Copyright Commentary

• Jurisdiction: United States,Federal
• Author: William J. O'Brien
• Publication year: 2016
• Citation: Vol. 41 No. 3

Copyright Commentary

William J. O'Brien

One LLP

THE SUPREME COURT'S DECISION ON ATTORNEYS' FEES IN KIRTSAENG V. JOHN WILEY & SONS

On June 16 - for the first time in twelve years - the Supreme Court issued an opinion about when courts should award attorneys' fees in copyright cases. And it spoke with a single voice, is a unanimous opinion written by Justice Elaine Kagan. It behooves all copyright practitioners to consider this rare guidance from the Supreme Court.

Supap Kirtsaeng's Two Trips to the Supreme Court

Supap Kirtsaeng is a Thai math professor who became a part-time eBay vendor while he was studying in the United States. He learned that textbook companies charged much higher prices in this country than they do in Thailand - even for virtually identical English-language editions. "Kirtsaeng asked family and friends to buy the foreign editions in Thai bookstores and ship them to him in New York," where he resold them at "a tidy profit."¹ This initially modest business venture set him on a path that has now led twice to the United States Supreme Court.

When Kirtsaeng began reselling books from Thailand, it was unsettled whether such international "arbitrage" of copyrighted works constituted infringement or was authorized by the "first sale" doctrine (also known as "copyright exhaustion"). The U.S. Copyright Act generally provides that the rights of copyright owners over particular copies of their works end when they sell those copies. The Act gives the buyers of copies that have been "lawfully made under this title" the right to dispose of them as they choose.² But appeals courts disagreed about whether this first-sale right extended to copies that had been made outside the United States - like Thai textbooks.³ The Supreme Court attempted to resolve that question in 2010; but then-newly-appointed Justice Elaine Kagan recused herself from the case that was before the Court at that time, and the remaining justices divided 4 to 4.⁴

Meanwhile, a major publisher, John Wiley & Sons, had sued Kirtsaeng in the Southern District of New York for violating Wiley's exclusive distribution and importation rights under the Copyright Act.⁵ Kirtsaeng asserted the first-sale doctrine, but the district judge held that it did not apply to foreign-manufactured goods. On that basis, a jury found Kirtsaeng a willful infringer and awarded Wiley $600,000 in statutory damages - which the Second Circuit affirmed.⁶ Reviewing the international-first-sale issue for a second time, with Justice Kagan participating this time, Supreme Court decided by a 6-to-3 vote that the first-sale doctrine allows the resale of foreign-made books, just as it does domestic ones."⁷

Having clarified the law of copyright exhaustion and obtained reversal of the judgment against him, Kirtsaeng returned to district court as the prevailing party - and he requested an award of more than $2 million in attorneys' fees. Again, he lost at both the district court and the Second Circuit. And again - remarkably - he obtained Supreme Court review.⁸ Would Kirtsaeng succeed in remaking the law of attorneys' fees, as he had remade the law of exhaustion?

Attorneys'-Fee Awards in Copyright Cases

Since 1909, the Copyright Act has contained the same simple statement: "the court may...award a reasonable attorney's fee to the prevailing party as part of the costs."⁹ When Congress revised the Act in 1976, it reenacted the previous copyright fee statute without substantive alteration - just a stylistic change in word order.¹⁰ Before doing so, it received reports indicating that the decision whether to award fees under this statute depended largely on the reasonableness of the positions taken by the losing party. One report said that "courts do not usually make an allowance at all if an unsuccessful plaintiff's claim was not 'synthetic, capricious or otherwise unreasonable,' or if the losing defendant raised real issues of fact or law."¹¹ Congress seems to have accepted the existing approach without significant reservations.

However, after adoption of the 1976 Act, it became increasingly evident that different judicial circuits were applying the copyright attorneys'-fee statute inconsistently, with some of them treating plaintiffs more favorably than defendants. "[S]ome Courts of Appeals follow[ed] the so-called 'evenhanded' approach in which no distinction is made between prevailing plaintiffs and prevailing defendants." But other courts of appeals - including the Ninth Circuit - followed a "dual" standard, under which "prevailing plaintiffs [were] generally awarded attorney's fees as a matter of course, while prevailing defendants [had to] show that the original suit was frivolous or brought in bad faith."¹²

