Supreme Court View On Copyright Attorney Fees

“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,” says Haynes and Boone Dallas partner Jason Bloom, who heads up the firm's copyright practice group. “That being said, the Supreme Court has still left lower courts very broad discretion in deciding whether to award fees.”

Reed Smith Pittsburgh counsel Matthew Shiels and other intellectual property attorneys say 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, a major textbook publisher, sued Supap Kirtsaeng in 2008 for copyright infringement. Kirtsaeng, a foreign student in the United States 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, which allows lawful owners of a physical copy of a book to sell it without permission of the copyright owner, applied.

On remand Kirtsaeng sought fees under '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 Southern District of New York found that Wiley's suit was not “objectively unreasonable” and that the other Fogerty factors did not override it, so no fees were warranted for Kirtsaeng. 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.

At the U.S. Supreme Court, Justice 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.”

The High Court remanded Kirtsaeng for a new hearing on fees, though Justice Kagan noted: “We do not at all intimate that the district court should reach a different conclusion.”

Orrick New York partner E. Joshua Rosenkranz argued the case for Kirtsaeng. Jenner & Block Washington partner Paul Smith argued for Wiley.

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, says 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 says.

Kirkland & Ellis partner Dale Cendali says 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.”

Scott Graham writes for The Recorder, an ALM sibling of Entertainment Law & Finance.