Kirtsaeng Clarifies Standard for Award of Attorney's Fees in Copyright Cases

Kirtsaeng Clarifies Standard for Award of Attorney’s Fees in Copyright Cases

By Brian Darville

Earlier today, the United States Supreme Court clarified the standard for an award of attorney’s fees to the prevailing party in copyright cases holding that when deciding to award attorney’s fees under § 505 of the Copyright Act, a district court should give substantial weight to the objective reasonableness of the losing party’s position, while still considering other circumstances relevant to awarding attorney’s fees. Kirtsaeng v. John Wiley & Sons, Inc., __ U.S. __ (June 16, 2016) (“Kirtsaeng II”). Those other circumstances include “several nonexclusive factors,” identified in Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), such as frivolousness, motivation, objective unreasonableness, and the need in particular cases to advance considerations of compensation and deterrence. Because the Second Circuit has historically given undue weight to the objective reasonableness of the losing party’s position, thereby unduly cabining a district court’s discretion, the Supreme Court remanded the case to the District Court to reconsider Kirtsaeng’s fee application, directing the District Court to “continue to give substantial weight to the reasonableness of Wiley’s position but also take into account all other relevant factors. Slip op. 11-12.

Supap Kirtsaeng’s dispute with John Wiley & Sons, Inc. grew out of a money-making scheme he developed 20 years ago when he came from Thailand to the U.S. to study math at Cornell University. While a student, Kirtsaeng learned that Wiley, an academic publishing company, sold virtually identical English-language textbooks in Thailand and in the U.S., but the Thailand versions were much cheaper. Kirtsaeng arranged for his friends and family to buy the foreign editions in Thailand, ship them to Kirtsaeng in New York, which he then resold to American students for a profit.

Wiley sued Kirtsaeng for copyright infringement, specifically violation of the distribution right embodied in 17 U.S.C. §§ 106(3), 602(a)(1). Kirtsaeng asserted the “first-sale” doctrine as a defense, which typically enables the lawful owner of a copyrighted work to resell or otherwise dispose of the work as he wishes without violating the copyright owner’s rights. Whether the first-sale doctrine applied to foreign-made books was an unsettled legal question, with some courts holding that it did, while others held that it did not. Ultimately, in Kirtsaeng’s dispute with Wiley, the Supreme Court granted a petition for certiorari and held that the first-sale doctrine allows the resale of foreign-made books just as it does those manufactured in the U.S. See Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. __, __ (2013) (“Kirtsaeng I”)(slip op. at 3).

As the prevailing party, Kirtsaeng moved for an award of attorney’s fees under Section 505 seeking more than $2 million. The court denied his motion, giving substantial weight to the “objective reasonableness” of Wiley’s infringement claim under Second Circuit precedent. The District Court reasoned that “’the imposition of a fee award against a copyright holder with an objectively reasonable’” – although unsuccessful – “’litigation position will not generally promote the purposes of the Copyright Act.’” Kirtsaeng II, __ U.S. at __ (slip op. at 3) (quoting App. to Pet. For Cert.11a (quoting Matthew Bender & Co. v. West Publishing Co., 240 F. 3d 116, 122 (2d Cir. 2001)). Wiley’s position was found to be reasonable because several Courts of Appeal and three justices of the Supreme Court agreed with it. And the District Court found that no other factor overrode that objective reasonableness so as to warrant a finding of fee-shifting. The Second Circuit affirmed concluding that “the district court properly placed ‘substantial weight’ on the reasonableness of [Wiley’s] position’ and committed no abuse of discretion in deciding that other ‘factors did not outweigh’ the reasonableness finding.” Kirtsaeng II, supra, Slip op. at 3 (quoting 605 Fed. Appx. 48, 49, 50 (2d Cir. 2015)).

The Supreme Court granted certiorari to resolve disagreement about how to address an application for attorney’s fees in a copyright case.