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The Supreme Court ended this circuit conflict in 1994, deciding in Fogerty v. Fantasy, Inc., that "[p]revailing plaintiffs and prevailing defendants are to be treated alike" in awarding attorneys' fees.¹³ The Court rejected the dual standard as premised on "a one-sided view of the purposes of the Copyright Act," explaining:

The primary objective of copyright is not to reward the labor of authors, but "[t]o promote the Progress of Science and useful Arts." To this end, copyright assures authors the right to their original expression, but encourages others to build freely upon the ideas and information conveyed by a work. ¹⁴

Because "a successful defense of a copyright infringement action may further the policies of the Copyright Act every bit as much as a successful prosecution,...defendants who seek to advance a variety of meritorious copyright defenses should be encouraged to litigate them to the same extent that plaintiffs are encouraged to litigate meritorious claims of infringement."¹⁵

In Fogerty, the Supreme Court also emphasized the discretionary nature of copyright fee awards. The Court flatly rejected Fogerty's suggestion that the statute should be interpreted as "enact[ing] the British Rule for automatic recovery of attorney's fees by the prevailing party." Instead, "attorney's fees are to be awarded to prevailing parties only as a matter of the court's discretion."¹⁶ The Court stipulated that "[t]here is no precise rule or formula for making these determinations, but instead equitable discretion should be exercised 'in light of the considerations we have identified.'"¹⁷ In a footnote, the Court listed "several nonexclusive factors," including "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." The Court said that "such factors may be used to guide courts' discretion, so long as such factors are faithful to the purposes of the Copyright Act and are applied to prevailing plaintiffs and defendants in an evenhanded manner."¹⁸

Although the Court had not decided any copyright attorneys'-fee cases since Fogerty, it struck a similar note about the discretionary nature of fee awards two years ago, when it corrected the standard for such awards under the Patent Act.¹⁹ In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Court jettisoned a two-part test that had been introduced by the Federal Circuit, saying that it was "unduly rigid, and...impermissibly encumber[ed] the statutory grant of discretion to district courts."²⁰ The Supreme Court's Octane Fitness opinion described the Copyright Act as a "comparable context" and quoted Fogerty's statements about "equitable discretion" with "no precise rule or formula." The Court also repeated the same "'nonexclusive' list of 'factors'" it had provided in Fogerty.²¹

The Circuit Split

Why did the Supreme Court invite Kirtsaeng for a return visit? Justice Kagan writes that the Court "granted certiorari...to resolve disagreement in the lower courts about how to address an application for attorney's fees in a copyright case."²² Significant inconsistencies had arisen in how the courts of different judicial circuits were interpreting and applying Fogerty. For example:

• Some circuits emphasized the policy objectives of the Copyright Act as explained in Fogerty. The Ninth Circuit held that "[f]aithfulness to the purposes of the Copyright Act [was] the pivotal criterion" in the attorneys'-fee analysis.²³ Similarly, the Eleventh Circuit decreed "The touchstone of attorney's fees under § 505 is whether imposition of attorney's fees will further the interests of the Copyright Act."²⁴
• Some other circuits put more emphasis on specific factors listed in Footnote 19 of the Fogerty decision. The Third Circuit continued to follow Lieb v. Topstone Industries - which was the source of that list.²⁵ The Fourth Circuit considered a similar list, as well as "any other relevant factor presented," in "a totality-of-the-circumstances approach."²⁶
• Yet other circuits interpreted Fogerty as creating - or at least permitting - a presumption in favor of awarding fees. The Seventh Circuit held that "the prevailing party in copyright litigation is presumptively entitled to reimbursement of its attorneys' fees."²⁷ The Fifth Circuit accomplished a similar result by maintaining its pre-Fogerty doctrine that granting fees in copyright cases "is the rule rather than the exception and [they] should be awarded routinely."²⁸

The standard in the Second Circuit, where Wiley sued Kirtsaeng, was notably opaque. The Circuit Court typically stated that "objective reasonableness is a factor that should be given substantial weight in determining whether an award of attorneys' fees is warranted."²⁹ But what did this mean in practice? Second Circuit decisions like Matthew Bender & Co. v. West Publishing Co. fed a suspicion that, by "substantial weight," the Second Circuit really meant "primary weight." While the court in Matthew Bender conceded that a finding of objective reasonableness did not "necessarily preclude the award of fees," the court decreed that "the imposition of a fee award against a copyright holder with...