On June 16, the U.S. Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons Inc., No. 15-375, resolved a circuit court split by reaffirming the test district courts should use to determine whether to award attorney’s fees to the prevailing party in copyright litigation. The unanimous decision instructs district courts to take a broad approach that considers all relevant factors to awarding attorney’s fees, but with “substantial weight to the objective reasonableness of the losing party’s position.” The Supreme Court’s ruling in Kirtsaeng vacated a previous decision by the U.S. Court of Appeals for the Second Circuit and remanded the case to the district court to determine whether to award attorney’s fees by applying the guidance provided in the opinion. 

The ruling in Kirtsaeng marks the first time in more than two decades that the Supreme Court has waded into the murky waters of the Copyright Act’s Section 505 provision pertaining to attorney’s fees. 

BACKGROUND

Fogerty v. Fantasy Inc., 510 U.S. 517 (1994) – Fogerty’s Nonexclusive Factors

As noted, the Supreme Court’s last decision addressing the attorney’s fees provision in Section 505 of the Copyright Act was more than twenty years ago in Fogerty v. Fantasy Inc., 510 U.S. 517 (1994). In Fogerty, the Supreme Court provided four “nonexclusive factors” for courts to consider when analyzing whether to award attorney’s fees: (1) frivolousness; (2) motivation; (3) objective unreasonableness in the factual and legal elements of the case; and (4) the need in particular circumstances to advance considerations of compensation and deterrence. 510 U.S. 517, 534 n.19 (1994). The Supreme Court qualified the four factors; however, the decision stated expressly that there was “no precise rule or formula” and that these factors may be used to guide courts’ discretion, “so long as such factors are faithful to the purposes of the Copyright Act.” Id. 

Over the decades, the amorphous guidelines in Fogerty led to a circuit split. Some courts interpreted the decision to require weighing all factors evenly. Other courts weighed the “objective unreasonableness” factor with significantly more importance than the other factors. The Second Circuit fell squarely in the second camp, leading to the rejection of Kirtsaeng’s requested fee award.

Kirtsaeng v. John Wiley & Sons, 133 S. Ct. 1351 (2013) – Copyright’s First Sale Doctrine Applies to Domestic and Foreign Goods and Accrual of Attorney’s Fees

The current Kirtsaeng decision marks the second time this copyright case reached the Supreme Court. The dispute arose when Supap Kirtsaeng, a Thai citizen studying in the U.S., began importing substantially less expensive foreign editions of John Wiley & Son’s English-language textbooks purchased by family members in Thailand, and reselling them to U.S. students. Wiley sued Kirtsaeng for copyright infringement, and Kirtsaeng raised the first sale doctrine as a defense. The Supreme Court’s landmark decision in 2013 held that the first sale doctrine of Section 109 of the Copyright Act (a) applies to both domestic and foreign goods. Kirtsaeng v. John Wiley & Sons, 133 S. Ct. 1351 (2013).

Although Kirtsaeng prevailed over Wiley in 2013, the cost of Kirtsaeng’s multi-year defense amounted to approximately $2 million, nearly $100,000 of which Kirtsaeng paid out of pocket. 

CURRENT DECISION

Kirtsaeng v. John Wiley & Sons Inc., No. 15-375 – All Relevant Factors Considered, but Substantial Weight to Objective Reasonableness

Kirtsaeng sought to recover more than $2 million in attorney’s fees from Wiley under Section 505 of the Copyright Act, which gives courts discretion to “award a reasonable attorney’s fee to the prevailing party as part of the costs.” However, the Second Circuit follows the stricter interpretation of Fogerty and weighs the “objective unreasonableness” factor above other factors, and in some circumstances disregards the other factors. The trial court and the Second Circuit refused to award attorney’s fees to Kirtsaeng, holding that the purpose of Section 505 of the Copyright Act was not to award attorney’s fees to either party in cases involving unsettled areas of law. The Second Circuit affirmed, and Kirtsaeng sought certiorari.

On certiorari, Wiley argued in favor of the Second Circuit’s interpretation of Fogerty, which does not award attorney’s fees in cases where the losing party’s case was objectively reasonable. On the other side, Kirtsaeng argued in favor of fee-shifting as an incentive for parties to bring cases that resolve unsettled areas of law. 

In the Court’s opinion, Justice Kagan addressed arguments from each party. The Court found fault with Kirtsaeng’s support of fee-shifting, noting that “[w]hile fees increase the reward for a victory, they also enhance the penalty for a defeat.” The Supreme Court found Wiley’s approach more “administrable,” but found that the Second Circuit went too far in limiting the “objective reasonableness” factor as the sole controlling factor. Justice Kagan wrote that the Second Circuit “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.”

The Supreme Court emphasized the broad discretion available to the courts for analyzing the “full scope” of relevant factors when determining whether to award attorney’s fees to the prevailing party in copyright litigation. As a result, the Court vacated the appellate decision and remanded the case for further proceedings consistent with the Court’s opinion.

LOOKING AHEAD

Supreme Court Resolves Circuit Split, but No Bright-Line Test

The Supreme Court’s decision in Kirtsaeng is aligned with other recent intellectual property law decisions from the Supreme Court addressing efforts by lower courts to add structure to imprecise statutory language, such as the recent Halo decision addressing willful patent infringement. In Kirtsaeng, the Supreme Court resolved the circuit split over how to apply the Fogerty factors by emphasizing the court’s broad discretion, and disallowing the approach that used “objective unreasonableness” as the sole factor for determining whether to award attorney’s fees to the prevailing party. 

The Court was clearly concerned with the proper alignment of litigation incentives. Justice Kagan wrote that when the district courts have broad discretion to award fees, “[p]arties with strong positions are encouraged to stand on their rights, given the likelihood that they will recover fees from the losing (i.e., unreasonable) party; those with weak ones are deterred by the likelihood of having to pay two sets of fees.” 

Parties that own copyrights, or that are accused of infringing them, may not be so comforted by this decision. Allowing the courts broad discretion to consider all relevant factors, without clearly defining those factors, increases uncertainty surrounding the recovery of attorney’s fees under Section 505. Another circuit court split may be on the horizon, as courts cherry-pick which factors are relevant and struggle with the weight given to those factors. And settling cases may be more difficult. The potential attorney’s fees pay-off for a prevailing party looks more like a roll of the dice rather than a predictable, manageable risk.