MATTHEW
BENDER & COMPANY, INC., Plaintiff,
and
HYPERLAW,
INC.,
Intervenor-Plaintiff-Appellee-Cross-Appellant,
v.
WEST
PUBLISHING CO. and
WEST
PUBLISHING CORPORATION,
Defendants-Appellants-Cross-Appellees.
Docket
Nos. 00-7029(L), 00-7070(XAP)
2001 U.S. App. LEXIS 896
November
8, 2000, Argued
COUNSEL:
CARL J. HARTMANN, III,
New York, NY (Paul J. Ruskin, Douglaston, NY,
on the brief, Alan D.
Sugarman, New York, NY, of counsel), for
Intervenor-Plaintiff-Appellee-Cross-Appellant.
JAMES F. RITTINGER,
Satterlee Stephens Burke & Burke
(Joshua M. Rubins, on
the brief), New York, NY, for Defendants-Appellants-Cross-Appellees.
CHARLES D. OSSOLA,
Arnold & Porter (Carol Lally,
[*2]
on the brief, Keith
Kupferschmid, of counsel), Washington, DC,
for Amicus Curiae
Software & Information Industry Association.
STRAUB and SOTOMAYOR,
Circuit Judges, and SPATT*,
District Judge.
STRAUB, Circuit Judge:
Defendants-Appellants-Cross-Appellees
West Publishing Co. and West Publishing Corp. (collectively "West")
appeal from a judgment of the United States District Court for the Southern
District of New York (John S. Martin, Jr., Judge), ordering them to pay
the attorneys' fees of Intervenor-Plaintiff-Appellee-Cross-Appellant HyperLaw,
Inc. ("HyperLaw"), after HyperLaw prevailed in a declaratory judgment
action under the Copyright Act, 17 U.S.C. §
101 et seq. HyperLaw cross-appeals, challenging the District Court's
calculation of the fee amount. The District Court found that West violated 17
U.S.C. § 403 by failing to delineate
the portion of its works for which copyright protection was claimed. The court
also found that West's conduct [*3] of
the litigation was in bad faith, citing West's refusal to cooperate with
HyperLaw before the initiation of suit and West's filing of a motion to dismiss
HyperLaw's complaint on justiciability grounds. The District Court thus ordered
West to pay HyperLaw $ 813,724.25 in attorneys' fees, pursuant to 17 U.S.C.
§ 505.
For the reasons given
below, we hold that the District Court exceeded its allowable discretion in
awarding attorneys' fees based on its determinations (i) that West
"violated" section 403, and (ii) that West's conduct of the
litigation was in bad faith. Accordingly, we vacate the award. However, we
remand for clarification, because the District Court's opinion does not allow
us to conclude with certainty whether there were additional instances of bad
faith conduct upon which the court relied in awarding fees. Because we vacate
the award, we do not address West's remaining arguments or HyperLaw's
cross-appeal, all of which challenge the amount of fees awarded.
BACKGROUND
This case comes to us at
the attorneys' fees stage, after a long and contentious battle over West's
claim that it is entitled to copyright protection with respect to judicial
[*4] opinions that it publishes in its
case reporters. Detailed factual accounts are set forth in two prior Second
Circuit opinions: Matthew Bender & Co. v. West Publishing Co., 158 F.3d
674 (2d Cir. 1998), cert. denied, 526 U.S. 1154, 143 L. Ed. 2d
1048, 119 S. Ct. 2039 (1999) ("HyperLaw I"), and Matthew
Bender & Co. v. West Publishing Co., 158 F.3d 693 (2d Cir. 1998), cert.
denied, 526 U.S. 1154, 143 L. Ed. 2d 1048, 119 S. Ct. 2039 (1999)
("HyperLaw II"). Accordingly, we recount only the facts that
bear upon the parties' claims in this appeal and that provide essential
context.
I. The Underlying Action
West creates and publishes
printed compilations of reports of federal and state judicial opinions. Each
West report contains the text of the judicial opinion with additional features,
or "editorial enhancements," HyperLaw I, 158 F.3d at 692
(Sweet, J., dissenting), inserted by West. The enhancements added by West
include a syllabus, headnotes, key numbers, parallel or alternative citations
to cases, attorney information, and data on subsequent or procedural history.
n1 Id. at 676. [*5] "West
obtains the text of judicial opinions directly from courts. It alters these
texts as described above to create a case report, and then publishes these case
reports (first in advance sheets, then in bound volumes) in different series of
'case reporters.'" Id. at 677.[1]
HyperLaw and Matthew
Bender & Co., Inc. ("Bender") are publishers of compact disc-read
only memory ("CD-ROM") compilations of judicial opinions. See id.
