Why it matters: On June 16, 2016, the Supreme Court decided Kirtsaeng v. John Wiley and Sons, Inc., where it clarified the standard district courts should use when exercising discretion in awarding attorney's fees to prevailing parties in copyright suits under Section 505 of the Copyright Act (17 U.S.C. § 505). Specifically, the Court held that, when exercising its "broad" discretion as to whether to award attorney's fees under Section 505, a district court should give substantial weight to the objective reasonableness of the losing party's litigation position but must also take into account all other factors and criteria relevant to granting the fees.
Detailed discussion: On June 16, 2016, the Supreme Court handed down its decision in Kirtsaeng v. John Wiley and Sons, Inc., where it clarified the standard district courts should use when exercising discretion in awarding attorney's fees to prevailing parties in copyright suits under Section 505 of the Copyright Act (17 U.S.C. § 505). We covered the oral argument before the Court in our June 2016 newsletter. To briefly review, this is a return trip to the Supreme Court for these parties. In 2013, the Court reversed the Second Circuit Court of Appeals, holding that, as a result of the first sale doctrine, petitioner Supap Kirtsaeng (Kirtsaeng) did not infringe textbook copyrights owned by publisher John Wiley and Sons, Inc. (Wiley) when he imported cheaper international textbooks for resale in the United States. Subsequently, Kirtsaeng, as the prevailing party, attempted to recover more than $2 million in attorney's fees under Section 505. Both the district court and the Second Circuit denied Kirtsaeng's request because they gave substantial weight to Wiley's "objectively reasonable" infringement claims even though Wiley was ultimately unsuccessful.
The Supreme Court agreed to review the issue of the standard for awarding fees under Section 505 due to a multi-circuit split on how the statute should be interpreted. Section 505 provides in relevant part that a "court may ... award a reasonable attorney's fee to the prevailing party." In his writ petition and during oral argument, Kirtsaeng contended that the circuit split adversely affected the outcome of his fee award based solely on where he was originally sued. Specifically, Kirtsaeng argued that he would have (1) obtained his fees in the Ninth or Eleventh Circuit, because they only ask if the prevailing party's claim or defense furthered the interests of the Copyright Act; (2) been entitled to a rebuttable presumption in favor of recovering his fees in the Fifth or Seventh Circuits; and (3) likely obtained his fees in the Third, Fourth, or Sixth Circuits—which apply the four factors from the Supreme Court's 1994 Fogerty v. Fantasy, Inc.decision (i.e., frivolousness, motivation, objective unreasonableness, and considerations of compensation and deterrence). Kirtsaeng argued, he was denied his fees because he was sued in the Second Circuit, which applies the standard established in Matthew Bender & Co. v. West Publishing Co. that overly relies on the objective reasonableness of the losing party's litigation position in deciding whether to award fees to the prevailing party.
In a unanimous opinion authored by Justice Kagan, the Court held that, when a district court exercises its broad discretion as to whether to award attorney's fees based on the objective reasonableness of the losing party's position, it must also take into account all other factors and criteria relevant to granting the fees:
The question presented here is whether a court, in exercising… authority [to award attorney's fees under Section 505], should give substantial weight to the objective reasonableness of the losing party's position. The answer, as both decisions below held, is yes—the court should. But the court must also give due consideration to all other circumstances relevant to granting fees; and it retains discretion, in light of those factors, to make an award even when the losing party advanced a reasonable claim or defense.
In its analyses, the Court acknowledged the open-ended discretion and leeway the district courts have under Section 505 with no "precise rule or formula" for granting attorney's fees. The Court pointed to its 1994 Fogerty decision where it "established several principles and criteria to guide" the district courts' decisions under Section 505, all in accordance with the overarching principle of asking whether the award would serve to encourage litigation that would further the goals of the Copyright Act. The Court noted that Fogerty established two "restrictions" (i.e., (1) attorney's fees cannot be awarded as a matter of course and (2) prevailing plaintiffs and prevailing defendants must be treated the same) and " 'several non-exclusive factors' to inform a court's fee-shifting decisions: 'frivolousness, motivation, objective unreasonableness[,] and the need in particular circumstances to advance considerations of compensation and deterrence.' " However, the Court said that Fogerty purposely "left open the possibility of providing further guidance in the future, in response to (and grounded on) lower courts' evolving experience" with Section 505, and the Court stated that "[w]e join both parties in seeing a need for some additional guidance respecting [its] application."
The Court next specifically examined the "objective reasonableness" factor (as applied to the losing party's claims or defense) and found that it could be a substantial factor in assessing fee awards under Section 505 because it furthered the interests of the Copyright Act; however, it could not be the controlling factor. The Court looked to Second Circuit precedent, including Matthew Bender, and found that, while the district courts in that circuit are correctly instructed to give "substantial weight" to the objective reasonableness of the losing party's litigation position under Section 505, the language "at times suggests that a finding of reasonableness raises a presumption against granting fees, and that goes too far in cabining the district court's analysis." In addition, the Court said that some of the district courts in the Second Circuit "have overlearned" the lesson and have seemingly substituted the word "dispositive" for "substantial" in the weight given to the objective reasonableness factor. The Court concluded:
[F]or these reasons, we vacate the decision below so that the District Court can take another look at Kirtsaeng's fee application. In sending back the case for this purpose, we do not at all intimate that the District Court should reach a different conclusion. Rather, we merely ensure that the court will evaluate the motion consistent with the analysis we have set out—giving substantial weight to the reasonableness of Wiley's litigating position, but also taking into account all other relevant factors.
See here to read the Supreme Court's 6/16/16 opinion in Kirtsaeng v. John Wiley and Sons, Inc.