IP Law Daily Denial of attorney fees to textbook seller vacated for failure to weigh ‘relevant considerations’
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Thursday, June 16, 2016

Denial of attorney fees to textbook seller vacated for failure to weigh ‘relevant considerations’

By Thomas Long, J.D.

In denying a motion for attorney fees by Supap Kirtsaeng, a seller of textbooks manufactured outside the U.S. who successfully asserted a first-sale defense against copyright infringement claims by publisher John Wiley & Sons, the U.S. Court of Appeals in New York City, while correctly placing weight on the objective reasonableness of Wiley’s claims, failed to properly take into account other relevant circumstances, the U.S. Supreme Court has held in a unanimous decision (Kirtsaeng v. John Wiley & Sons, Inc., June 16, 2016, Kagan, E.). A finding that the nonmoving party acted with objective reasonableness did not, by itself, raise a presumption against awarding fees. The Second Circuit’s decision affirming a district court’s denial of fees to Kirtsaeng was vacated and remanded.

Wiley, an academic textbook publisher, assigned rights to its foreign subsidiary (“Wiley Asia”) to publish, print, and sell foreign editions of Wiley’s English-language textbooks abroad. Wiley Asia’s books contained copyright notices stating that they were not to be taken into the United States without permission. The petitioner, Kirtsaeng, was a Thai college student living in the United States. Kirtsaeng had asked friends and family to buy foreign editions of English-language textbooks in Thai bookshops, where they sold at low prices, and to mail them to the United States. Kirtsaeng then resold the books on commercial websites in the United States. Wiley filed a copyright infringement action against Kirtsaeng, alleging that Kirtsaeng’s unauthorized importation and resale of its textbooks violated Wiley’s exclusive rights under the Copyright Act.

Although the district court and the appellate court sided with Wiley on its infringement claims, the Supreme Court held in March 2013 in a 6-to-3 decision that the “first sale” doctrine codified by Section 109(a) of the Copyright Act applied to copies of a copyrighted work that were lawfully made abroad. Wiley’s claims against Kirtsaeng for selling foreign-made books in the United States without authorization were accordingly dismissed. Kirtsaeng then filed a request for an attorney fee award of more than $2 million, which was denied by the district court. In denying the fee request, the district court relied on Second Circuit precedent by giving “substantial weight” to the fact that Wiley’s infringement claims were not “objectively unreasonable.” The district court explained its approach by stating that “the imposition of a fee award against a copyright holder with an objectively reasonable”—although unsuccessful—“litigation position will generally not promote the purposes of the Copyright Act.” The Second Circuit affirmed, in a per curiam summary order. The Court granted certiorari to decide the question, “What is the appropriate standard for awarding attorneys’ fees to a prevailing party under §505 of the Copyright Act?”

Section 505 of the Copyright Act provides that a district court “may … award a reasonable attorney’s fee to the prevailing party.” In exercising that authority, the Court stated, a district court should give “substantial weight” to the objective reasonableness of the losing party’s position. However, the court must also give due consideration to all other circumstances relevant to granting fees, and the court retained discretion to award fees even when the losing party advanced a reasonable claim or defense. The Court said that it was not certain that the lower courts considering Kirtsaeng’s motion for fees had properly understood the full scope of that discretion.

Section 505 does not specify standards that courts should adopt, or guideposts they should use, in determining when fee awards were appropriate. The Court, in Fogerty v. Fantasy, Inc., 510 U. S. 517 (1994), recognized that courts had “broad leeway” under Section 505, but it also set forth several principles and criteria to guide decisions regarding fee awards. Although there was no “precise rule or formula,” the Court established two restrictions: (1) a district court may not award attorney fees as a matter of course, but must make a particularized, case-by-case assessment; and (2) courts must treat prevailing defendants and prevailing plaintiffs the same; that is, defendants should be encouraged to litigate meritorious defenses to the same extent that plaintiffs were encouraged to litigate meritorious claims of infringement. In addition, several nonexclusive factors informed fee-shifting positions: frivolousness, motivation, objective unreasonableness, and the need in particular circumstances to advance considerations of compensation and deterrence.

