USA: Reasonableness of a Party’s Claim or Defense is Significant – But Not Necessarily Controlling – in Determining Fee Awards Under U.S. Copyright Act

by Seth I. Appel (Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP, USA)

The United States Supreme Court clarified the standard for awarding attorneys’ fees under the Copyright Act in Kirtsaeng v. John Wiley & Sons. It held that courts should give substantial weight to the objective reasonableness of the losing party’s position, while also taking into account other relevant circumstances.

Supap Kirtsaeng acquired textbooks from Thailand and resold them to college students in the United States for a profit. John Wiley & Sons (“Wiley”), the textbook publisher, brought suit for copyright infringement. In 2013, the Supreme Court held that Kirtsaeng’s conduct was protected by the “first-sale doctrine” and therefore non-actionable. 133 S.Ct. 1351 (2013). It rejected Wiley’s position, accepted by some courts, that the first-sale doctrine is inapplicable to works manufactured abroad.

Having defeated Wiley’s claim, Kirtsaeng asked the district court to award more than $ 2 million in attorneys’ fees under the Copyright Act’s fee-shifting provision. The district court denied his motion because it found that Wiley’s position was reasonable, even though Kirtsaeng ultimately prevailed. In June of 2016, the Supreme Court vacated the district court’s order and instructed it to consider the reasonableness of Wiley’s position along with other relevant factors. 136 S.Ct. 1979 (2016).

The Copyright Act states that a district court “may … award a reasonable attorney’s fee to the prevailing party.” 17 U.S.C. § 505. In an earlier case, Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), the Supreme Court held that Section 505 gives a district court discretion over whether to award fees, though it must treat prevailing plaintiffs and defendants equally. The Fogerty Court noted with approval several nonexclusive factors for courts to consider: “frivolousness, motivation, objective unreasonableness (both in the factual and in the legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.”

Both parties in Kirtsaeng recognized that courts in copyright cases have “wide latitude to award attorney’s fees based on the totality of the circumstances.” But they disagreed over the proper focus of the inquiry. Wiley argued that the court should concentrate on the reasonableness of a losing party’s position. Kirtsaeng argued that the court should give special consideration to whether a lawsuit resolved an important and close legal issue.

The Supreme Court determined that Wiley’s approach better serves to advance the goals of the Copyright Act, namely, enriching the general public through access to creative works. “The objective-reasonableness approach … encourages parties with strong legal positions to stand on their rights and deters those with weak ones from proceeding with litigation.” Under this approach, “the holder of a copyright that has obviously been infringed has good reason to bring and maintain a suit even if the damages at stake are small; and likewise, a person defending against a patently meritless copyright claim has every incentive to keep fighting, no matter that attorney’s fees in a protracted suit might be as or more costly than a settlement.” Conversely, the Court explained, when a plaintiff or defendant has an unreasonable litigating position, “the likelihood that he will have to pay two sets of fees discourages legal action.”

The Court found that Kirtsaeng’s approach – focusing on whether a case involves an important and difficult legal issue – would not be as beneficial. “[T]he hallmark of hard cases is that no party can be confident if he will win or lose,” the Court noted, so Kirtsaeng’s approach could in fact discourage parties from pursuing important cases. Further, Kirtsaeng’s approach is less administrable, because it is often impossible to know whether a case has broad legal significance at the time it is decided: “The precedent-setting, law-clarifying value of a decision may become apparent only in retrospect—sometimes, not until many years later.”

Although the objective reasonableness of the losing party’s position is an “important factor” in assessing fee awards, the Supreme Court held, it is not necessarily controlling. District courts continue to have broad discretion and must consider various factors. For example, a fee award may be appropriate due to a party’s litigation misconduct, regardless of the reasonableness of the party’s claims or defenses. “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.”