Supreme Court Revisits Copyright’s Attorney Fee Shifts–Kirtsaeng v. Wiley

The Copyright Act, 17 U.S.C. 505, has a discretionary “loser-pays” attorneys’ fee shift. We’ve blogged repeatedly about abusive copyright enforcements where that fee shift provides a modicum of fairness to defendants (e.g., Inglewood v. Teixeira; Katz v. Chevaldina; Righthaven v. Leon). So making sure the copyright fee shift is properly calibrated plays an important role in copyright law.

Yesterday, the Supreme Court gave us new information–though perhaps no new insights–about when fee shifts are appropriate. The ruling involves the long-running Kirtsaeng v. Wiley case, involving transborder importation of copyrighted works. In 2013, the Supreme Court held that the First Sale protected the importations. As the prevailing party, the importer then sought $2M+ of attorneys’ fees, but the district court denied the request. The Supreme Court reversed and remanded, sending the fee shift request back to the district court for reconsideration.

The Supreme Court starts by recapping the existing fee shifting rules (from 1994’s Fogerty v. Fantasy):

First, a district court may not “award[] attorney’s fees as a matter of course”; rather, a court must make a more particularized, case-by-case assessment. Second, a court may not treat prevailing plaintiffs and prevailing defendants any differently; defendants should be “encouraged to litigate [meritorious copyright defenses] to the same extent that plaintiffs are encouraged to litigate meritorious claims of infringement.” In addition, we noted with approval “several nonexclusive 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.”

In Kirtsaeng, the Supreme Court highlights one of the nonexclusive factors, saying courts should “give substantial weight 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.” The court explains:

For example, a court may order fee-shifting because of a party’s litigation misconduct, whatever the reasonableness of his claims or defenses. Or a court may do so to deter repeated instances of copyright infringement or overaggressive assertions of copyright claims, again even if the losing position was reasonable in a particular case.

Emphasizing how much it favors standards over rules, the Supreme Court says that even if the court finds the losing party’s position reasonable, it cannot apply a presumption against granting fees.

I see similarities between the Kirtsaeng ruling and the court’s patent damages ruling earlier this week in the Halo and Stryker cases. The Federal Circuit had said that enhanced willful patent damages could be awarded only when the defendant engaged in “objectively reckless” behavior. The Supreme Court said that objective recklessness was an important consideration to enhanced patent damages but courts can consider other factors too. The Kirtsaeng ruling’s logic–look objectively at the party’s behavior, but don’t limit the inquiry to that–virtually parallels the Halo/Stryker ruling. Collectively, it’s pretty clear what the Supreme Court wants, i.e., “district courts: more standards, less rules.”

The Supreme Court expressly says it doesn’t presuppose what will happen on remand, but it’s hard to see how Kirtsaeng will get a fee shift. Wiley won both at the district and appellate court levels; and the Supreme Court’s prior First Sale/importation precedent (the Costco v. Omega case) had divided the court 4-4. In light of the unsettled or even favorable law, was it objectively reasonable for Wiley to bring the lawsuit? That seems extremely hard to contest. If so, the only way Kirtsaeng wins a fee shift is by showing some other major consideration that trumps Wiley’s otherwise objectively reasonable decision to sue. To me, suppressing transborder price arbitrage seems anti-competitive and is certainly anti-consumer, but I doubt the district court will find those considerations very compelling–especially given how Wiley’s practices were ubiquitous in the industry. So Kirtsaeng’s reversal at the Supreme Court probably won’t make much of a difference in his case. It’s possible it won’t make much of a difference in any other cases, either.