When is a Party a Prevailing Party?

When is a party a prevailing party in a copyright infringement action for purposes of awarding attorney's fees? Attorneys’ fees in copyright cases may be (but need not be) awarded to the prevailing party, a concept that has some grey areas. The Seventh Circuit, in an opinion by Chief Judge Easterbrook, just cleared one such area up: where plaintiff moves to dismiss a case without prejudice but the district judge dismisses with prejudice. The case is Riviera Distributors, Inc. v. Jones, 2008 WL 441762 (7th Cir. Feb. 20, 2008)(here is a link to the opinion and the oral argument). Here’s the relevant part of the opinion:

Both sides to this litigation hold copyrights in software. Plaintiffs (which we call Riviera) contend that the “Stars and Stripes” video-poker game sold by defendants (which we call Midwest) infringes Riviera's “Americana” source code. (There are several other games and sets of code, which we bypass to simplify the exposition.) After the suit had been pending for more than a year-and long after the time for a voluntary dismissal, without prejudice, under Fed.R.Civ.P. 41(a)(1) had passed-Riviera filed a motion to dismiss. It conceded that it lacked the evidence to prove its claim, though hoping to acquire better evidence in the future it asked the district judge to dismiss without prejudice under Rule 41(a)(2). The district judge dismissed the case, but with prejudice.

Midwest then applied for attorneys' fees under § 101 of the Copyright Act of 1976, codified at 17 U.S.C. § 505. That section authorizes a district court to “award a reasonable attorney's fee to the prevailing party as part of the costs.” Unlike many fee-shifting statutes, which entitle prevailing plaintiffs to recover fees as a matter of course but allow prevailing defendants to recover fees only if the suit was frivolous, § 505 treats both sides equally and allows an award in either direction. Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994). Since Fogerty we have held that the prevailing party in copyright litigation is presumptively entitled to reimbursement of its attorneys' fees. See, e.g., Woodhaven Homes & Realty, Inc. v. Hotz, 396 F.3d 822, 824 (7th Cir.2005); Assessment Technologies of Wisconsin, LLC v. WIREdata, Inc., 361 F.3d 434 (7th Cir.2004).

The district court denied Midwest's request for fees, ruling that it is not the prevailing party. The judge wrote that he “did not in any way pass on the merits of the litigation.... [T]here has been no evidence of lack of merit to [Riviera's] copyright infringement claims and no finding with respect to the merits of the case. The Court therefore does not believe that [Midwest is] entitled to prevailing party status on the facts of this case.”

This approach supposes that the content of a judge's opinion is what makes a litigant a prevailing party. If the judge sustains a litigant's position on the merits, then it “prevails”; otherwise not. The Supreme Court took a different view in Buckhannon Board & Care Home, Inc. v. West Virginia Dep't of Health & Human Resources, 532 U.S. 598, 121 S.Ct. 1835, 149 L.Ed.2d 855 (2001), which holds that a litigant “prevails” (for the purpose of fee-shifting statutes) when it obtains a “material alteration of the legal relationship of the parties”, 532 U.S. at 604, quoting from Texas State Teachers Ass'n v. Garland Independent School District, 489 U.S. 782, 792-93, 109 S.Ct. 1486, 103 L.Ed.2d 866 (1989). A judgment in a party's favor has such an effect, which is why a consent decree confers prevailing-party status even though everyone denies liability as part of the underlying settlement, and the judge takes no position on the merits.

Midwest obtained a favorable judgment. That this came about when Riviera threw in the towel does not make Midwest less the victor than it would have been had the judge granted summary judgment or a jury returned a verdict in its favor. Riviera sued; Midwest won; no more is required. See Mother & Father v. Cassidy, 338 F.3d 704, 708 (7th Cir.2003) (dismissal under Rule 41(a)(2), with prejudice, after a plaintiff gives up makes the defendant the prevailing party). The district court recognized as much when it awarded costs to Midwest under Fed.R.Civ.P. 54. Only the “prevailing party” is entitled to costs. Because Midwest is the prevailing party for regular costs, it must be the prevailing party for the purpose of § 505, which allows an award of attorneys' fees as part of costs.

The court then went on to hold the fees should be awarded, especially because the parties had previously agreed to a no suit clause in their contract.