U.S. Supreme Court holds “objective reasonableness” of losing party’s position is important factor but not controlling one in considering award of attorneys’ fees under Copyright Act.
Graduate student Supap Kirtsaeng, a citizen of Thailand who studied math at Cornell University, discovered that publisher John Wiley & Sons sold nearly identical English language textbooks in Thailand and the United States, except that the textbooks cost significantly less in Thailand. With the help of his family and friends, Kirtsaeng started a profitable business purchasing foreign-edition textbooks from Thai bookstores and selling them to American students.
Wiley sued for copyright infringement, accusing Kirtsaeng of violating Wiley’s exclusive right to distribute textbooks. Kirtsaeng asserted Section 109(a) of the Copyright Act’s “first-sale doctrine” defense, which generally enables the lawful owner of a work to dispose of it in any manner. At the time of the lawsuit, the courts were in conflict as to whether Section 109(a) applied to foreign-made works. The district court and Second Circuit sided with Wiley, but the U.S. Supreme Court reversed, establishing that the first-sale doctrine applies to foreign-made books as well as domestic books.
Having prevailed at the Supreme Court, Kirtsaeng returned to the district court and requested over $2 million in attorneys’ fees under Section 505 of the Copyright Act. Section 505 states a district court “may . . . award a reasonable attorneys’ fee to the prevailing party.” The district court refused the request, giving “substantial weight” to the “objective reasonableness” of Wiley’s copyright infringement claim. The court reasoned that no other circumstance “overrode” that objective reasonableness so as to warrant fee-shifting. The Second Circuit affirmed, and the Supreme Court granted certiorari.
In a unanimous opinion written by Justice Elena Kagan, the Court acknowledged that the objective reasonableness of the losing party’s position should be given substantial weight in the fee-shifting analysis. The “objective reasonableness” factor encourages useful copyright litigation by discouraging meritless or weak claims, is more administrable than other suggested standards in that “a district court that has ruled on the merits of a copyright case can easily assess whether the losing party advanced an unreasonable claim or defense,” and treats plaintiffs and defendants evenhandedly. “No matter which side wins a case, the court must assess whether the other side’s position was (un)reasonable,” the Court pointed out. In contrast, the Court reasoned that Kirtsaeng’s argument that substantial weight be given to a suit’s role in resolving an important and close legal issue merely raises the stakes of such suits (which might or might not encourage them) and is difficult to administer in that the potential significance of a newly decided issue may be uncertain at the conclusion of a suit.
Ultimately, however, “objective reasonableness can be only an important factor in assessing fee applications—not the controlling one,” the Court said. As recognized in the Court’s 1993 decision in Fogerty v. Fantasy, Inc., Section 505 confers broad discretion on district courts, and in considering a fee-shifting application, they must take into account a range of considerations beyond the reasonableness of litigating positions, e.g., frivolousness, motivation, and the need in particular circumstances to advance considerations of compensation and deterrence. “Although objective reasonableness carries significant weight, courts must view all the circumstances of a case on their own terms, in light of the Copyright Act’s essential goals,” the Supreme Court said.
Kirtsaeng raised serious questions about how fee-shifting operates in the Second Circuit. “[T]he Court of Appeals’ language at times suggests that a finding of reasonableness raises a presumption against granting fees,” the Court said, pointing out that, as Kirtsaeng noted in his brief, “hardly any decisions in that Circuit have granted fees when the losing party raised a reasonable argument (and none have denied fees when the losing party failed to do so).” Because the Second Circuit’s ruling suggested that a finding of reasonableness raised a presumption against fees, and to avoid lower courts interpreting “substantial weight” as “dispositive weight,” the Supreme Court vacated and remanded for further proceedings consistent with the opinion.