Summary on the Supreme Court’s Recent Kirtsaeng Decision

By Samantha Leiner

The Supreme Court released its decision regarding the case Kirtsaeng v. John Wiley & Sons, Inc., 579 U. S. ____ (2016, in June.  This case deals with what factors a district court is supposed to look at when awarding or rejecting attorneys’ fee under the Copyright Act Section 505. 17 U.S.C. § 505.  The original infringement issue was decided by the Supreme Court in 2013.  See Kirtsaeng v. John Wiley & Sons, Inc., 568 U. S. ___ (2013).

 

Kirtsaeng, a citizen of Thailand, came to the US to go to school at Cornell University.  He realized the same textbooks required for his class in the US were sold for a significantly cheaper amount back home in Thailand.  Kirtsaeng had family and friends buy the textbooks in Thailand and then sent the books to him in the U.S., where he sold them for a nice profit.  Wiley & Sons, the publishing company for the textbooks, sued Kirtsaeng for copyright infringement, claiming his activities violated the exclusive right to distribute under the Copyright Act.  Kirtsaeng’s defense was the “first-sale doctrine,” which allows for the lawful owner of a copyrighted book to resell “or otherwise dispose of” the product as he wishes.  Wiley’s counter to Kirtsaeng’s defense is the “first-sale doctrine” does not apply when the book was manufactured abroad.   While this case was taking place, multiple courts were in conflict as to whether the “first-sale doctrine” applied to products manufactured abroad.  Even the Supreme Court in a previous decision was undecided on this issue in a 4-to-4 split of the Court. See Costco Wholesale Corp. v. Omega, S. A., 562 U. S. 40 (2010) (per curiam). Here, the district court sided with Wiley, as did a divided Second Circuit court.  However, the Supreme Court reversed in a 6-to-3 decision and determined the first-sale doctrine allows the resale of foreign-made books, just like domestic books.   Being victorious, Kirtsaeng went back to the district court to seek more than $2 million in attorneys’ fees from Wiley.  The district court denied the motion based on the reasoning that Wiley’s infringement claim was objectively reasonable, which the district court argued was in line with the Copyright Act’s purpose.  The Second Circuit affirmed the district court’s holding that attorneys’ fees would not be awarded due to the objective reasonableness of Wiley’s position in bringing the infringement suit.

 

The major issue presented to the Supreme Court was whether a court, in exercising its authority to award or deny attorney’s fees to the winning party, should give substantial weight to the objective reasonableness of the losing party’s position.

 

The Supreme Court found that a court, specifically a district court, should give substantial weight to the objective reasonableness of the losing party’s position.  However, the Court also held that district courts, when determining whether attorneys’ fees should be awarded, should also give weight to all other factors relevant in granting the motion for attorney’s fees, such as a party’s litigation misconduct or if the infringer has repeated offenses of infringement.  The Supreme Court further held that it is in a court’s discretion to order or deny attorneys’ fees based on these relevant factors.  Therefore, the Supreme Court vacated the decision and remanded back to the district court because the Justices were not sure whether the district court understood the full scope the discretion it holds.

 

