Thursday, March 27, 2008

Attorneys’ Fees and Objectively Reasonable Claims

Can attorneys’ fees be awarded to a prevailing defendant under Section 505 of the Copyright Act if the court finds plaintiff’s unsuccessful claim was nevertheless objectively reasonable? The Sixth Circuit said yes this week in the latest Bridgeport Music saga, Bridgeport Music, Inc. v. WB Music Corp., ,2008 WL 762451 (6th Circuit March 25, 2008), Docket No. 06-5420.

To refresh people’s recollection, Bridgeport alleged nearly 500 counts against about 800 defendants for copyright infringement and other state-law claims arising from sampling the opening three-note chord from the immortal “Get Off Your Ass and Jam” (“Get Off”), written and recorded by George Clinton, Jr. and the Funkadelics in the 1970s. Bridgeport claims to own rights to the composition “Get Off” and alleged that the rap song “99 Problems” on the album “Home Invasion” infringed Get Off. Defendant Warner/Chappell Music denied that any samples were used on the “Home Invasion” album.

More than three years after filing suit against Warner/Chappell Music, Universal, and other defendants, the district court referred the case to a magistrate judge. Warner/Chappell Music moved for summary judgment on several grounds. As noted by the court of appeals:

The magistrate judge concluded that summary judgment should be granted. He determined that the infringement claims against the Warner defendants were barred both by a release as part of a settlement of prior litigation and by the applicable three-year statute of limitation. Although the Warner defendants had issued a license for the release of “99 Problems” in 1993, the only acts by the Warner defendants within the limitations period were the receipt of royalties on the sale of the album. Recognizing that there was no case law on the question, the magistrate judge concluded that the receipt of income from the sale of infringing products within the limitations period by a party who does not manufacture, distribute, or sell the infringing product (but who did provide a license) would not constitute direct or contributory infringement.

Universal had also moved for summary judgment, arguing that Bridgeport's claims were barred or limited by the statute of limitation. The district court adopted the magistrate judge's report and recommendation and granted summary judgment to the Warner defendants. The district court then granted summary judgment to Universal finding that Bridgeport failed to demonstrate direct, contributory, or vicarious infringement by Universal within the limitations period. As the court of appeals wrote:

Universal then moved for attorney’s fees. The district court found that Bridgeport had pursued an objectively reasonable legal theory that the receipt of royalties alone constituted an infringing act; however, the theory became unreasonable once the district court granted summary judgment on the identical issue to the Warner defendants. Because Bridgeport pursued its claim even though its legal theory had purportedly become objectively unreasonable, the district court awarded UPIP $79,340.94 in attorney fees and $3,409.35 in costs, which represented fees and costs incurred by UPIP after September 16, 2002.

On appeal, this court vacated the award. The court faulted the district court for its inconsistency regarding the reasonableness of Bridgeport's legal theory: “The district court explicitly found that Bridgeport's receipt of royalties theory was objectively reasonable. This objectively reasonable theory did not suddenly become objectively unreasonable (factually and legally) once it became apparent that the district court would most likely reject it and enter summary judgment in UPIP's favor.” Rhyme Syndicate, 376 F.3d at 628. The court concluded that it was an abuse of discretion to award fees and costs based on an erroneous determination that the theory had become unreasonable. Id. The court remanded the case for the district court to consider in its discretion whether an award or partial award was warranted based on a weighing of one or more relevant factors or because an award would otherwise further the purposes of the Copyright Act.

At this point, readers might believe that the district court would do something different on remand, even if only a teeny bit to show it got the court of appeals’ message. But the district court didn’t change a thing. Now, not having changed a thing, readers might think that the court of appeals would reverse: what, after all, might lead it to change its mind? Well, it didn’t change its mind, and it affirmed the very decision it had previously vacated. Here’s the court of appeals’ rationale, which I offer as a puzzler:

This case presents one of the rare instances in which a district court orders a party to pay attorneys' fees and costs in spite of finding that the party advanced an objectively reasonable legal claim or theory. … Thus, the question boils down to the following: despite the objective reasonableness of Bridgeport's royalty-receipt theory, are there other factors that are sufficiently weighty to justify the award against Bridgeport?

As the district court reiterated on remand, Bridgeport's theory had some support in law and in fact-it was objectively reasonable. The district court's negative evaluation of the theory in the case against the Warner defendants did not somehow dissolve the theory's legal and factual merits with regard to UPIP. That is, in essence, what the court held in Rhyme Syndicate.

Recognizing that the royalty-receipt theory was, is, and will remain objectively reasonable regardless of the ultimate outcome, however, does not mean that Bridgeport's continued reliance on the theory in this instance was necessarily nonsanctionable. Objective reasonableness is not an impenetrable shield against fees and costs.

There are dozens of twists and turns and nuances in the opinion I have omitted in an effort to over-simplify. I differ with the court in thinking the royalty-receipt theory of liability theory ever objectively reasonable; in my opinion it was wholly without merit and sanctionable. But at least the court of appeals managed to find a way to give defendants something for their tremendous trouble.

1 comment:

mella said...

Interesting post!