Section 505 of the Copyright Act provides that a district court, in its discretion, “may . . . award a reasonable attorney’s fee to the prevailing party as part of the costs.” 17 U.S.C. § 505. In Fogerty, the Supreme Court established several principles and criteria to guide the district courts in the exercise of their discretion. First, it held that a district court may not award attorney’s fees as a matter of course; rather, the court must make a more particularized, case-by-case assessment. 510 U.S. at 533. Second, a court may not treat prevailing plaintiffs and prevailing defendants any differently, such that defendants should be encouraged to litigate meritorious defenses to the same extent that plaintiffs are encouraged to litigate valid claims of infringement. See Id. at 527. The Supreme Court also articulated several non-exclusive factors for courts to consider in exercising their discretion to award attorney’s fees: “frivolousness, motivation, objective unreasonableness and the need in particular circumstances to advance considerations of compensation and deterrence.” Id. at 534, n. 19.

Recognizing the need for additional guidance for district court’s in exercising their discretion pursuant to Section 505, the Supreme Court adopted Wiley’s argument that giving substantial weight to the reasonableness of a losing party’s position will best serve the objectives of the Copyright Act. The objective reasonableness approach was adopted “because it both encourages parties with strong legal positions to stand on their rights and deters those with weak ones from proceeding with litigation.” Kirtsaeng II, slip op. at 6-7. The Supreme Court reasoned that the objective-reasonableness approach promotes “the Copyright Act’s purposes, by enhancing the probability that both creators and users (i.e., potential plaintiffs and defendants) will enjoy the substantial rights the statute provides.” The objective-reasonableness approach also is more easily administered in that “[a] district court that has ruled on the merits of a copyright case can easily assess whether the losing party advanced an unreasonable claim or defense.” Id., Slip op. at 9. In addition, “placing substantial weight on objective reasonableness also treats plaintiffs and defendants even-handedly, as Fogerty commands.” Id. “And if some court confuses the issue of liability with that of reasonableness, its fee award should be reversed for abuse of discretion.” Id., Slip op. at 10.

But Kirtsaeng II makes clear that objective-reasonableness is not the decisive factor:

All of that said, objective reasonableness can be only an important factor in assessing fee applications – not the controlling one. As we recognized in Fogerty, § 505 confers broad discretion on district courts and, in deciding whether to fee-shift, they must take into account a range of considerations beyond the reasonableness of litigating positions. . . . That means in any given case a court may award fees even though the losing party offered reasonable arguments (or, conversely, deny fees even though the losing party made unreasonable ones).

Id. The Supreme Court observed that notwithstanding a party’s reasonableness, a court may order fee-shifting because of a party’s litigation misconduct or to deter repeated instances of copyright infringement or overaggressive assertions of copyright claims. Id. Slip op. at 11. “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.” Id.

Turning to how fee-shifting actually operates within the Second Circuit, the Supreme Court found that “the Court of Appeals’ language at times suggests that a finding of reasonableness raises a presumption against granting fees, . . . and that goes too far in cabining how a district court must structure its analysis and what it may conclude from its review of relevant factors.” Id. Recognizing that some district courts within the Second Circuit give objective reasonableness nearly dispositive weight, the Supreme Court vacated the decision below so that the District Court could again review Kirtsaeng’s fee application. The Supreme Court cautioned that by sending the case back, “we do not at all intimate that the District Court should reach a different conclusion.”

Kirtsaeng II should bring additional clarity and structure to a district court’s discretionary decision to award attorney’s fees to the prevailing party in a copyright case. While the objective reasonableness of the losing party’s position still warrants substantial weight in the analysis, a finding based on it does not give rise to a presumption that can foreclose additional analysis. Rather, Kirtsaeng II makes clear that the other nonexclusive factors identified in Fogerty – frivolousness, motivation, objective unreasonableness, and the need in particular cases to advance considerations of compensation and deterrence – must be considered and weighed in that analysis.