Supreme Court Affirms Discretion to Award Fees in Copyright Suits, But Case Precedence Not Relevant

Intellectual Property News

Firm Alert

Author(s)

The Copyright Act states that the trial court “may…award” attorney’s fees to the prevailing party. Legal fees incurred by plaintiffs and defendants alike in copyright and other intellectual property cases can be staggering, as much as six or even seven figures through to trial, depending on the case. The Supreme Court -- which, in a 1994 decision, had recognized the district court’s broad discretion in deciding whether to award fees -- revisited the standard for awarding fees in its June 16, 2016, decision in Kirtsaeng v. John Wiley & Sons. The takeaway: the trial court has “wide latitude to award fees,” giving “substantial weight to the reasonableness” of the losing party’s position, but also taking into account other factors consistent with the Copyright Act’s purposes. Whether the suit meaningfully clarified copyright law by resolving an important and close legal issue is not such a factor.

The Case’s Background

The defendant, Supap Kirtsaeng, had incurred over $2 million in attorney’s fees to successfully defend a suit filed eight years earlier that had resulted in a precedent-setting decision by the Supreme Court. John Wiley & Sons, the textbook publisher, had claimed that Mr. Kirtsaeng infringed copyrights in textbooks when he sold foreign edition textbooks in the U.S. after the books had been purchased abroad at lower prices than the books are available in the states. Mr. Kirtsaeng, at the time a college student seeking to defray the costs of his education, earned approximately $1 million by reselling the books online on sites such as ebay. If the books had been printed in the U.S. rather than abroad, the “first sale” doctrine would clearly have permitted resale of the books, but John Wiley & Sons had claimed that the first sale doctrine does not apply to books or other works created outside the U.S. Resolving a split among the circuits, the Supreme Court held, in its 2013 decision, that the first sale doctrine allows the resale of foreign-made books, just as it does domestic ones. As the prevailing party, Mr. Kirtsaeng then sought to recoup his attorney’s fees. The district court denied the fee petition, and the Second Circuit affirmed, finding no abuse of discretion in deciding that the reasonableness of the plaintiff’s position was entitled to substantial weight.

Without deciding whether Mr. Kirtsaeng should recover his attorney’s fees, the Supreme Court clarified that the trial court, in deciding whether to award fees, should give substantial weight to the objective reasonableness of the losing party’s position, but that the objective reasonableness should not be controlling if other relevant considerations lead the court in another direction. Other considerations might include the court’s desire “to deter repeated instances of copyright infringement or overaggressive assertions of copyright claims… even if the losing position was reasonable.” In her opinion, Justice Kagan gave the example of awarding fees to a “copyright holder who filed hundreds of suits on an overbroad legal theory, including a subset of cases in which it was objectively reasonable.” The net result is that the district court’s discretion is quite wide and not to be constrained by rigid rules. If the losing party’s position is objectively reasonable, it might nonetheless be required to pay the fees of the winning party, if it can demonstrate that other factors justify an award. However, since the “objective reasonableness” of the other’s position will be given substantial weight, the other considerations may need to be exceptional before the court will exercise its discretion to shift fees to a losing party whose position was reasonable.

Whether Willey & Sons will ultimately be required to pay Mr. Kirtsaeng’s attorney’s fees will be up the district court’s discretion, which on remand will have broad discretion to reinstate its denial of fees or change its position by awarding fees. However, in view of the lower court’s finding that Wiley & Sons’ position was reasonable and the Supreme Court’s guidance not to consider the fact that Mr. Kirtsaeng’s successful defense resulted in a precedent-setting decision, Mr. Kirtsaeng’s ability to recover his fees will require demonstration of other factors consistent with the Copyright Act’s goals of “encouraging and rewarding authors’ creations while also enabling others to build on that work.”

Comparison to Fee-Shifting in Patent and Trademark Cases

The Copyright Act’s fee provision differs from the fee-shifting provisions under the federal trademark and patent laws, which authorize attorney fee awards in “exceptional cases.” The Copyright Act fee provision, by contrast, is not limited to “exceptional cases.” In a 2014 patent decision, the U.S. Supreme Court held that an “exceptional case” is one that “stands out from others with respect to the substantive strength of a party’s litigating position” or “the unreasonable manner in which the case was litigated.” Given identical language in the Lanham Act, lower courts have applied this patent fee standard to trademark cases.