When considering whether to award attorneys’ fees in a copyright action, should district courts place substantial weight on the objective reasonableness of the losing party’s position over other equitable factors?
In 2013, the Supreme Court decided in favor of Supap Kirtsaeng in a copyright infringement action brought by publisher John Wiley & Sons (“Wiley”), reversing the lower courts and remanding for an order in compliance with the opinion. On remand in the district court, Kirtsaeng petitioned for costs and attorneys’ fees. Although 17 U.S.C. § 505 empowers a district court in its discretion to award costs and attorneys’ fees, the court denied the petition and reaffirmed the circuit precedent assigning more weight to one factor in the equitable discretion analysis over all others. Here, the Supreme Court will provide a non-exclusive list of factors a district court should consider in a § 505 equitable discretion analysis and determine whether any of those factors, such as the objective reasonableness of the losing party’s position, should be assigned substantial weight. Kirtsaeng argues that placing substantial weight on any one factor risks compromising the discretion granted to the district court by the statute. Alternatively, Wiley argues that a district court in its discretion can assign more weight to the objective reasonableness of the defeated party’s position without defying § 505. This case will clarify the approach a district court should take in a § 505 equitable discretion analysis.
Questions as Framed for the Court by the Parties
Did the Second Circuit err in adopting a standard that emphasizes the objective reasonableness of the losing party’s position over all other factors, which unduly limits district court discretion and systematically favors copyright plaintiffs?
Supap Kirtsaeng, a Thai student who studied at American universities for several years, noticed during his studies that his American textbooks cost much more than the identical foreign editions available abroad. Kirtsaeng asked his family in Thailand to purchase these cheaper editions so that he could sell them in America at a higher price and then reimburse his family and personally retain any residual profits. John Wiley & Sons, Inc. (“Wiley”), a global publishing company, had copyright licenses for several of the textbooks that Kirtsaeng resold in America. Upon learning that Kirtsaeng had collected approximately one million dollars from his textbook arbitrage business, Wiley brought suit in 2008 alleging multiple violations of the Copyright Act. Kirtsaeng countered with the “first sale” doctrine as a defense, arguing that because he was the first lawful purchaser of the textbooks, he could subsequently dispose of them as he pleased without the permission of the copyright owner. Nevertheless, the United States District Court for the Southern District of New York sided with Wiley, reaffirming circuit precedent finding that the “first sale” doctrine applied only to certain copies, excluding copies made abroad. The United States Court of Appeals for the Second Circuit affirmed the District Court’s decision before Kirtsaeng ultimately appealed to the United States Supreme Court. There, the Court reversed the Court of Appeals and further clarified the scope of the “first sale” doctrine, holding that it applied to foreign-manufactured copies, so long as the copies were lawfully made in compliance with the Copyright Act. Following five years of contentious litigation, the Court vindicated Kirtsaeng’s position and remanded the case to the lower courts.
On remand, Kirtsaeng petitioned the district court for attorneys’ fees and reimbursement of his litigation expenses as the prevailing party, pursuant to 17 U.S.C. § 505 of the U.S. Copyright Act. Although Kirtsaeng’s attorneys agreed to take his case on a pro-bono basis, Kirtsaeng sought approximately two million dollars in fees and costs. The court denied the motion, reasoning that under Supreme Court precedent and the language of § 505, only the district court’s equitable discretion governed the determination of whether to award fees. Kirtsaeng appealed the denial of attorneys’ fees to the Court of Appeals only to have that court affirm the lower court’s decision. The Court of Appeals reaffirmed its circuit precedent in holding that one particular factor, objective unreasonableness, demanded substantial weight relative to the other factors in the district court’s equitable discretion analysis. The Court of Appeals reasoned that Wiley’s litigation position could not rise to the level of objective unreasonableness, as it was Wiley who had originally prevailed on the merits of the underlying dispute in the lower courts prior to the Supreme Court’s reversal. Finding no abuse of discretion, the Court of Appeals affirmed and Kirtsaeng subsequently petitioned the Supreme Court for certiorari.
In this case, the Supreme Court will determine whether a district court should place substantial weight on the factor of the objective reasonableness of the losing party’s position over other non-exclusive factors when making the determination to award attorneys’ fees in a copyright suit. Kirtsaeng argues that plaintiffs and defendants should be treated more equally in awarding attorneys’ fees to advance the goals of rewarding creation, granting access to creative works, and defining the boundaries of copyright law. Kirtsaeng also asserts that requiring district courts to give substantial weight to the “objective reasonableness” factor would limit the district courts’ discretion. Alternatively, Wiley argues that parties should not be deterred from litigating “close or novel” cases that have the potential to define unclear areas of copyright law, due to the threat of paying the opposing party’s attorneys’ fees. Wiley contends that giving substantial weight to the “objective reasonableness” factor does not restrain the district courts’ discretion because other factors, such as frivolousness, motivation, and considerations of compensation and deterrence, may still be taken into consideration.