The Supreme Court started its analysis by citing to Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), a Supreme Court case where it decided two restrictions or limitations for courts to follow when determining whether attorneys’ fees should be awarded under the Copyright Act § 505.   The two restrictions/limitations on district courts are: (1) when a district court is determining whether to award attorney’s fees it may not “award [] attorney’s fees as a matter of court,” but on a case-by-case, more particularized basis, Fogerty, 510 U.S. at 533; and (2) the district court shall treat prevailing plaintiffs and prevailing defendants equally when determining a motion for attorneys’ fees, Id. at 527.   The Supreme Court in Fogerty noted with approval “several nonexclusive factors” to help a district court in deciding whether to award attorneys’ fees, while leaving open the possibility of additional guidance in determining attorneys’ fees: “frivolousness, motivation, objective unreasonableness[,] and the need in particular circumstances to advance considerations of compensation and deterrence.”  Id. at 534, n. 19.    Here, Kirtsaeng and Wiley disagree as to “what else [the Court] should say to district courts” about what to consider when awarding attorneys’ fees.  Kirtsaeng, 579 U.S. at 4.  Both Kirtsaeng and Wiley argue that the Supreme Court should hold that the district court should put “substantial weight” on certain factors in determining whether attorneys’ fees should be awarded, but Kirtsaeng and Wiley differ on what factors should be given substantial weight.  Wiley argues that the district court, in deciding whether to award the prevailing party attorneys’ fees, should put substantial weight on the objective reasonableness of a losing party’s position in bringing or defending the infringement case.  In contrast, Kirtsaeng’s position was that the court should give “special consideration to whether a lawsuit resolved an important and close legal issue and thus ‘meaningfully clarifie[d]’ copyright law.” Kirtsaeng, 579 U.S. at 5 (quoting Brief for Petitioner 36).

 

The Supreme Court agrees that there is a need for additional guidance surrounding an application of § 505.  The Court states that, even when a fee-shifting law does not state any explicit limits or conditions, the Supreme Court has “found limits” in the laws in order to give individuals a predictor as to how a fee-shifting decision will result.  Kirtsaeng, 579 U.S. at 6.

 

The Court explains that to find the right guidance for a determination of attorneys’ fees under § 505, it must look at whether Wiley’s position above or Kirtsaeng’s position above advances the Copyright Act’s goals.  The Supreme Court in Fogerty explained, “copyright law ultimately serves the purpose of enriching the general public through access to creative works.”  510 U.S. at 527.  Section 505 achieves that purpose “by striking a balance between wo subsidiary aims: encouraging and rewarding authors’ creation while also enabling other to build on that work.”  Kirtsaeng, 579 U.S. at 6 (citing Forgery, 510 U.S. at 526.  Therefore, attorneys’ fees should “encourage the types of lawsuits that promote the purposes of the Copyright Act.” Id.

 

The Supreme Court sided with Wiley because Wiley’s argument falls within the purpose of the Copyright Act, while Kirtsaeng’s argument does not “produce any sure benefits.” Kirtsaeng, 579 U. S. at 7.   The Supreme Court’s reasoning on rejecting Kirtsaeng’s argument is even if the case advances public interest, fee shifting does not always encourage possible litigation, but will most likely have a chilling effect on people bringing suits, especially those of public interest, based on the punishment of attorney’s fees.  Further accepting Wiley’s argument, the Supreme Court found putting substantial weight on reasonableness discourages a copyright holder from bringing a suit with no reasonable infringement claim or an infringer from bringing a defense with no reasonableness.  Discouraging infringement claims or defenses with no merit saves the courts and the parties time and money.  Additionally, Wiley’s argument supports Forgery because it does not discriminate between plaintiffs and defendants.

 

However, the Supreme Court decided reasonableness is only a “substantial factor” in determining whether attorney’s fees shall be awarded, not a controlling one.  The Court found other factors may be considered by the district court to determine whether attorneys’ fees should be awarded, such as a party’s litigation misconduct, “to deter repeated instances of copyright infringement,” or “overaggressive assertions of copyright claims.”  A party’s litigation misconduct can mean unduly delaying the case through discovery, filing unneeded motions, failing to produce important documents, etc. This means the victor may be awarded attorney’s fees even if the losing party’s position was reasonable.

 

Conclusion:

 

The Supreme Court found that a court, specifically a district court, should give substantial weight to the objective reasonableness of the losing party’s position.  However, the Court also held that district courts, when determining whether attorneys’ fees should be awarded, should also give weight to all other factors relevant in granting the motion for attorney’s fees, such as a party’s litigation misconduct or the repeated offenses by the infringer.  The Court further held that it is in a court’s discretion to order or deny attorneys’ fees based on these relevant factors.  Therefore, the Court vacated the decision and remanded back to the district court because the Justices were not sure whether the district court understood the full scope the discretion it holds.

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