SCOTUS Gives Guidance Regarding Attorney Fee Awards in Copyright Cases

by: Kelly A. Williams, a Senior Attorney at Houston Harbaugh, P.C.

On June 16, 2016, the U.S. Supreme Court issued an opinion on awarding attorneys’ fees in copyright cases for the first time in two decades and issued the first copyright case in two years. The case is Kirtsaeng v. John Wiley & Sons Inc., case number 15-375.  Section 505 of the Copyright Act provides that a district court “may  . . . award a reasonable attorney’s fee to the prevailing  party.”  The issue presented to the Supreme Court was whether a court, in exercising that authority, should give substantial weight to the objective reasonableness of the losing party’s position.  The court held that it should but that courts must also give due consideration to all other circumstances relevant to granting fees.  It further held that the district courts retain discretion, in light of those factors, to make an award of attorneys’ fees even when the losing party advanced a reasonable claim or defense.

Kirtsaeng, who was from Thailand, came to the U.S. to go to Cornell University.  While there, he discovered John Wiley & Sons, an academic publishing company, sold virtually identical, English language textbooks in the U.S. and Thailand, but sold them at a much cheaper price in Thailand.  He had family and friends in Thailand buy the books, ship them to him in the U.S. and sold them at a profit.

Wiley sued Kirtsaeng for copyright infringement, claiming Kirtsaeng’s sale of the books violated its exclusive right to distribute its textbooks.  Kirtsaeng invoked the “first sale doctrine” as a defense, which enables the lawful owner of a book (or other work) to resell or otherwise dispose of it as he or she wishes.  Wiley countered that the first sale doctrine did not apply to books manufactured abroad.  The circuit courts were split on the issue, and the issue went up to the Supreme Court.  The Supreme Court agreed with Kirtsaeng and held that the first sale doctrine does allow the resale of foreign made books.

Kirtsaeng went back to the district court and sought $2 million in attorneys’ fees as the prevailing party pursuant to section 505.  The District Court denied the motion, relying on Second Circuit precedent that gave “substantial weight” to the “objective reasonableness” of Wiley’s infringement claim.  The rational for that approach was that the imposition of a fee award against a copyright holder with an objectively reasonable—although unsuccessful—litigation position will generally not promote the purposes of the Copyright Act.  The District Court and the Second Circuit, on appeal, agreed that Wiley’s position was reasonable.  They also found that the other factors to be considered did not outweigh the reasonableness finding.   These non-exclusive factors were set forth in Fogerty v. Fantasy Inc., 510 U.S. 517 (1994).  In that case, the Supreme Court identified the non-exclusive factors as the frivolousness of the case, the loser’s motivation, the objective unreasonableness of their case, and considerations of compensation and deterrence, all of which are to be applied in a manner that’s faithful to the purposes of the Copyright Act.

In Kirstaeng, the Supreme Court explained that objective reasonableness can be only an important factor in assessing fee applications—not the controlling one.  District courts must take into account a range of considerations beyond the reasonableness of litigating positions.  Thus, a court may award fees even though the losing party offered reasonable arguments.  The Supreme Court cited as an example the situation where a court orders fee-shifting because of a party’s litigation misconduct, or the court decides to deter repeated instances of copyright infringement (i.e. copyright infringement “trolls”).  “Although objective reasonableness carries significant weight, courts must view all the circumstances of a case on their own terms, in light of the Copyright Act’s essential goals” (for instance—enriching the general public through access to creative works).

The Supreme Court concluded that the Kirstaeng matter should be remanded to the District Court because it appeared that the court had put too much emphasis on the “reasonableness” question.  Thus, the Supreme Court ordered the remand to ensure that the District Court evaluates the motion consistent with the analysis that it set forth—giving substantial weight to the reasonableness of Wiley’s litigating position, but also taking into account all other relevant factors.