THE PURPOSE OF 17 U.S.C. § 505
Kirtsaeng contends that § 505 seeks to discourage frivolous litigation while encouraging worthy claims and defenses that advance the goals of the Copyright Act, namely “creation and dissemination of creative works.” Kirtsaeng asserts that, because the goal of copyright law is to enrich the public by allowing access to creative works, another goal of § 505 is to define the boundaries of copyright law. Kirtsaeng explains that meritorious litigation clearly defines the boundaries of copyright law by either rewarding creation by way of a plaintiff’s victory, or by enlarging public access by way of a defendant’s victory. Kirtsaeng maintains that victorious plaintiffs and defendants should be treated equally when deciding whether to award attorneys’ fees. Otherwise, Kirtsaeng argues, a defendant who infringed will always be culpable and be forced to pay the plaintiff’s attorneys’ fees, whereas a plaintiff who wrongly accused a defendant of infringement will only be culpable and forced to pay the defendant’s attorneys’ fees if the claims are frivolous. Kirtsaeng claims that a plaintiff has more to gain from a win, namely large damages or equitable relief, while a defendant’s only gain is the avoidance of paying damages, thus pressuring defendants into settling rather than continuing to litigate a potentially meritorious case. In support of his argumentKirtsaeng cites a study comparing the percentage of copyright plaintiffs and defendants who were awarded attorneys’ fees, and it showed that significantly more plaintiffs were awarded attorneys’ fees than were defendants.
Wiley counters that litigation in “close or novel cases” defines the boundaries of copyright law, and plaintiffs and defendants should not be deterred from litigating due to the threat of paying the opposing party’s attorneys’ fees should they lose. Additionally, Wiley argues that awarding fees to the winning party increases the risk of litigation and chills litigation in “close or novel cases” when parties are unsure whether they will prevail, but that these are precisely the types of cases that should reach final judgment. Wiley contends that emphasizing objective reasonableness rightfully discourages parties from pursuing weak claims and defenses in areas of copyright law that are already defined. Finally, Wiley asserts that simply comparing the rates of attorneys’ fees awarded to plaintiffs versus defendants is an inaccurate assessment of the application of § 505 because the facts of the cases before the court may dictate those outcomes, especially given the opportunities for copyright infringement over the Internet.
DISTRICT COURTS’ DISCRETION
Kirtsaeng argues that the standard for awarding attorneys’ fees should be based on an “evenhanded, totality-of-the-circumstances inquiry” that includes any factors that the district court considers relevant. Kirtsaeng asserts that the word “may” in § 505 implies discretion of the court, and attorneys’ fees cannot be awarded as a matter of course. In addition to the “objective reasonableness” factor, Kirtsaeng points out that the other three factors a district court should consider are “frivolousness, motivation . . . and the need in particular circumstances to advance considerations of compensation and deterrence.” Kirtsaeng explains that “considerations of compensation and deterrence” should involve “a nuanced balancing of the strength of the claim, the cost of litigating it, and the potential recovery in the event of victory.” Kirtsaeng proposes that district courts should award attorneys’ fees in cases that yield results of “seismic significance” for “entire industries or classes of disputes.”
Wiley agrees that district courts have discretion to consider the four factors Kirtsaeng mentions when determining whether to award attorneys’ fees. However, Wiley suggests that two of the factors, frivolousness and objective reasonableness, concern the reasonableness of the losing party’s position, and therefore should naturally be given more weight. Wiley contends that limiting discretion to specific standards promotes predictability in the law. In addition, Wiley argues that district courts can easily recognize frivolous claims but are not trained to assess the “seismic significance [of cases] for a particular industry.” As a result, Wiley maintains that adopting Kirtsaeng’s proposal would create “disparate and conflicting” results in the lower courts.
“OBJECTIVE REASONABLENESS” FACTOR
Kirtsaeng maintains that giving the “objective reasonableness” factor more weight than the other factors in all cases interferes with the district courts’ discretion. Specifically, Kirtsaeng points out that the Supreme Court ruled against standards adopting presumptions not expressly set forth in § 505. Kirtsaeng contends that other legislation in place at the time explicitly contains language emphasizing one factor over the others, so the fact that § 505 was drafted as is shows that Congress did not intend for it to be interpreted in the same manner. Kirtsaeng argues that under the Second Circuit’s standard, where the losing party’s position is not frivolous, that party already has a significant advantage before the district court even considers any of the other factors.
