Offers of Judgment and Copyright Litigation

Rule 68 of the Federal Rules of Civil Procedure provides a defendant with a means to encourage parties to settle their litigation before trial. A defendant may serve a plaintiff with an “an offer to allow judgment to be taken against [defendant] for the money or property or to the effect specified in the offer, with costs then accrued.” F.R.C.P. 68. If the offer is not accepted by the plaintiff, and the “judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.” Id.

Rule 68 by its own terms only refers to “costs”; but the Supreme Court has held that “costs” includes attorney's fees when the underlying statute at issue includes attorney's fees in its definition of costs. See Marek v. Chesny, 473 U.S. 1, 105 S.Ct. 3012 (1985). However, the Copyright Act provides that only the “prevailing party” in a copyright infringement suit may collect its attorney's fees as part of the costs the court can award at its discretion. 17 U.S.C. '505.

What is the relationship between Federal Rule 68 and Section 505 of the Copyright Act? If the defendant in a copyright litigation makes an offer of judgment that the plaintiff refuses, and the plaintiff is awarded damages for infringement that are less than the amount offered by defendant in the offer of judgment, do the post-offer “costs” governed by Rule 68 to which the defendant is entitled include attorney's fees? In other words, can a non-prevailing party collect attorney's fees under Rule 68 in a copyright litigation?

Marek v. Chesny: Rule 68's 'Costs' May Include Attorney's Fees

Our analysis begins with Marek v. Chesny. In Marek, the plaintiff prevailed in a suit brought under 42 U.S.C. '1983, but recovered less in damages than the defendant's prior Rule 68 offer. Pursuant to 42 U.S.C. '1988, plaintiff applied to the court for its costs and attorney's fees. Defendants opposed the claim for costs, arguing that because plaintiff had rejected its offer of judgment, and the ultimate recovery was less than the offer, plaintiff was not entitled to costs after the offer was made. The defendant did not argue that it was entitled to costs incurred, however.

The Court began its analysis by stating that the “costs” governed by Rule 68 are all those costs “properly awardable in an action.” Marek, 105 S.Ct. at 3016. According to the Court, the substantive statute at issue governs whether attorney's fees are “properly awardable,” and therefore, should be included in “costs” for purposes of Rule 68. Id. Since the plaintiff in Marek sued under '1983, and '1988 provides for the recovery of costs and attorney's fees by a prevailing party, the meaning of “costs” for Rule 68 purposes includes attorney's fees. Id. at 3017.

Marek v. Chesney: Policy Considerations

The Marek Court found that the policy behind Rule 68 of encouraging settlement is just as applicable to civil rights plaintiffs as others, and held that “plaintiffs who reject an offer more favorable than what is thereafter recovered at trial will not recover attorney's fees for services performed after the offer is rejected.” Id. at 3017. Justifying the decision, the court held that “in a case where a rejected settlement offer exceeds the ultimate recovery, the plaintiff ' although technically the prevailing party ' has not received any monetary benefits from the postoffer services of his attorney.” Id. In terms of public policy, there is nothing incompatible, the Court says, between the objective of '1988, which is to encourage meritorious civil rights suits, and Rule 68, which is to encourage settlements.

In a strongly worded dissent, Justices Harry A. Blackmun, Thurgood Marshall and William J. Brennan argued that Congress and the Judicial Conference of the United States have been engaged for years in considering amendments to Rule 68 that would bring attorney's fees within the operation of the rule, and the fact that they have failed to enact any changes strongly suggests that Rule 68 should not govern attorney's fee awards. The dissent strongly disagreed with the majority, stating that the court should stay away from “standardless judicial lawmaking.” Id. at 3019-20.

The dissent raised policy concerns in its criticism of the majority's holding, stating “the potential for conflict [between Rule 68 and '1988] could not be more apparent.” Id. at 3027. “The Court's decision inevitably will encourage defendants who know they have violated the law to make 'low-ball' offers immediately after suit is filed and before plaintiffs have been able to obtain the information they are entitled to by way of discovery to assess the strength of their claims and the reasonableness of the offers. The result will put severe pressure on plaintiffs to settle on the basis of inadequate information in order to avoid the risk of bearing all of their fees even if reasonable discovery might reveal that the defendants were subject to far greater liability.” Id. at 3028.

