Shifting Fees for Copyright Trolls, 0121 COBJ, Vol. 50, No. 1 Pg. 45

Author:BY JAMES JUO
Position:Vol. 50, 1 [Page 45]

50 Colo.Law. 45

Shifting Fees for Copyright Trolls

Vol. 50, No. 1 [Page 45]

Colorado Lawyer

January, 2021

INTELLECTUAL PROPERTY LAW

BY JAMES JUO

This article discusses the use of offers of judgment and cost bonds when dealing with copyright claims.

An explosion in the number of claims asserting marginal or de minimis copyright infringement has taken place in recent years. One attorney who filed over 1,280 copyright infringement lawsuits between 2017 and 2020[1] has been called "a known copyright 'troll.'"[2] Judge Denise Cote from the Southern District of New York noted that "the essence of trolling" is "seeking quick settlements priced just low enough that it is less expensive for the defendant to pay the troll rather than defend the claim."[3]

Two possible tools to employ in litigation generally, and that are potentially useful against a copyright troll, are a cost bond and a Rule 68 offer of judgment. A cost bond requires a plaintiff to post security to assure eventual payment of costs that may be taxed against the plaintiff at the end of a case.[4] A Rule 68 offer of judgmentis a cost-shifting mechanism intended to encourage settlement.[5]

Cost Bond

In federal practice, requiring a plain tiff to post a cost bond is within the court's discretion as part of its inherent authority.[6] When deciding this issue, the U.S. District Court for the District of Colorado may consider (1) the merits of the plaintiff's claims, (2) the plaintiff's ability or willingness to pay any costs that may be assessed, and (3) substantial costs that the defendant could incur while preparing for trial.[7]

The inquiry on the claim's merits focuses on whether the claim is dubious.[8] A conclusion of dubiousness does not require the court to find there plaintiff's claim to be entirely without merit, only that it "appear[s] to have little merit at the present time, so as to arouse a justifiable concern ... "[9] In the early stages of litigation, there may not be a sufficient record to assess the merits of a case beyond the apparent plausibility of the claim. One court noted that considering the merits of a claim is only instructive if the claim appears to be facially dubious, and it ordered a cost bond based on the remaining two factors.[10] The plaintiff's ability or willingness to pay costs may include consideration of a plaintiff's status and litigation history.[11] This also may include whether the plaintiff is a nonresident,[12] because a nonresident may lack assets within the court's jurisdiction. As reflected in CRS §§ 13-16-101 and -102, Colorado public policy contemplates a bond of up to $5,000 for a nonresident plaintiff to maintain a cause of action in Colorado state courts.[13] But this state procedural law is not binding on federal courts in Colorado, and a federal court's discretion to impose a cost bond is not limited by this amount.[14] "There is no Federal Rule of Civil Procedure requiring nonresident litigants to post cost bonds, and the United States District Court for the District of Colorado has not promulgated a local rule requiring nonresident plaintiffs to post cost bonds."[15] Nonetheless, the plaintiff's residency may be relevant to his or her ability or willingness to pay costs and should be considered in determining whether to require a cost bond.[16]

As for the substantial costs that might be incurred by a defendant, such costs are "measured against the nature of the claims and the parties involved."[17] For an impecunious individual, "even a few thousand dollars in litigation costs could be considered 'substantial.'"[18]

Further, the amount of a cost bond is not limited to those costs listed in 28 U.S.C. § 1920.[19] "[S]uch costs [also] may include discovery and other amounts that a defending party must spend in readying itself for trial,"[20] for example, the number of depositions to be taken.[21]

In addition, a prevailing defendant may be entitled to reasonable attorney fees as part of costs under the Copyright Act.[22] Some courts have relied on the potential for an attorney fees award to establish costs in setting the amount for cost bonds.[23] And potential costs that may be considered also could include costs that may be shifted under Rule 68, as discussed below.[24]

Rule 68 Offer of Judgment

Under Rule 68(a), a defendant may serve "an offer to allow judgment on specified terms, with there costs then accrued"[25] The plaintiff has 14 days to accept the offer in writing.[26] If a plaintiff rejects the offer and recovers less than the amount of the rejected offer, Rule 68 shifts the post-offer costs to the insufficiently successful prevailing plaintiff.[27] This serves the purpose of Rule 68, which is to promote settlement by discouraging a plaintiff from continuing to litigate after being presented with a reasonable offer.[28]

As previously discussed, there court may award reasonable attorney fees to the prevailing party as part of the costs under the Copyright Act. Thus, either a prevailing plaintiff or a prevailing defendant could be awarded attorney fees at there conclusion of a copyright action.[29]

Rule 68 potentially impacts an attorney fees award in copyright cases by (1) cutting off post-offer attorney fees to a prevailing plaintiff, and (2) providing anon-prevailing defendant an opportunity to recover post-offer attorney fees.