Wiley claims that precedent has long emphasized the importance of the “objective reasonableness” factor. Wiley asserts that the Copyright Act of 1909 emphasized objective reasonableness in its fee provision, and the fact that the fee provision was essentially unchanged in the Copyright Act of 1976 indicated Congress’s intent to continue interpreting the new fee provision in the previous manner. Wiley maintains that other factors will be considered, giving the example that despite the objective reasonableness of the losing party’s position, the winning party may still be awarded attorneys’ fees if the losing party acted in bad faith.
In this case, the Supreme Court will determine the purpose and scope of 17 U.S.C. § 505 and clarify the proper standard courts should apply in determining whether to award fees and expenses to a prevailing party under the Act. The Court’s decision here will clarify the proper scope of § 505 and articulate which factors a district court should consider when exercising its equitable discretion pursuant to § 505.
THE SCOPE OF 17 U.S.C. § 505
Public Knowledge, in support of Kirtsaeng, argues that the Court should interpret § 505 broadly in order to allow for fee awards where the prevailing party has advanced the public interest in defining the boundaries of copyright law. Public Knowledge contends that copyright law represents an evolving continuum between copyright holders’ interests and the public interest in access to novel work; thus, a prevailing litigant who helps clarify the dividing line of that continuum should be awarded fees. Additionally, Public Knowledge argues that a district court should award fees to a prevailing party with limited resources in order to encourage individual litigants to pursue meritorious claims against large corporations or global entities that often hold copyrights. Indeed, Public Knowledge rejects any general presumption against fee awards, arguing that it is a disservice to small litigants who might be dissuaded in pursuing a claim because of a dearth of resources.
The American Intellectual Property Law Association (“AIPLA”), in support of neither party, argues that the approach taken by the lower courts is too varied to offer any principled guidance by which courts can make a § 505 determination. Additionally, AIPLA asks the Court to provide the lower courts with guidance in applying its equitable discretion analysis under § 505. Intellectual Property Owners Association (“IPOA”), also in support of neither party, argues that the Court should interpret § 505 in a flexible manner so as to avoid any rigid formulas and award fees to prevailing parties who further the purposes of the Copyright Act.
EQUITABLE DISCRETION ANALYSIS & RELEVANT FACTORS
Supporting Kirtsaeng, Public Knowledge proposes several factors a district court should consider in its § 505 equitable discretion analysis, including benefit to the public interest and resources of the prevailing litigant relative to opposing adversaries. By keeping the prospect of attorneys’ fees available, Public Knowledge believes an equitable discretion analysis will best serve the public interest by allowing smaller litigants to pursue meritorious claims.
IPOA, in support of neither party, contends that the § 505 equitable discretion analysis should avoid any formulaic approach and instead focus on the particularities of each case. In this way, IPOA believes that the analysis will remain “faithful to the purposes of the Copyright Act” and ultimately award fees only where the prevailing plaintiff has further defined the boundaries of copyright law. AIPLA, also in support of neither party, proposes a “totality-of-the-circumstances” approach to the § 505 equitable discretion analysis. According to AIPLA, this approach would have the district court consider such factors as those analyzed in the case at bar, as well as other factors such as bad faith, fair dealing, and misconduct during the course of litigation. AIPLA contends that the § 505 equitable discretion analysis should proceed on a case-by-case basis, taking into account the totality of the circumstances in each particular case.
This case offers the Court the opportunity to determine the scope of a district court’s § 505 equitable discretion analysis in awarding fees and costs in a copyright action. Kirtsaeng argues that a district court should consider various factors in its analysis and award fees under § 505 where the prevailing party achieves a result that advances the purposes of the Copyright Act and further clarifies copyright law. Alternatively, Wiley stresses the importance of the “objective reasonableness” factor and argues that the Court should affirm the approach of the lower court in the exercise of its equitable discretion under § 505. The Court’s decision in this case should delineate the scope of § 505 and clarify the approach a district court should take when undertaking a § 505 analysis.
- Gary Shapiro, Supreme Court Gives American Consumers Victory Over Copyright Owners in Kirtsaeng vs. John Wiley & Sons, Forbes (March 20, 2013).
- Bill Donahue, Justices Set to Clean Up Attorneys’ Fees in Copyright Case, Law360 (January 20, 2016).