Marek's Applicability to Copyright Cases

In Marek, the prevailing plaintiff was awarded less damages than the amount set forth in the offer, and therefore was precluded from recovering costs, including attorney's fees, incurred after the making of the offer of judgment. But can an offering defendant recover costs and attorney's fees under Rule 68 where plaintiff prevails, but is awarded less damages than the amount set forth in the offer?

Most decisions following Marek, including cases decided under the Copyright Act, limit Marek by focusing on the Supreme Court's holding that attorney's fees are recoverable as “costs” under Rule 68 only if they are “properly awardable” under the substantive statute at issue. Where only “properly awardable” to the “prevailing party” under the statute (such as in the Copyright Act), defendant cannot collect attorney's fees as part of Rule 68 “costs” if the plaintiff wins a judgment. See, e.g., Harbor Motor Co., Inc. v. Arnell Chevrolet-Geo, Inc., 265 F.3d 638 (7th Cir. 2001); Tunison v. Continental Airlines Corp., Inc., 162 F.3d 1187 (D.C.Cir. 1998); U.S. v. Trident Seafoods Corp., 92 F.3d 855 (9th Cir. 1996); E.E.O.C. v. Bailey Ford, Inc., 26 F.3d 570 (5th Cir. 1994); Lawrence v. Hinton, 937 F.2d 603 (4th Cir. 1991); O'Brien v. City of Greers Ferr, 873 F.2d 1115 (8th Cir. 1989); Crossman v. Marcoccio, 806 F.2d 329 (1st Cir. 1986).

Jordan v. Time, Inc., 111 F.3d 102 (11th Cir. 1997) is the only Circuit decision extending Marek to require that if plaintiff prevails for damages less than those set forth in an offer of judgment, plaintiff must pay defendant's attorney's fees as part of Rule 68 “costs.” In Jordan, an author had sued a magazine for reprinting an article without permission. Defendant made two offers of judgment, both of which were refused. After trial, the district court entered judgment for plaintiff, but in an amount less than the final offer. Without much discussion, the Eleventh Circuit reversed the district court, finding that the district court had no discretion in the matter; pursuant to Marek, Rule 68's “costs” included attorney's fees since the action was brought under the Copyright Act and under the Copyright Act “costs” includes attorney's fees.

Jordan has been roundly criticized for both legal and policy reasons. The Eleventh Circuit, according to the Seventh Circuit in Harbor Motor, did not address the Copyright Act's requirement that in order to recover attorney's fees one must be the “prevailing party.” Indeed, although the Eleventh Circuit has not had the opportunity to reconsider the issue, it has recognized, and appears sympathetic to, the criticism it has received. See Utility Automation 2000, Inc. v. Choctawhatcha Electric Coop., 298 F.3d 1238, 1246 n.6 (11th Cir. 2002). Although the Second Circuit has not yet decided the issue, in Boisson v. Banian, Ltd., 221 F.R.D. 378 (EDNY 2004), the Eastern District of New York was persuaded by cases such as Harbor Motor “that attorneys fees may be recovered pursuant to Rule 68 only if they are 'properly awarded' pursuant to the relevant statute.” This analysis, the Eastern District held, is “truer” to Marek and to the Copyright Act.

In Bruce v. Weekly World News, Inc., 203 F.R.D. 51, 56 (D.Mass. 2001), the district court followed Harbor Motor, expressly declining to follow Jordan, saying that the Eleventh Circuit's interpretation of Rule 68 made “substantive” law and made it very difficult for copyright plaintiffs to pursue litigation due to their fear of becoming liable for significant attorney's fees incurred by defendants. And in a non-copyright case, the Ninth Circuit in Champion Produce, Inc. v. Ruby Robinson Co., Inc., 342 F.3d 1016, 1032 (9th Cir. 2003) decided similarly, based partially on policy considerations: “While Rule 68 is designed to require plaintiffs to think hard about whether continued litigation is worthwhile, it is not a gun to the head.” (citations omitted).

Conclusion

Thus, it seems the dissent's policy concerns as expressed in Marek are at least partially being addressed by the district and Circuit Court decisions limiting Marek's holding to precluding plaintiffs from recovering attorney's fees where the defendant has made an offer of judgment in an amount larger than plaintiff's ultimate recovery. So far, Jordan has not been followed by any other circuit, and where the substantive statute at issue requires that only the “prevailing party” be permitted to recover attorney's fees, a prevailing plaintiff who wins less than the amount of a prior offer of judgment will not have to pay defendant's attorney's fees.