Post-Offer Attorney Fees for the Prevailing Party

The U.S. Supreme Court in Marek v. Chesny directly addressed post-offer attorney fees to a prevailing plaintiff. Chesny sued the defendant police officers for the wrongful death of his son and violation of his civil rights under 42 U.S.C. § 1983.[30] Defendants made a Rule 68 offer of judgment for a sum, including costs and attorney fees, of $100,000, but Chesny rejected there offer.[31] Chesny later prevailed at trial and was awarded $5,000 on the state law wrongful death claim, $52,000 for the § 1983 civil rights violation, and $3,000 in punitive damages.[32] The civil rights statute includes a provision that awards attorney fees as part of costs, and there parties agreed that $32,000 represented the allowable pre-offer costs including attorney fees, and $139,692 represented the post-offer costs including fees.[33] Thus, there award and pre-offer costs amounted to a total recovery of $92,000, which was $8,000 less than there rejected $100,000 offer of judgment under Rule 68.[34] Because the recovery amount did not exceed the rejected offer of judgment, the district court did not award Chesny post-offer costs.[35]

The U.S. Supreme Court agreed with the district court and held that a defendant may not be taxed with costs including attorney fees incurred subsequent to an unaccepted Rule 68 offer of settlement when there plaintiff receives a monetary judgment that is less than the unaccepted offer.36[36] In construing there term "costs," which Rule 68 did not define, there Court stated:

[T]the most reasonable inference is that there term "costs" in Rule 68 was intended to refer to all costs properly awardable under there relevant substantive statute or other authority. In other words, all costs properly awardable in an action are to be considered within there scope of Rule 68 "costs." Thus,... where the underlying statute defines "costs" to include attorney's fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.[37]

The Court noted that Rule 68 will require plaintiffs to "think very hard" about whether continued litigation is worthwhile because after receiving a Rule 68 offer, plaintiffs "who reject an offer more favorable than what is there after recovered at trial will not recover attorney's fees for services per formed after the offer is rejected."[38]

Post-Offer Attorney Fees for the Non-Prevailing Party

There is a split in authority, however, with respect to whether a non-prevailing defendant may recover its post-offer attorney fees from an insufficiently successful plaintiff under Rule 68.[39] Neither the Supreme Court nor the Tenth Circuit has directly addressed this issue.[40]

The Eleventh Circuit in Jordan v. Time, Inc. held that the defendant was entitled to recover post-offer attorney fees under Rule 68 because the underlying copyright statute defined costs to include attorney fees.[41] In Jordan, an author brought a copyright infringement action against the defendant for reprinting his article without permission.[42] The defendant made two offers of judgment—one for $15,000 and another for $20,000[43] The plaintiff rejected both offers but was awarded only $5,000 after a jury trial.[44] The Eleventh Circuit held that under Marek, "costs" include attorney fees when the underlying statute so prescribes and the Copyright Act so specifies.[45] Other district courts, such as the Southern District of New York, also have awarded post-offer attorney fees to a non-prevailing defendant.[46]

On the other hand, the First, Ninth, and Seventh Circuits have interpreted the "properly awardable" language in Marek as allowing cost-shifting of attorney fees only if such fees were properly allowable under the relevant statute, and attorney fees were only properly allowable to Chesny as the prevailing party.[47] Following this reasoning, in Energy Intelligence Group, Inc. v. CHS McPherson Refinery, Inc., the District of Kansas recently declined to shift attorney fees as part of costs to a non-prevailing party under Rule 68.[48] The Kansas court held that the term "costs" in Rule 68 referred to all costs "properly awardable under the relevant substantive statute," and attorney fees are not properly awardable to a non-prevailing party under Section 505 of the Copyright Act.[49] But there does not appear to be any statute that awards costs to a non-prevailing...

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