Judge Posner on Attorney's Fees to Defendants

Yesterday, Judge Posner handed down an opinion in Eagle Services Corp. v. H20 Industrial Services that is sure to cited by many future defendants who prevail and seek their attorney's fees. In a jury case, after Plaintiff rested, the district court granted defendant's motion for judgment as a matter of law, but denied a subsequent motion for attorney's fees. The district court found the suit not frivolous. The court of appeals found the suit to be frivolous. Plaintiff conceded it had suffered no actual damages and was not entitled to statutory damages. Instead, it sought defendant's indirect profits.

The suit involved an alleged claim of copyright infringement in a compilation of OSHA regulations. Employees of plaintiff left to start a new, competing firm. Plaintiff believing that defendants had taken its manual with them, and sent two people to defendant under the guise of being prospective customers. When they asked to see defendant's safety manual, they were shown plaintiff's. But defendants never sold copies of plaintiff's manual, and later developed their own manual that was, apparently, not infringing. In the litigation, plaintiff acted very aggressively, deposing all of H20's existing customers and a number of prospective ones as well. Judge Posner wrote, "the defendants claim without contradiction that as a result H20 lost many customers."

Plaintiff argued for a bizarre form of damages: "all the profits that H20 made in its business before it created is own manual." There was no ground for thinking there were any profits attributable to the infringement. Because the court of appeals found the suit to be frivolous and against a newer, smaller, and weaker competitor, as a matter of general law, the court of appeals thought that an award to defendant was required. If that is all the opinion said, I wouldn't be writing this blog. The court of appeals went on, saying that the case for fees to defendant is "even stronger in a copyright case." The backdrop to this is the continued refusal of some courts to adopt the even handed approach to awarding fees mandated by the Supreme Court's opinion in Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994). Before Fogerty many courts had a double standard in which prevailing plaintiffs got attorney's fees as a matter of course, but prevailing defendants had to prove plaintiff was something like a ax murderer.

Judge Posner set out to rectify the continued refusal of some court to comply with Fogerty:

If it is an asymmetry in copyright, it is one that actually favors defendants. The successful assertion of a copyright confirms the plaintiff's possession of an exclusive, and sometimes very valuable, right, and this gives it an incentive to spend heavily in litigation. In contrast, a successful defense against a copyright claim, when it throws the copyrighted work into the public domain, benefits all users of the public domain, not just the defendant; he obtains no exclusive right and so his incentive to spend on the defense is reduced and he may be forced into an unfavorable settlement.
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In the typical copyright case a victory for the defendant enlarges the public domain by denying the plaintiff's right to prevent the defendant -- or anyone else -- from using the intellectual property alleged to infringe the plaintiff's copyright.

There is also this passage in the opinion:

When a plaintiff is suing just 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. (page 5)

While this is dictum since Plaintiff's rights had not been found to be violated, it should be an important warning signs for copyright owners who have not suffered any financial harm, and are bringing suits, like Eagle did, for non-competitive reasons.

H.T. to C.E. Petit who I believe will disagree with this post.