Rule 68 of the Federal Rules of Civil Procedure provides a defendant with a means to encourage parties to settle their litigation before trial. A defendant may serve a plaintiff with an “an offer to allow judgment to be taken against [defendant] for the money or property or to the effect specified in the offer, with costs then accrued.” F.R.C.P. 68. If the offer is not accepted by the plaintiff, and the “judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.” Id.

Rule 68 by its own terms only refers to “costs”; but the Supreme Court has held that “costs” includes attorney's fees when the underlying statute at issue includes attorney's fees in its definition of costs. See Marek v. Chesny , 473 U.S. 1, 105 S.Ct. 3012 (1985). However, the Copyright Act provides that only the “prevailing party” in a copyright infringement suit may collect its attorney's fees as part of the costs the court can award at its discretion. 17 U.S.C. '505.

What is the relationship between Federal Rule 68 and Section 505 of the Copyright Act? If the defendant in a copyright litigation makes an offer of judgment that the plaintiff refuses, and the plaintiff is awarded damages for infringement that are less than the amount offered by defendant in the offer of judgment, do the post-offer “costs” governed by Rule 68 to which the defendant is entitled include attorney's fees? In other words, can a non-prevailing party collect attorney's fees under Rule 68 in a copyright litigation?

Marek v. Chesny: Rule 68's 'Costs' May Include Attorney's Fees

Our analysis begins with Marek v. Chesny. In Marek, the plaintiff prevailed in a suit brought under 42 U.S.C. '1983, but recovered less in damages than the defendant's prior Rule 68 offer. Pursuant to 42 U.S.C. '1988, plaintiff applied to the court for its costs and attorney's fees. Defendants opposed the claim for costs, arguing that because plaintiff had rejected its offer of judgment, and the ultimate recovery was less than the offer, plaintiff was not entitled to costs after the offer was made. The defendant did not argue that it was entitled to costs incurred, however.

The Court began its analysis by stating that the “costs” governed by Rule 68 are all those costs “properly awardable in an action.” Marek, 105 S.Ct. at 3016. According to the Court, the substantive statute at issue governs whether attorney's fees are “properly awardable,” and therefore, should be included in “costs” for purposes of Rule 68. Id. Since the plaintiff in Marek sued under '1983, and '1988 provides for the recovery of costs and attorney's fees by a prevailing party, the meaning of “costs” for Rule 68 purposes includes attorney's fees. Id. at 3017.

Marek v. Chesney: Policy Considerations

The Marek Court found that the policy behind Rule 68 of encouraging settlement is just as applicable to civil rights plaintiffs as others, and held that “plaintiffs who reject an offer more favorable than what is thereafter recovered at trial will not recover attorney's fees for services performed after the offer is rejected.” Id. at 3017. Justifying the decision, the court held that “in a case where a rejected settlement offer exceeds the ultimate recovery, the plaintiff ' although technically the prevailing party ' has not received any monetary benefits from the postoffer services of his attorney.” Id. In terms of public policy, there is nothing incompatible, the Court says, between the objective of '1988, which is to encourage meritorious civil rights suits, and Rule 68, which is to encourage settlements.

In a strongly worded dissent, Justices Harry A. Blackmun, Thurgood Marshall and William J. Brennan argued that Congress and the Judicial Conference of the United States have been engaged for years in considering amendments to Rule 68 that would bring attorney's fees within the operation of the rule, and the fact that they have failed to enact any changes strongly suggests that Rule 68 should not govern attorney's fee awards. The dissent strongly disagreed with the majority, stating that the court should stay away from “standardless judicial lawmaking.” Id. at 3019-20.

The dissent raised policy concerns in its criticism of the majority's holding, stating “the potential for conflict [between Rule 68 and '1988] could not be more apparent.” Id. at 3027. “The Court's decision inevitably will encourage defendants who know they have violated the law to make 'low-ball' offers immediately after suit is filed and before plaintiffs have been able to obtain the information they are entitled to by way of discovery to assess the strength of their claims and the reasonableness of the offers. The result will put severe pressure on plaintiffs to settle on the basis of inadequate information in order to avoid the risk of bearing all of their fees even if reasonable discovery might reveal that the defendants were subject to far greater liability.” Id. at 3028.

