Seventh Circuit: Prevailing defendants should have greater presumption of fees in copyright cases

In a decision Wednesday, the Seventh Circuit reversed a district court's denial of attorney fees to a prevailing defendant in a copyright case.  The district court found that, as a matter of law, no copyright infringement occurred, but declined to award attorney's fees.

The Seventh Circuit reversed.  The court held the suit was frivolous, and brought in bad faith.  The plaintiff deposed all of the defendant's customers and several potential customers, resulting in the defendant losing several customers.  Further, the plaintiff was not eligible for statutory damages and had suffered no actual damages, and even if there was infringement, the defendant's profits were not tied to the infringement, as the asserted copyright was in a compilation of OSHA regulations that would be easily replaced by simply copying the appropriate regulations anew.  

The court also criticized other courts (such as the Sixth Circuit) who have held prevailing defendants are only entitled to attorney fees in copyright cases when the claims are "colorable, albeit meritless," as not in compliance with the Supreme Court's Fogerty v. Fantasy, Inc. decision.  In rejecting this position, the court offered some favorable dicta for defendants:

If there 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 thus gives it an incentive to spend heavily on 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 defense is reduced and he may be forced into an unfavorable settlement.
More concerning Eagle Servs, Corp. v. H2O Indus. Servs., Inc. after the jump.



Eagle Services Corp. is in the business of environmental cleanup of contaminated sites. They have a copyrighted safety manual (compilation copyright) that consists mostly of quotations from OSHA regulations. Four individuals (defendants in the case) left Eagle to start their own company, H2O Industrial Services, another defendant.  H2O directly competes with Eagle.

Because they thought H2O had taken a copy of their manual, Eagle sent two people disguised as potential customers. These two were shown the Eagle manual, but shortly thereafter, H2O made their own manual. The Eagle "customers" were the only potential clients to see the Eagle manual, and no profits were derived from the alleged copyright infringement.  Although there was no determination that Eagle's copyright was valid, the court assumed that it was.

The district court allowed the case to go to the jury, but after Eagle rested its case, the court granted the defendants' motion for judgment as a matter of law. OSHA had no requirement to have a formal safety manual, and even if H2O had violated such a regulation, it would have had time to comply with the regulations before being shut down. The district court, although authorized under 17 U.S.C. § 505, refused to award attorney's fees, holding that the suit was not frivolous and had not been filed in bad faith.  The defendants appealed.

The Seventh Circuit reversed the denial of attorney's fees.  The court stated that it was apparent that Eagle brought the suit to "cramp [H2O's] style" and to try to warn off potential customers. Extensive discovery took place, including depositions of all of H2O's current customers and some potential customers.  The court also held the suit was not brought in good faith because Eagle had to know that H2O would not have been shut down if they had no manual.  At worst, H2O would have been ordered H2O to come up with a manual, while giving time to comply.  As a result, the court held "the suit was frivolous even if there was a copyright violation.  When a plaintiff is just suing 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."  Here, the only alternative theory of recovery would have been a shutdown of H2O's business because of the lack of manual, which the court also dismissed as "groundless."

Given these facts, the court saw no reason to deviate from the standard that prevailing parties in copyright cases should be awarded attorney's fees.  The court also went a bit further, and held prevailing defendants should be more likely to be awarded fees than prevailing plaintiffs, noting "when the prevailing party is the defendant, who by definition receives not a small award but no award, the presumption in favor of awarding fees is very strong."  The court went on to state:

If there 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 thus gives it an incentive to spend heavily on 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 defense is reduced and he may be forced into an unfavorable settlement.
Although this case did not involve the defendants forcing the manuals into public domain, the court held that this did not change the presumption.  Because Eagle did not rebut the presumption that H2O, as the prevailing defendant, was entitled to an award of attorney's fees, the court remanded the case with instructions to compute reasonable fees for H2O.

To read the full decision in Eagle Servs, Corp. v. H2O Indus. Servs., Inc., click here.

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