Tag Archives: Attorney fees

SCOTUS Gives Guidance Regarding Attorney Fee Awards in Copyright Cases

by: Kelly A. Williams, a shareholder at Picadio Sneath Miller & Norton, P.C.

SupremeCourtImage_1On 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.

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Survey of Proposed Patent Lawsuit Reform Bills in Congress (Part 4)

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

Another patent reform bill is quickly working its way through Congress as we speak. The Innovation Act (HR 3309) passed the House by a vote of 325–91 and is pending in the Senate, which has said that it will fast track passage of it. Many of the provisions are similar to those found in the other proposed pieces of legislation that we discussed earlier (see parts 1, 2, and 3), and address some of the concerns I raised in these prior discussions. One of the more significant provisions of the Innovation Act is the fee-shifting provision, which proposes to amend 35 U.S.C. § 285.

US Capitol BuildingUnder current law, patent lawsuits follow the American system in which each side pays its own legal fees. The current § 285 modifies the American rule somewhat, providing that in exceptional cases the court may award attorney fees to the prevailing party. The Innovation Act scraps the American rule altogether and flips current § 285 by providing that the court must award reasonable attorney fees and expenses to the prevailing  in patent cases, “unless the court finds that the position of the non prevailing party or parties was substantially justified or that special circumstances make an award unjust.” (Proposed § 285(a)).

As an initial matter, this provision is supposed to deter parties from filing frivolous lawsuits, but it is not clear that it will accomplish this purpose. To be a prevailing party requires a judgment by the court, likely either on a motion for summary judgment or a trial verdict. Neither of these happen towards the beginning of litigation, so a defendant will have to still incur significant costs to get to the point at which it has a chance to recover its fees. Many defendants will likely not want to incur those costs, especially if the plaintiff appears to lack significant assets or has a plausible basis for its claims (even with the interest party expansion of proposed § 285(b)).

This provision may, in fact, create an incentive for patent trolls, especially in cases where they have a strong patent but the damages are not significant. By defaulting to a loser pays system, there is a greater likelihood that patent trolls will file additional lawsuits and defendants in these kinds of cases will be required to pay the troll’s litigation costs, even when a troll would have been unlikely to prove willful infringement.

Finally, there are real questions about what it means to be prevailing party and what the “substantially justified” standard means. For instance, what happens if a plaintiff prevails on one claim, but the jury find non-infringement on another? Are both parties prevailing parties? Or, if the plaintiff prevails on one patent, but the defendant invalidates the other asserted patent? What happens if a target of a demand letter files a declaratory judgment action and forces a patentee into a lawsuit that it never intended to file?

Also, when, exactly, does a non-prevailing party have to be substantially justified in its position? At that time it first asserts the position? At the end of the litigation? At any time? These are not trivial concerns. A defendant at the initial stages of a lawsuit often will assert non-infringement and invalidity defenses and counterclaims before having much time to analyze the claims or having the benefit of the  court’s claim constructions. Those positions may be only in their initial stages with modest support, but later blossom into very strong positions. Similarly, what appear to be strong positions can turn into weak ones once the court issues its claim construction. In which of these situations are the positions substantially justified?

Courts will undoubtedly struggle with interpreting these standards and deciding who, exactly, “deserves” to pay and who does not. Moreover, while these new rules are clearly targeted towards fighting patent trolls, they apply equally in all patent cases, including the traditional competitor vs. competitor lawsuits. By changing the rules, it will create additional pressures that are more likely to be borne by defendants, who have no control over whether they are sued, than by plaintiffs, who can have significant control over when they sue and which patents/claims they sue on.

The Innovation Act looks likely to pass the Senate and be signed into law by the President. It will be interesting to see if it accomplishes what it purports to set out to do.