On June 16, 2016, the U.S. Supreme Court clarified how courts should exercise their discretion to award attorneys' fees to the prevailing party in copyright cases. The Court unanimously held that courts should give "substantial weight" to the objective reasonableness of the losing party's position, while still taking into account all other circumstances relevant to granting fees. Kirtsaeng v. John Wiley & Sons, Inc., No. 15-375 (U.S. Jun. 16, 2016).

This was the second time this case had been to the Supreme Court. The case began after the defendant (Kirtsaeng), then a student at Cornell, discovered that John Wiley & Sons, Inc. (Wiley) was selling English-language textbooks in his native Thailand at a fraction of the cost of nearly identical books in the United States. Kirtsaeng arranged for his family and friends in Thailand to buy those cheaper textbooks and send them to him in the U.S., where he sold them for a profit. Wiley sued, alleging that Kirtsaeng was violating its distribution rights. Resolving what was at the time an unsettled question, the Supreme Court ultimately held that the first-sale doctrine (under which a person who purchases a copyrighted work is free to dispose that purchased copy) applied equally to foreign-made works as to domestic ones. See Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. __ (2013). In Kirtsaeng's case, that meant that he was free to resell the books that had been purchased abroad.

Following his victory, Kirtsaeng sought over $2 million in attorneys' fees under the Copyright Act's discretionary "loser-pays" fee-shifting provision (17 U.S.C. § 505). In response, Wiley argued that its allegations of infringement did not present the kind of "objectively unreasonable" suit in which a fee penalty should be levied. Both the district court and the Second Circuit agreed with Wiley, placing "substantial weight" on the "objective reasonableness" of Wiley's infringement claim, and finding no abuse of discretion in deciding that other factors did not outweigh the reasonableness finding.

The Supreme Court unanimously endorsed the approach favored by Wiley and the Second Circuit. "When deciding whether to award attorney's fees ... a district court should give substantial weight to the objective reasonableness of the losing party's position, while still taking into account all other circumstances relevant to granting fees." The Court rejected Kirtsaeng's argument that courts should give special consideration to whether a suit meaningfully clarified copyright law by resolving an important and close legal issue. The Court explained that this approach "would not produce any sure benefits" and in fact might end up hurting small parties as much as it helped them. That is because "fee awards are a double-edged sword: they increase the reward for a victory—but also enhance the penalty for a defeat. And the hallmark of hard cases is that no party can be confident if he will win or lose." In contrast, the Court concluded, focusing on whether the losing party's position was "objectively unreasonable" treats "plaintiffs and defendants even-handedly" and is "more administrable" in that "[a] district court that has ruled on the merits of a copyright case can easily assess whether the losing party advanced an unreasonable claim or defense."

While it treated objective unreasonableness as the preeminent factor, the Court emphasized that it "can be only an important factor in assessing fee applications—not the controlling one. . . . § 505 confers broad discretion on district courts and, in deciding whether to fee-shift, they must take into account a range of considerations beyond the reasonableness of litigating positions"—including the frivolousness of the case, the loser's motivation in pursuing the action, and considerations of compensation and deterrence, such as the desire to deter repeated instances of copyright infringement or overaggressive assertions of copyright claims. "Although objective reasonableness carries significant weight, courts must view all the circumstances of a case on their own terms, in light of the Copyright Act's essential goals."

In light of that, the Court vacated the Second Circuit's decision, saying that it had placed too much emphasis on the "objective reasonableness" question. The Court observed that "the Court of Appeals' language at times suggests that a finding of reasonableness raises a presumption against granting fees, . . . and that goes too far in cabining how a district court must structure its analysis and what it may conclude from its review of relevant factors." Justice Kagan's decision cautioned that by sending the case back down, "we do not at all intimate that the District Court should reach a different conclusion."

Because of the delicate balance between authors' rights and free expression that copyright law is designed to maintain, it is essential to ensure that the standards for copyright fee awards are clear and appropriately calibrated. While the Supreme Court's ruling does not break new ground, it should provide helpful guidance to courts deciding whether to award fees. The ruling confirms that the analysis must start with whether the losing party's legal position was objectively unreasonable, but must also consider other factors. This standard may not always be easy to apply, but it should help create greater nationwide uniformity and consistency in how fees are awarded in copyright litigation.

For more information on the ruling, including its implications for litigation strategy, contact Brian Willen, David Kramer, or any member of the Internet law and strategy practice at Wilson Sonsini Goodrich & Rosati.