Justices Hear Debate Over Fees in Copyright Cases

     WASHINGTON (CN) – In a case that refuses to die, the Supreme Court heard arguments Monday about what standards to apply in awarding attorney’s fees to the winning party in copyright cases.
     The original case emerged in 2008 when major academic publisher John Wiley & Sons caught wind that Thai national Supap Kirtsaeng was reselling its books, which his family purchased in Thailand and then shipped to the U.S., to finance his doctorate in mathematics at the University of Southern California.
     Kirtsaeng earned about $1 million from eBay sales, which the federal Copyright Act would normally exempt. However, a federal court slapped Kirtsaeng with $600,000 in damages, ruling that the “first-sale doctrine” does not apply to imported books printed or sold abroad.
     The Second Circuit upheld the ruling on appeal, but the U.S. Supreme Court reversed in 2013, and said the doctrine does apply to foreign works, after which the Second Circuit tossed out the $600,000 judgment.
     A federal judge then refused to award Kirtsaeng attorney’s fees, which brought the case back to the Supreme Court again this week.
     “When a defendant is trying to decide whether to fight for a principle, the availability of attorney’s fees can make all the difference in that decision, and in turn can make all the difference in whether the public’s rights are vindicated,” Kirtsaeng’s attorney, Joshua Rosenkranz, said at Monday’s hearing.
     The statute as it stands is vague, but the Second Circuit has developed a framework of objective reasonableness as the primary determining factor to guide it in awarding enhanced damages.
     That contrasts with the Supreme Court’s 1994 ruling on this issue in Fogerty v. Fantasy Inc., which rejected automatically awarding attorney’s fees to prevailing plaintiffs, adopting instead a more flexible approach that would consider a wider variety of equitable factors.
     U.S. District Judge Donald Pogue, however, found that Wiley’s suit was not unreasonable, and denied Kirtsaeng’s request for attorney’s fees on that basis.
     Kirtsaeng argues that the prevailing framework of the Second Circuit is too narrow and should be expanded to consider the totality of the circumstances, including a party’s financial resources – factors that would be considered under Fogerty.
     District courts should analyze “what would have been the right economic incentives for this plaintiff and this defendant,” in deciding whether to award attorney’s fees, Rosenkranz said.
     The John Wileys of the world – those running multi-billion-a-year businesses – do not need to worry about attorney’s fees in deciding whether to proceed with litigation, he added. But the Kirtsaengs of the world do.
     “In a standard where he stands to gain attorney’s fees for defending, that would have been an important incentive to encourage him to soldier on,” Rosenkranz said.
     The Second Circuit framework “does nothing to encourage a defendant who has a good defense but is facing off against a powerful adversary armed with a reasonable position,” Kirstsaeng’s attorney said.
     “That encouragement has not happened once in the last 15 years” in 187 cases, except when a plaintiff had been involved in unreasonable conduct, Rosenkranz added.
     “You have a great David versus Goliath story to tell,” Justice Elena Kagan said. “But as an ex-ante matter, I wonder if the rule that you suggest is not going to harm the Kirtsaengs of the world.”
     Kagan suggested that Rosenkranz’s proposed standards could inadvertently raise the stakes too high for someone in Kirtsaeng’s position, who is faced with the other side’s potentially much larger attorney’s fees.
     Does that mean that, when facing off against Goliath, David should always get attorney’s fees, even if Goliath had a reasonable position, Justice Ruth Bader Ginsburg asked Rosenkranz.
     Not necessarily, he responded, adding that the potential gains and motivations of each party should be weighed.
     Rosenkranz’s test gave Kagan pause. It could be difficult for people to predict on the front end of a lawsuit what their chances are, she said.
     “If you’re concerned about the Kirtsaengs of the world, the Davids in these kinds of suits, what you might want is a pretty clear safe harbor,” she said.
     Justice Stephen Breyer pushed Rosenkranz to further define what he believes is wrong with the current standard.
     Rosenkranz made four suggestions to guide district courts toward the standard he wants them to adopt.
     They should consider the totality of the circumstances and whether fees would advance the Copyright Act, he said. A court should also consider whether the availability of fees in a similar scenario “would create the right litigation incentives.”
     District courts should consider the Fogerty factors, which require application of the same standards to prevailing plaintiffs and defendants, while considering the purpose of the Copyright Act.
     “It should also consider the significance and nature of the win and the litigation incentives on both sides of the deed, including any disparity in resources,” Rosenkranz said.
     Breyer bought the first two points, but seemed unconvinced on the others.
     Wiley, on the other hand, argued that the Second Circuit does consider other factors, but in Kirtsaeng’s case, no other factor outweighed the objectively reasonable test.
     According to Wiley’s attorney Paul M. Smith, the lower courts did everything right.
     Justice Sonia Sotomayor noted that prevailing defendants in the Ninth Circuit get awarded attorney’s fees about 50 percent of the time. In the Second Circuit, only a smaller fraction has received fees.
     “Prevailing plaintiffs are winning everywhere in extraordinary numbers. And in both circuits, prevailing defendants are not winning hardly at all. At best, 50 percent in the Ninth Circuit,” Sotomayor said.
     Those figures include many default judgments with small fees, Smith responded.
     Sotomayor pressed Smith to explain why one factor seems to be overriding the others when awarding attorney’s fees to winning defendants.
     “When you have a case where both sides have a reasonable position, what you’re trying to do in that case under Fogerty is incentivize both parties to keep litigating so that the law can be clarified,” Smith said.
     He added, “You need a rule that says to people, here’s how we’re going to decide these things so you have predictability.”
     Sotomayor asked Smith if Kirtsaeng would have continued litigation without pro bono counsel, or would have gone into debt for it if he knew upfront he had a smaller chance of getting attorney’s fees.
     Both sides in this case had objectively reasonable positions, Smith said, and therefore neither side should get fees.
     “We think the Second Circuit’s test makes eminent sense and ought to be upheld,” Smith added. “Starting with the objective reasonableness makes a lot of sense. It leads to the right outcome and the right incentives, and it gives people some basis for being able to figure out what’s going to happen in the case and decide which cases to litigate to the end and which cases to settle or simply to abandon.”
     Smith explained the discrepancy between prevailing plaintiffs and defendants getting fees.
     “There are a lot of intentional infringers of copyrights out there in the world,” he said, adding that “it would be bizarre in a way if plaintiffs didn’t have a higher percentage of claims that were reasonable.”
     The Supreme Court will issue a ruling in the case later this spring.

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