Marek's Applicability to Copyright Cases

In Marek, the prevailing plaintiff was awarded less damages than the amount set forth in the offer, and therefore was precluded from recovering costs, including attorney's fees, incurred after the making of the offer of judgment. But can an offering defendant recover costs and attorney's fees under Rule 68 where plaintiff prevails, but is awarded less damages than the amount set forth in the offer?

Most decisions following Marek, including cases decided under the Copyright Act, limit Marek by focusing on the Supreme Court's holding that attorney's fees are recoverable as “costs” under Rule 68 only if they are “properly awardable” under the substantive statute at issue. Where only “properly awardable” to the “prevailing party” under the statute (such as in the Copyright Act), defendant cannot collect attorney's fees as part of Rule 68 “costs” if the plaintiff wins a judgment. See, e.g., Harbor Motor Co., Inc. v. Arnell Chevrolet-Geo, Inc ., 265 F.3d 638 (7th Cir. 2001); Tunison v. Continental Airlines Corp., Inc ., 162 F.3d 1187 (D.C.Cir. 1998); U.S. v. Trident Seafoods Corp. , 92 F.3d 855 (9th Cir. 1996); E.E.O.C. v. Bailey Ford, Inc ., 26 F.3d 570 (5th Cir. 1994); Lawrence v. Hinton , 937 F.2d 603 (4th Cir. 1991); O'Brien v. City of Greers Ferr , 873 F.2d 1115 (8th Cir. 1989); Crossman v. Marcoccio , 806 F.2d 329 (1st Cir. 1986).

Jordan v. Time, Inc., 111 F.3d 102 (11th Cir. 1997) is the only Circuit decision extending Marek to require that if plaintiff prevails for damages less than those set forth in an offer of judgment, plaintiff must pay defendant's attorney's fees as part of Rule 68 “costs.” In Jordan , an author had sued a magazine for reprinting an article without permission. Defendant made two offers of judgment, both of which were refused. After trial, the district court entered judgment for plaintiff, but in an amount less than the final offer. Without much discussion, the Eleventh Circuit reversed the district court, finding that the district court had no discretion in the matter; pursuant to Marek, Rule 68's “costs” included attorney's fees since the action was brought under the Copyright Act and under the Copyright Act “costs” includes attorney's fees.

Jordan has been roundly criticized for both legal and policy reasons. The Eleventh Circuit, according to the Seventh Circuit in Harbor Motor, did not address the Copyright Act's requirement that in order to recover attorney's fees one must be the “prevailing party.” Indeed, although the Eleventh Circuit has not had the opportunity to reconsider the issue, it has recognized, and appears sympathetic to, the criticism it has received. See Utility Automation 2000, Inc. v. Choctawhatcha Electric Coop ., 298 F.3d 1238, 1246 n.6 (11th Cir. 2002). Although the Second Circuit has not yet decided the issue, in Boisson v. Banian, Ltd ., 221 F.R.D. 378 (EDNY 2004), the Eastern District of New York was persuaded by cases such as Harbor Motor “that attorneys fees may be recovered pursuant to Rule 68 only if they are 'properly awarded' pursuant to the relevant statute.” This analysis, the Eastern District held, is “truer” to Marek and to the Copyright Act.

In Bruce v. Weekly World News, Inc., 203 F.R.D. 51, 56 (D.Mass. 2001), the district court followed Harbor Motor, expressly declining to follow Jordan, saying that the Eleventh Circuit's interpretation of Rule 68 made “substantive” law and made it very difficult for copyright plaintiffs to pursue litigation due to their fear of becoming liable for significant attorney's fees incurred by defendants. And in a non-copyright case, the Ninth Circuit in Champion Produce, Inc. v. Ruby Robinson Co., Inc., 342 F.3d 1016, 1032 (9th Cir. 2003) decided similarly, based partially on policy considerations: “While Rule 68 is designed to require plaintiffs to think hard about whether continued litigation is worthwhile, it is not a gun to the head.” (citations omitted).

Conclusion

Thus, it seems the dissent's policy concerns as expressed in Marek are at least partially being addressed by the district and Circuit Court decisions limiting Marek's holding to precluding plaintiffs from recovering attorney's fees where the defendant has made an offer of judgment in an amount larger than plaintiff's ultimate recovery. So far, Jordan has not been followed by any other circuit, and where the substantive statute at issue requires that only the “prevailing party” be permitted to recover attorney's fees, a prevailing plaintiff who wins less than the amount of a prior offer of judgment will not have to pay defendant's attorney's fees.