Weighing in on attorney's fees in copyright cases, the U.S. Supreme Court unanimously held that federal courts must consider a variety of factors when determining whether to award fees to the prevailing party in an infringement dispute.
It was the second time the justices had considered the case involving Supap Kirtsaeng, who earned his living by importing and reselling textbooks. He asked family and friends to purchase English-language textbooks sold by John Wiley & Sons in Thailand and ship them to him in New York, where he sold them for less than the same books were sold in the United States. After paying his Thai suppliers, Kirtsaeng pocketed a profit.
Wiley eventually sued Kirtsaeng for copyright infringement, claiming that his activities violated the publisher's exclusive right to distribute the textbooks pursuant to the Copyright Act. Kirtsaeng invoked the "first-sale doctrine" as a defense, but Wiley countered that the doctrine did not apply when a book was manufactured abroad.
The dispute went all the way up to the Supreme Court, which decided in 2013 that the first-sale doctrine does allow the resale of foreign-made books, just as it does domestic books. Victorious, Kirtsaeng then returned to the federal district court and asked for more than $2 million in attorney's fees as the prevailing party.
Denying the motion, the federal district court gave "substantial weight" to the "objective reasonableness" of Wiley's infringement claim. Although unsuccessful, the court said the publisher's position was reasonable (noting that the Second Circuit Court of Appeals and three justices had agreed with it). The Second Circuit affirmed and Kirtsaeng again petitioned the high court.
In a unanimous opinion authored by Justice Elena Kagan, the Court agreed that substantial weight should be given to the objective reasonableness of the losing party's position. "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."
Section 505 of the Copyright Act states that a district court "may … award a reasonable attorney's fee to the prevailing party." The statute authorizes fee-shifting, the Court said, but does not specify the standards that courts should adopt or guideposts to use. Prior Supreme Court precedent established that although district courts have "broad leeway" when making a decision about awards of attorney's fees, they may not treat plaintiffs and defendants any differently, and must consider awards on a case-by-case basis.
However, the courts have taken different approaches in their application of the standard. To get the courts back on track, the justices provided some additional guidance on the application of Section 505.
The objective reasonableness of a party's position should be given substantial weight, the justices agreed, "because it both encourages parties with strong legal positions to stand on their rights and deters those with weak ones from proceeding with litigation," which in turn promotes the purposes of the Copyright Act, by enhancing the probability that both creators and users will enjoy the benefits of the statute. In addition, the standard is "more administrable" and treats plaintiffs and defendants even-handedly, the Court added.
"All of that said, objective reasonableness can be only an important factor in assessing fee applications—not the controlling one," Justice Kagan wrote. "[Section] 505 confers broad discretion on district courts and, in deciding whether to fee-shift, they must take into account a range of considerations beyond the reasonableness of litigating positions. That means in any given case a court may award fees even though the losing party offered reasonable arguments (or conversely deny fees even though the losing party made unreasonable ones)."
A court may order fee-shifting because of a party's litigation misconduct, for example, or to deter repeated instances of copyright infringement or overaggressive assertions of copyright claims. "Although objective reasonableness carries significant weight, courts must view all of the circumstances of a case on their own terms, in light of the Copyright Act's essential goals," the Court said.
Applying this standard to Kirtsaeng, the justices found "serious questions" about how the lower courts framed the inquiry, expressing concern that they turned "substantial" into nearly "dispositive," by suggesting that a finding of reasonableness raised a presumption against granting fees, which "goes too far in cabining how a district court must structure its analysis and what it may conclude from its review of relevant factors."
The Court therefore vacated the denial of an award and remanded the case for the district court to "take another look at Kirtsaeng's fee application."
To read the opinion in Kirtsaeng v. John Wiley & Sons, Inc., click here.
Why it matters: Courts now have additional guidance when considering whether to award attorney's fees pursuant to Section 505 of the Copyright Act. While the justices agreed that the "objective reasonableness" of the losing party's position should be given substantial weight, the Court said it was one factor among several and should not be dispositive to the inquiry. The impact of the decision remains to be seen, as the justices emphasized the "broad leeway" afforded to district courts, which must now figure out how to apply the standard.