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The Supreme Court on Thursday issued a unanimous ruling clarifying the test for awarding attorneys’ fees to successful copyright litigants.  The decision, in Kirtsaeng v. John Wiley &amp; Sons, Inc., is sure to have lasting impact on how both plaintiffs and defendants weigh the risk of litigating a copyright case to completion.

BACKGROUND

The underlying facts in Kirtsaeng are fairly straightforward.  Kirtsaeng was a Cornell graduate student who learned that foreign versions of certain textbooks cost less than identical versions sold in the U.S.  To make money, Kirtsaeng lawfully bought copies of the books overseas, and then shipped them to the U.S. where he sold them for less than the publisher’s U.S. price. John Wiley &amp; Sons, a textbook publisher, sued Kirtsaeng for copyright infringement in the Southern District of New York.   Kirtsaeng argued from the beginning that he was protected under the U.S. Copyright Act’s “First Sale” doctrine.  In general terms, that doctrine explains that once a copyright holder sells a copy of his work, that copy may be resold without restriction.  When the Kirtsaeng case was tried, the Circuit courts were divided over whether the First Sale doctrine applied to copies of works first sold outside of the U.S., and the Supreme Court had deadlocked 4-4 on the issue as recently as 2010.  Thus, Kirtsaeng’s and John Wiley’s positions were both objectively reasonable as they litigated in district court.

In a 2013 decision (Kirtsaeng I), the Supreme Court again examined the First Sale question, and this time reached a decision, agreeing with Kirtsaeng that First Sale doctrine does apply to lawful copies first sold outside of the U.S.  Therefore, Kirtsaeng’s U.S. resale of foreign purchase copies was entirely lawful.

On remand, however, the district court, and later the Second Circuit, nonetheless refused to award attorneys’ fees to Kirtsaeng as the prevailing party, primarily because the courts found that the legal position advanced by defendant Wiley &amp; Sons, although ultimately rejected,  was objective reasonable.

Prior law on attorneys’ fee awards in copyright cases called for the court to balance multiple factors, including the “objective reasonableness” of the respective parties’ positions, as well as (among other factors) whether the decision in the underlying dispute had made an important contribution to copyright law on an unsettled issue.  Kirtsaeng argued unsuccessfully that the resolution of this open issue under the First Sale doctrine which was achieved through his litigation was just such an important advance and so warranted his recovery of fees

The question on appeal in Kirtsaeng II was thus whether a court, exercising its discretion to award fees, should give greater weight to the losing party’s objective reasonableness—or lack thereof—or to the important contribution of the prevailing party’s case to copyright jurisprudence.

WEIGHTING “OBJECTIVE REASONABLENESS”

Section 505 of the Copyright Act provides that a district court “may … award a reasonable attorney’s fee to the prevailing party” in a copyright infringement action.  As written, Section 505 provides broad leeway to the district court judge, but the Supreme Court previously set forth, in Fogarty v. Fantasy, Inc., principles guiding district courts’ determinations.  The Fogarty Court identified a number of non-exclusive factors that the court should assess:  “frivolousness, motivation, objective reasonableness[,] and the need in particular circumstances to advance considerations of compensation and deterrence.”

As noted in an <a href="http://www.copyrightcontentplatforms.com/2016/01/supreme-court-to-address-attorney-fees-in-copyright-cases/">earlier blog post</a>, the Circuit Courts have applied these factors in varying ways.  The Second Circuit, from which Kirtsaeng appealed, held that “substantial weight” should be given to the objective reasonableness of the losing party’s position.  Since Wiley &amp; Sons’ position was assuredly objectively reasonable – it was advancing the position affirmed in multiple Circuit Courts up to that time, with no definitive Supreme Court guidance on the issue -- the Second Circuit affirmed the lower court’s refusal to award fees to Kirtsaeng despite his victory on the merits.

Kirtsaeng argued that because his successful effort to clarify the law on First Sale was such an important advance in copyright jurisprudence, he should be awarded his fees, so that other litigants faced with the choice whether to prosecute unsettled copyright issues to a final adjudication, or to withdraw early to avoid risk and expense, will be motivated to push forward.

The Supreme Court – which had earlier sided with Kirtsaeng on the First Sale doctrine – now sided with Wiley &amp; Sons, holding that the court should give “substantial weight to the objective reasonableness of the losing party’s position,”  The Court emphasized that this is not to be treated as the determinative or overriding criterion, and that an informed weighing of all the pertinent facto may justify a fee award against a party in a given case even though its arguments were objectively reasonable.  Because it was unclear whether the Second Circuit had given such due consideration to all the relevant factors, the Court remanded for further proceedings.

But the Court expressly disagreed with Kirtsaeng’s contention that the purposes of the Copyright Act are best served by awarding fees to a prevailing party whose case produced an important advance in copyright law even though the defendant’s claims were objectively reasonable.  In her opinion for a unanimous Court, Justice Kagan concludes that curtailing exposure to an adverse fee award if a party advancing objectively reasonable legal and factual claims goes to trial but loses, is more likely to promote edifying growth in copyright jurisprudence, than would be produced by the prospect that whoever wins in a close case, even though there are objectively reasonable positions on both sides, will recover a fee award.

IMPACT

For a plaintiff with a strong position, Kirtsaeng offers further incentive to fight the good fight and pursue vindication.  Likewise, an accused infringer with a strong defense will be encouraged not to throw in the towel, but to seek his day in court.  As Justice Kagan wrote for the Court, “[w]hen a litigant—whether plaintiff or defendant—is clearly correct, the likelihood that he will recover fees from the opposing (i.e., unreasonable) party gives him an incentive to litigate the case all the way to the end.”

To be sure, while “substantial weight” means that a party’s reasonableness will be a dominant factor in assessing fee-shifting in most copyright cases, it will not be dispositive factor.  All other pertinent factors in a given case must be considered.  For example, the Court cited litigation misconduct as one circumstance that might on its own override the strength of a party’s position.

Kirtsaeng provides much more clearly delineated guideposts for courts evaluating a claim for attorneys’ fees in copyright cases.  This, in turn, will enable litigants to better assess the likelihood of recovering (or suffering) fees in a given case, and also better define the ground rules for appellate review of such awards.

Kirtsaeng v. John Wiley & Sons: Copyright Litigation Risks