HyperLaw obtains the text of most of the opinions it publishes directly from
the courts. See id. However, in the early 1990s HyperLaw wished to
expand its CD-ROM product to include certain cases and information that it
could not obtain from the courts. See id. It hoped to [*6] achieve this expansion by copying West's case
reports (after redacting the syllabi, headnotes, and key numbers)--indeed,
directly scanning the cases--from West's reporters. See id. HyperLaw
also sought to add "star pagination" to its reports. "Star
pagination" consists of cross-reference citations (preceded by an
asterisk) that show the page location of particular text in West's printed
version of the opinions. See HyperLaw II, 158 F.3d at 695 & n.1.
Likewise, Bender sought to insert star pagination in its CD-ROM case reports. See
id. at 697-98.
Hoping to avoid claims
of copyright infringement by West, in July 1991, HyperLaw contacted West to
determine which aspects of West's published opinions were copyrighted and which
aspects were in the public domain. HyperLaw also presented West with four
alternative means of obtaining West's material, and asked West whether, in its
opinion, any of the means would infringe West copyrights. West, however,
refused to provide the information sought by HyperLaw, responding only that
HyperLaw should "retain competent copyright counsel to give [it] the advice
[it] seeks." What followed was an exchange of increasingly [*7] vitriolic correspondence between the two
parties over the course of nearly one year. In the end, HyperLaw received no
guidance from West.
As a result, HyperLaw
intervened in this suit, which had been brought by Bender for a judgment
declaring that Bender's insertion of star pagination in its CD-ROM version of
judicial opinions did not infringe West's copyright. See HyperLaw I, 158
F.3d at 678. HyperLaw requested the same relief, and also sought a
declaration that its redacted versions of West's case reports, which include
certain of West's editorial enhancements, contain no copyrightable material and
thus may be copied without infringement. See id. West moved to dismiss
HyperLaw's complaint under Federal Rule of Civil Procedure 12(b)(1) for lack of
justiciability, arguing that HyperLaw had not yet produced a product with the
West features at issue. The District Court found that there was a factual
dispute over both prongs of the justiciability test--HyperLaw's intent and
ability to produce the CD-ROM products, and HyperLaw's reasonable apprehension
of being sued by West--and thus concluded that an evidentiary hearing was
necessary. After the hearing, the District [*8]
Court found that HyperLaw intended and was able to add the West features
at issue and had a reasonable apprehension of suit. Accordingly, the court
denied West's motion to dismiss.
Following discovery, the
filing of summary judgment motions, and a hearing, the District Court in
November 1996 granted summary judgment to HyperLaw and Bender with respect to
the star pagination feature. The court found that the insertion of star
pagination on the CD-ROM versions of the cases would not reproduce any
protectable element of West's products. The court further ruled that star
pagination would be permitted under the fair use doctrine even if West's
pagination were copyrightable. West appealed to this Court, which affirmed the
District Court's order, holding that "star pagination does not create
a 'copy' of any protected elements of West's compilations or infringe West's
copyrights" and that "in any event, under a proper reading of the
Copyright Act, the insertion of star pagination does not amount to infringement
of West's arrangement of cases." HyperLaw II, 158 F.3d at 696. In a
strong dissent, the Honorable Robert W. Sweet, sitting by designation from the
United States [*9] District Court for
the Southern District of New York, argued that the "West page numbers . .
. result from the totality of the West compilation process which includes its
concededly original and copyrightable work, i.e. attorney description,
headnotes, method of citation and emending of parallel or alternate
citations." Id. at 708-09 (Sweet, J., dissenting). Citing the fact
that three federal courts had ruled in West's favor on the same issue, see
Oasis Publ'g Co. v. West Publ'g Co., 924 F. Supp. 918 (D. Minn. 1996); West
Publ'g Co. v. Mead Data Cent., Inc., 616 F. Supp. 1571 (D. Minn. 1985), aff'd,
799 F.2d 1219 (8th Cir. 1986), cert. denied, 479 U.S. 1070, 93
L. Ed. 2d 1010, 107 S. Ct. 962 (1987), Judge Sweet asserted that
"West's case arrangements, an essential part of which is page citations,
are original works of authorship entitled to copyright protection." HyperLaw
II, 158 F.3d at 709 (Sweet, J., dissenting).
