USCA Seventh Circuit, July 9, 2008

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The Seventh Circuit reversed a district court’s denial of attorney’s fees for the defendants in a copyright infringement suit between competitors after finding that the suit was frivolous and filed in bad faith.

The plaintiff is in the business of cleaning up toxic sites. It created and registered a copyright in a safety manual comprised mostly of OSHA regulations. Four of the plaintiff’s employees left and formed their own company, H2O Industrial Services, the defendant in this case.

The plaintiff sent two spies to the defendant company who posed as potential customers and asked to see the defendant’s safety manual. The defendant showed them a copy of the plaintiff’s manual. Soon thereafter, the defendant created its own safety manual.

The plaintiff filed suit for copyright infringement, claiming that the defendant was using the plaintiff’s safety manual. The plaintiff admitted that it was not entitled to statutory damages and could not prove actual damages, but it argued that the plaintiff was entitled to all the profits the defendant made because the defendant would have been violating OSHA if it operated without a safety manual.

The district court granted the defendant’s motion for judgment as a matter of law, but denied the defendant’s motion for attorney’s fees. The Seventh Circuit reversed on the issue of attorney’s fees, finding that the suit was frivolous and filed in bad faith. The court reasoned that the suit “could not have been brought in good faith because Eagle never had any basis for thinking that Indiana would have shut down H2O [for OSHA violations] had H2O not copied Eagle’s manual.” In addition, the court stated the suit was frivolous even if there was a copyright violation. “When a plaintiff is just suing for money and he has no ground at all for obtaining a money judgment, the fact that his rights may have been violated does not save his suit from being adjudged frivolous.”

Notably, the court explained that, regardless of whether the suit was filed in bad faith or not, an attorney’s fees award was appropriate because, when the prevailing party is a defendant, “the presumption in favor of awarding fees is very strong.” The opinion criticized prior decisions that have refused to award fees to prevailing defendants and noted that “if there is an asymmetry in copyright, it is one that actually favors defendants.”