I love Wisconsin: 17 U.S.C. § 505

By J. DeVoy

Copyright law has some interesting game theory-like features, which is rational when considering that most producers of copyrighted content are more sophisticated than your average consumer.  Thought experiment: Who’s more likely to be detail-oriented, someone who shoots video for a living or a person who slips in a puddle of water at Target?  Thought so.  These provisions in the U.S. Code play to an audience more likely to understand them.

One such section, 17 U.S.C. § 505, provides for costs and attorney’s fees as a remedy for infringement.

In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.

This looks benign enough on the surface.  The court’s discretion isn’t going to come down like an iron fist in favor of sanctions every single time, especially considering how high even “reasonable” attorney’s fees can run.  The Seventh Circuit, however, has adopted an interesting wrinkle to this jurisprudence and uniformly holds that a prevailing party has a strong presumption in favor of being awarded costs and fees.  While this is still a matter of the court’s discretion – the award can always be denied for cause – and thus within the statute’s language, it increases the stakes for copyright litigants in Indiana, Illinois and Wisconsin. See 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).

Where things can get ugly are the sometimes ethereal decisions – or at least arguments – as to who is the prevailing party.  Winning on the merits is not necessary.  In fact, the Supreme Court has previously spoken to this issue in Buckhannon Board & Care Home, Inc. v. West Virginia Dep’t of Health & Human Resources, 532 U.S. 598, 604 (2001), holding that a litigant “prevails” for the purpose of fee-shifting statutes when it obtains a “material alteration of the legal relationship of the parties.”  Generally, this means a judgment of any kind.  Even if the party against whom judgment is entered could have won on the merits, but didn’t fight for any number of reasons – such as getting pounded by a better-funded copyright troll – an adverse judgment triggers fee shifting.  This can be a dangerous tactic to use when negotiating settlements in the Seventh Circuit, since any party’s concession of an adverse judgment will increase its financial exposure under § 505.

There are other tactical maneuvers that can backfire when costs under § 505 are presumed.  In Riviera Distributors v. Jones, the Seventh Circuit granted costs to the defendant when the plaintiff, Riviera, sought to dismiss its own Complaint without prejudice under FRCP 41(a), but the trial court dismissed it with prejudice. 517 F.3d 926.  The court’s award included defendant’s legal fees not only for trial, but the federal appeal as well. Id. Ka-ching!

Additionally, in Hotz, the prevailing party’s order for costs was disputed by the losing parties because portions of Robbins’ (the winner) case were not fully addressed or resolved in his favor. 396 F.3d at 824 (7th Cir. 2005).  Indeed, it is only the final resolution of the case, and not its intrinsic, non-dispositive discovery or procedural disputes, that determine who the prevailing party is.

Still to come, however, is the Seventh Circuit’s view of Rule 68 offers of judgment in copyright cases.  In Champion Produce, Inc. v. Ruby Robinson Co., 342 F.3d 1016 (9th Cir. 2003), the Ninth Circuit held that losing at trial, even if the final awarded damages are less than the amount in the defendant’s Rule 68 offer of judgment.  Thus, a plaintiff has less incentive to take the Rule 68 offer, as recovery of anything after the offer, even if less than the offer of judgment amount, makes the Plaintiff a prevailing party entitled to pre- and post-offer costs – though not post-offer attorney’s fees – under § 505.  In contrast, the Eleventh Circuit has held that a defendant that makes an offer of judgment and then obtains a result better than the offer, such as the conclusion of a case for total damages worth less than the original offer of judgment, is a prevailing party for the purposes of § 505. Jordan v. Time, Inc., 111 F.3d 102 (11th Cir. 1997).  As seen in the Hotz decision, it seems plausible that the Seventh Circuit will adopt the 11th Circuit’s view, as the resolution of any one motion or dispute does not necessarily determine who prevails.  Nevertheless, the Ninth Circuit view may be nicely integrated into the Seventh’s jurisprudence under the Buckhannon standard for who is a prevailing party, determined by “material alteration of the legal relationship of the parties.”  To that end, whether a defendant loses less than they offered under Rule 68 is immaterial to the case’s resolution, where a judgment against them is still a judgment against them (the cost-shifting provisions of Rule 68 notwithstanding).

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