infringement because Wiley’s exclusive rights in the textbooks that Kirtsaeng obtained abroad were exhausted under the “first sale” doctrine. In the three years that have passed since the Supreme Court’s previous ruling, the case has returned to the district court, where Kirtsaeng is now seeking an award of attorney’s fees from Wiley.

Under U.S. copyright laws, a “court may […] award a reasonable attorney’s fee to the prevailing party as part of the costs.” The Supreme Court previously addressed this section of the copyright laws in Fogerty v. Fantasy Inc., 510 U.S. 517, 29 USPQ2d 1881 (1994). In Fogerty, the Court held that “[p]revailing plaintiffs and prevailing defendants are to be treated alike, but attorney’s fees are to be awarded to prevailing parties only as a matter of the court’s discretion.” The Court also discussed in Fogerty several “nonexclusive” factors that “may be used to guide courts’ discretion” in deciding whether to award attorney’s fees, “so long as such factors are faithful to the purposes of the Copyright Act and are applied to prevailing plaintiffs and defendants in an evenhanded manner.”

In the proceedings below, both the district court and the Second Circuit denied Kirtsaeng’s bid for attorney’s fees. In doing so, they followed Second Circuit precedent that places “substantial weight” on the “objective reasonableness” factor — which asks whether the non-prevailing party’s claims were “objectively reasonable” — relative to the other factors discussed in Fogerty.

The question presented to the Supreme Court in the current Kirtsaeng case — and addressed by yesterday’s opinion — is whether the lower courts’ rulings run afoul of the statutory text of the Copyright Act and the Supreme Court’s prior ruling in Fogerty by emphasizing the “objective reasonableness” factor over others when deciding whether to award attorney’s fees in a copyright infringement action.

In yesterday’s opinion, the Court held that it is appropriate for a court to give substantial weight to the reasonableness of a losing party’s position when deciding whether to award attorney’s fees as long as “all other relevant factors” are taken into account. Because it was not clear here whether the lower courts “understood the full scope of that discretion” since their opinions primarily focused on the “objective reasonableness” factor, the Court vacated the lower courts’ rulings in this case and remanded the case back to the district court to ensure that these “other” factors — in addition to reasonableness — are also considered.

Marshall Courthouse, late afternoon, spring 2016
The Second Circuit – caught in the middle again.

So… we have been gifted here with a refinement of the test — a refinement in the nature of coarsening.  Courts are to consider not merely “objective reasonableness,” but “other factors.”  Back to Rajit (link to SCOTUSBlog added by me):

In setting forth this more flexible framework that gives greater discretion to district courts in deciding whether to award attorney’s fees in copyright cases, the Court emphasized that its approach will further the aims of the Copyright Act insofar as it will encourage “useful copyright litigation” and will be “more administrable” than other alternatives it considered. The Court also reaffirmed several aspects of its previous ruling in Fogerty. For example, quoting portions of Fogerty, the Court noted that fee awards must be decided on a case-by-case basis and cannot be awarded “as a matter of course.” It further noted that prevailing plaintiffs and prevailing defendants should not be treated differently when it comes to awarding fees.

Overall, the Court’s decision here is consistent with its approach to awards of attorney’s fees in other types of intellectual property cases, including Monday’s ruling in Halo Electronics, Inc. v. Pulse Electronics, Inc., No. 14-1513, which concerned fee awards in patent cases. In particular, as in Halo, the Court’s decision in Kirtsaeng elevates the discretion of a trial court over hard and fast rules that would otherwise limit discretion in deciding issues related to fee awards.

Going forward, it may be more difficult for litigants to predict whether fees will be awarded in a particular case, because courts will have more discretion in taking additional considerations into account.

You have spoken well, Rajit. It may very well be — it will certainly be — more difficult for litigants, their clients, judges, clerks, litigation funding outfits, shareholders, expert witnesses, legal journalists, bloggers, astrologers and everyone on Twitter to predict whether fees will be awarded in a particular case.

Trademark lawyer Ron ColemanQuestion:  Why did the Supreme Court remand for a determination of the fees question, given the new and amorphous nature of this new test?  Its jurisdiction, of course, is plenary with respect to the discretionary matter of an award of fees.  It had the same record before it as the district court, which it had already reviewed closely in coming to its decision.  Couldn’t the court have applied its new test to the facts before it and ruled on the question, thus providing some degree of guidance?

It could have, of course — and while some might be tempted to say that while it should have, it would not really be expected to, for the Supreme Court does not do that sort of thing these days — this would be error.  A better answer may be that if, indeed, the test is to be applied on a case by case basis, if the Supreme Court were to apply that test here to a specific set of facts, the effect of doing so would be denude the high court’s “case by case” instruction of virtually all its meaning.

The better approach, then, was to send the file back down the rabbit hole, to the judge most familiar with it and where discretion most appropriately resides; and whose ruling, when it comes, will not in and of itself have the de facto precedential impact of one made by the Supreme Court.

Either way, you’ll want to settle your cases.  True, settlement is always informed by the likelihood of a fee award, and now it is harder to predict a fee award, it seems, than ever.  Well, if you’ll excuse a bit of unrefined logic, that seems to militate in favor of more … lower … settlements — a net negative for the copyright plaintiff’s bar.  Sorry, guys.

Ron Coleman

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