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...