The Court noted that Kirtsaeng and Wiley agreed that Section 505 granted courts wide latitude to award attorney’s fees based on the totality of circumstances in a case. Both called, in almost identical language, for “[c]hanneling district court discretion towards the purposes of the Copyright Act.” Beyond this, however, the parties differed. Wiley argued that giving substantial weight to the reasonableness of a losing party’s position will best serve the Copyright Act’s objectives. Kirtsaeng contended that special consideration should be given to whether a lawsuit resolved an important and close legal issue and thus “meaningfully clarified” copyright law.

According to the Court, Wiley’s objective-reasonableness approach would promote the purposes of the Copyright Act by encouraging parties with strong legal positions to stand on their rights, while deterring those with weak positions from pursuing litigation. Kirtsaeng’s position, in contrast, “would not produce any sure benefits,” the Court said. Fee-shifting would not necessarily encourage parties to litigate cases to judgment.

“Fee awards are a double-edged sword,” the Court said. “They increase the reward for a victory—but also enhance the penalty for a defeat.” In hard cases, neither party could be confident of getting a favorable or unfavorable result; therefore, Kirtsaeng’s approach could discourage parties from pursuing some suits that could “meaningfully clarify” copyright law. Whether the higher stakes of a fee award would provide an incentive to litigate would depend on a party’s attitude toward risk. Only more risk-preferring parties would litigate more under Kirtsaeng’s approach.

In addition, Wiley’s approach was more administrable than Kirtsaeng’s, the Court said. A district court that had ruled on the merits could easily decide whether claims or defenses were reasonable or unreasonable. In contrast, a judge might not know at the conclusion of a lawsuit whether a newly decided issue would have critical legal significance. The precedential value of a decision might become clear only in retrospect, perhaps many years later. District courts, the High Court said, are not accustomed to making “real time” determinations as to the jurisprudential import of their rulings.

Placing substantial weight on objective reasonableness treated plaintiffs and defendants even-handedly, the Court added. The Court rejected Kirtsaeng’s argument that a losing defendant will always been deemed to have acted unreasonably; the question of whether a defendant infringed a copyright was separate from the question of whether the defendant presented serious defenses. Just because a defense ultimately failed did not mean that the defense was unreasonable. Courts should not confuse the issue of liability with the issue of reasonableness, the High Court cautioned.

Despite its importance, objective reasonableness was only one factor to be considered, the Court explained, and it was not the controlling factor. A court could award fees even though the losing party presented reasonable arguments, or it could deny fees even though the losing party made unreasonable arguments. For example, litigation misconduct by a losing party could justify a fee award, regardless of the reasonableness of the party’s claims or defenses.

In the Court’s view, Kirtsaeng raised serious questions about how fee-shifting operated in practice in the Second Circuit. The Second Circuit’s language at times suggested that a finding of reasonable raised a presumption against granting fees; that went too far in limiting the district court’s analysis. Moreover, the Court said, district courts in the Second Circuit seemed to have “overly learned the Court of Appeals’ lesson” by turning “substantial” into nearly “dispositive” weight. Courts in the Second Circuit rarely granted fees when the losing party raised a reasonable argument, and none had denied fees when the losing party failed to do so.

For these reasons, the Court vacated the lower court’s decision so that the district court could reexamine Kirtsaeng’s fee application. The Court stated that it was not directing the district court to reach a different result from its first look at the motion, but rather was merely ensuring that the court will give substantial weigh to the reasonableness of Wiley’s litigating position, while also taking into account all other relevant factors.

The case is Dkt. No. 15-375.

Attorneys: E. Joshua Rosenkranz (Orrick, Herrington & Sutcliffe LLP) for Supap Kirtsaeng. Paul M. Smith (Jenner & Block LLP) for John Wiley & Sons, Inc.

Companies: John Wiley & Sons, Inc.

MainStory: TopStory Copyright

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