Thursday, July 10, 2008

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.

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.


CEP said...

I have no problem with the result, just with the rationale.

This should have been handled as a Rule 11 matter, not under copyright's fee-shifting rubric. Judge Posner characterizes the suit as being filed for an improper purpose. I understand quite well why he decided to do what he did: The standard for awarding Rule 11 sanctions is quite a bit higher, and particularly in reversing a trial judge's refusal to award such sanctions.

Thus, I'm in civil procedure geek mode here more than anything else...

William Patry said...

Here is Dr. Petit's discussion of the case on his blog:

Anonymous said...

I don't see this advancing equal treatment on attorney fee awards for prevailing defendants. Under the facts, these defendant's had to suffer the slings and arrows of outrageous fortune in order to get attorney fees.

I would expect that the defendants will soon file a copyright misuse complaint. That's an appropriate way to recover for what was done rather than pumping up the attorney fees as a backhanded route.

Christopher Fulmer said...

I doubt the following is true:
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.

I would have thought that in the typical copyright case, a victory for the defendant means that the court found that he did not infringe the plaintiff's copyright, but the copyright itself stands. There are only a handful of ways that a work would be outside copyright: lack of originality, expiration of term, failure to register or renew (for appropriate works), U.S. government work, etc... These all seem to be straightforward and cases where the plaintiff is unlikely to file to begin with.

There are, however, many more ways that a defendant could be found not to infringe: (1) Plaintiff's failure to prove elements of infringement, (2) independent creation, (3) copying unprotected content, (4) implied license, (5) fair use, etc....

Anonymous said...

Given the facts of the case, the result is appropriate, albeit I think the decision gives short shrift to the discretionary nature of a fee award. However, while I have great respect for Judge Posner, his opinion is just over the top.

The real howler in the opinion is this gem, which Prof. Patry quoted:

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.

This is garbage. It is the rare -- not the typical -- copyright case that involves an adjudication that declares a particular work unprotected, finds a copyright is invalid, or otherwise makes findings that effectively puts a work into the public domain. (Cf. patent cases, where invalidity findings are more commonplace and do have such an effect.) Your typical defense judgment in a copyright case usually results from a finding that the defendant did not commit an act of infringement (or, to be more precise, that the plaintiff did not carry the burden of establishing that he did), or from a finding that the plaintiff lacked standing to assert infringement in the first place. Such findings do absolutely nothing to "enlarge the public domain."

In those uncommon cases where a prevailing defendant actually *has* "enlarged the public domain" by invalidiating a copyright or, for example, establishing that a particular practice is fair use, I can see an argument that such ought to weigh heavily in favor of an award of attorneys fees. But to make sweeping generalizations that such uncommon results are "typical" and thus warrant a heavy presumption in favor of a defense fee award is not up to Judge Posner's usual high standards.

(BTW to Anonymous 1:33 PM: A "copyright misuse complaint" would be dismissed under 12(b)(6). Copyright misuse is nothing more than an equitable defense to a claim of infringement -- it's not a basis for a claim for relief.)

LKB in Texas

William Patry said...

Then too, many cases involve creators on both sides, or, as in Fogerty, the author as a defendant in a suit brought by an assignee.