Supreme Court Determines Objective Reasonableness Should Receive Substantial Weight in Assessing Fee Awards under the Copyright Act, But Not to Exclusion of Other Factors (Kirtsaeng v. Wiley)

For the first time in twenty-two years, the U.S. Supreme Court, in an opinion issued yesterday, addressed the question of when an award of attorney’s fees is appropriate under the U.S. Copyright Act. According to the Court, the objective reasonableness of a losing party’s legal positions should be given substantial weight within a broader analysis that considers all factors relevant to granting fees.

Background:

In 2008, publisher John Wiley & Sons, Inc. brought suit for copyright infringement against Supap Kirtsaeng, a citizen of Thailand who had moved to the United States to study math at Cornell University. Realizing that Wiley sold identical English-language textbooks in both countries, but for a much lower price in Thailand, Kirtsaeng asked relatives to purchase the textbook in Thailand and send them to him in the United States.  Kirtsaeng then resold the textbooks to American students, reimbursed his Thai buyers, and pocketed the profit.

Both the District Court and Second Circuit found in favor of Wiley. Kirtsaeng appealed to the U.S. Supreme Court, which reversed the lower courts’ decisions, determining that Kirtsaeng was protected by the Copyright Act’s “first-sale” doctrine despite the fact that the textbooks at issue had been manufactured abroad. Kirtsaeng then sought an award of more than $2 million in attorney’s fees under the Copyright Act’s fee-shifting provision, 17 U.S.C. § 505. The District Court denied Kirtsaeng’s application, holding that Wiley, although the losing party, had taken reasonable legal positions. The Second Circuit affirmed the decision, noting that the District Court had properly placed “substantial weight” on the reasonableness of Wiley’s claims and legal theories. Kirtsaeng again appealed to the Supreme Court.

Copyright Act Section 505:

Under Section 505, the Copyright Act’s fee-shifting provision, a court may award reasonable attorney’s fees to a prevailing party in a copyright lawsuit. While the Act provides no precise rule or formula for determining when such an award would be appropriate, the Supreme Court has previously identified several factors that courts should consider, including frivolousness, motivation, objective unreasonableness, and the need in particular circumstances “to advance considerations of compensation and deterrence.” The Court has also stated that a lower court may not award attorney’s fees as a matter of course, and may not treat prevailing plaintiffs and prevailing defendants differently.

The Supreme Court’s Decision:

Acknowledging that further guidance expounding on its last opinion regarding attorney’s fees from more than 20 years ago would be useful, the Court sought to establish the proper approach to determining the propriety of fee awards under Section 505 that would best advance of the objectives of the Copyright Act—namely, enriching the general public through access to creative works by striking a balance between rewarding and protecting creators while also enabling others to make use of existing content. Wiley proposed placing substantial weight on the objective reasonableness of a losing party’s position; in contrast, Kirtsaeng proposed giving special consideration to whether a lawsuit meaningfully clarified copyright law by resolving important legal issues.

The Court agreed that Wiley’s test encourages parties with strong positions to assert their rights.  The Court explained that, under this approach, a copyright holder whose rights have been infringed would have good reason to bring and maintain a lawsuit, even if available damages are small. Similarly, a party defending against a meritless infringement claim would be incentivized to maintain a strong defense. Conversely, applying Kirtsaeng’s test would not, the Court held, produce any similarly sure benefits. While perhaps advancing the public interest, Kirtsaeng’s test would not necessarily encourage parties to litigate close cases because “the hallmark of hard cases is that no party can be confident if he will win or lose,” and the potential for fee shifting raises already high stakes even higher. Moreover, while a court that has ruled on the merits of a copyright case can easily assess whether the losing party advanced an unreasonable claim or defense, it cannot necessarily know at the conclusion of a lawsuit whether its decision will have broad legal significance. In that sense, the Court found Wiley’s approach to be “more administrable.”

The Court emphasized, however, that while objective reasonableness may be an important factor in assessing fee awards, it should not be “controlling.”  In other words, courts should consider all other circumstances relevant to granting fees—for instance, a party’s litigation misconduct, or the necessity of deterring repeated instances of copyright infringement or repeated instances of overly aggressive assertion of copyright infringement claims. Moreover, the Court explained, a fee award may even be appropriate even when the losing party advanced a reasonable claim or defense if, considering “all the circumstances,” a fee award would further “the Copyright Act’s essential goals.” The Supreme Court did not suggest that the lower court was wrong in declining Kirtsaeng’s fee award but sent the case back for reconsideration based on its clarification that all factors should be considered. The Supreme Court did not suggest that the lower court was wrong in declining Kirtsaeng’s fee award, but sent the case back for reconsideration based on its clarification that all factors should be considered.

Takeaway:

The Court’s decision offers some further guidance to lower courts assessing fee applications under the Copyright Act, which may lead to greater uniformity of lower court decisions. Within the Second Circuit, specifically, attorney’s fee analyses may change.  The Supreme Court observed that courts within the Second Circuit have come dangerously close to establishing a presumption against granting fees when a claim or defense is found to be reasonable, but warned that such an approach “goes too far.”  Courts in the Second Circuit will now likely take more care to consider all relevant factors, according reasonableness substantial but not dispositive importance. Parties litigating in the Second Circuit should expect a more nuanced and possibly complex fee award analysis, and should not presume that fees necessarily will (or will not) be awarded based solely on the reasonableness of the losing party’s position.