With respect to the
editorial enhancements, the District Court denied summary judgment and held a
bench trial. The District Court's decision, issued in May 1997, held [*10] that West's editorial enhancements represented
an insufficient "creative effort" to give rise to a protected
interest under the Copyright Act, and that West's changes, "taken
separately or collectively," "do not result in 'a distinguishable
variation' of the opinion written by the court." West again appealed to
this Court, which affirmed the District Court's judgment on this aspect as
well, concluding that "West's choices on selection and arrangement can
reasonably be viewed as obvious, typical, and lacking even minimal creativity."
n2 HyperLaw I, 158 F.3d at 677. Judge Sweet again wrote a detailed
dissent, arguing that "West's selection and arrangement of factual
annotations to public domain judicial opinions, considered as a whole,"
are copyrightable. Id. at 690 (Sweet, J., dissenting).[2] [*11]
II. The Attorneys' Fees
Having thus prevailed on
the merits, HyperLaw moved for attorneys' fees under 17 U.S.C. § 505, which allows a district court,
"in its discretion," to award a reasonable attorney's fee to the
prevailing party in a Copyright Act action. n3 In a nine-page opinion and
order, the District Court determined that an award of attorneys' fees against
West was appropriate to promote the purposes of the Copyright Act. According to
the court, even if there was a non-frivolous basis for West's claims, West's
refusal to cooperate in HyperLaw's "efforts to obtain a judicial
resolution" of the question of copyrightability, combined with West's
failure to comply with section 403's notice provision, warranted an award of
fees to HyperLaw. The court then calculated the amount of fees based on
reasonable rates and hours billed during the entirety of the litigation, and
ordered that West pay HyperLaw $ 813,724.25. This timely appeal followed.[3] [*12]
DISCUSSION
On appeal, West argues
that the award of any fees is unsupported by the record and constitutes an
abuse of discretion, and that the award of all fees incurred by HyperLaw during
the entire litigation also constitutes an abuse of discretion. HyperLaw
cross-appeals, arguing that the District Court erred in its calculation of the
fees.
"The standard of
review of an award of attorney's fees is highly deferential to the district
court." Alderman v. Pan Am World Airways, 169 F.3d 99, 102 (2d Cir.
1999) (internal quotation marks omitted). "Attorney's fees must be
reasonable in terms of the circumstances of the particular case, and the
district court's determination will be reversed on appeal only for an abuse of
discretion." Id. "'Abuse of discretion' is one of the most
deferential standards of review; it recognizes that the district court, which
is intimately familiar with the nuances of the case, is in a far better
position to make certain decisions than is an appellate court, which must work
from a cold record." In re Bolar Pharm. Co. Sec. Litig., 966 F.2d 731,
732 (2d Cir. 1992) (per curiam). However, "[a] district court
necessarily [*13] abuses its discretion
if its conclusions are based on an erroneous determination of law," Revson
v. Cinque & Cinque, P.C., 221 F.3d 71, 78 (2d Cir. 2000); see also
Knitwaves, Inc. v. Lollytogs Ltd., 71 F.3d 996, 1012 (2d Cir. 1995) (noting
that this Court may reverse an award of attorneys' fees "if the district
court applied the wrong legal standard" (citations omitted)), or "on
a clearly erroneous assessment of the evidence," Kerin v. United States
Postal Serv., 218 F.3d 185, 188-89 (2d Cir. 2000).
Section 505 of the
Copyright Act provides that
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.
17
U.S.C. § 505. In Fogerty v.
Fantasy, 510 U.S. 517, 534, 127 L. Ed. 2d 455, 114 S. Ct. 1023 (1994), the
Supreme Court held that the standard governing the award of attorneys' fees
under section 505 should be identical [*14]
for prevailing plaintiffs and prevailing defendants. In dicta,
the Court noted that "there is no precise rule or formula for making
[attorneys' fees] determinations, but instead equitable discretion should be
exercised," id. (internal quotation marks omitted), and then
proceeded to list several nonexclusive factors courts should consider when
exercising this discretion, namely, "frivolousness, motivation, objective
unreasonableness (both in the factual and in the legal components of the case)
and the need in particular circumstances to advance considerations of
compensation and deterrence," id. at 534 n.19 (internal quotation
marks omitted). The Court cautioned, however, that such factors may be used
only "so long as [they] are faithful to the purposes of the Copyright
Act." Id.
Subsequent to Fogerty,
several other circuits have accorded the objective reasonableness factor
substantial weight in determinations whether to award attorneys' fees. See
Lotus Dev. Corp. v. Borland Int'l, Inc., 140 F.3d 70, 74 (1st Cir. 1998)
(affirming denial of fees because copyright holder's "claims were neither
frivolous nor objectively unreasonable"); [*15] Harris Custom Builders Inc. v. Hoffmeyer,
140 F.3d 728, 730-31 (7th Cir. 1998) (vacating award of fees because,
inter alia, losing party's claims were objectively reasonable); Budget
Cinema, Inc. v. Watertower Assocs., 81 F.3d 729, 733 (7th Cir. 1996)
(holding that "the district court abused its discretion by failing to
award attorney's fees based on the objective unreasonableness of [plaintiff's]
complaint"); Maljack Prods., Inc. v. GoodTimes Home Video Corp., 81
F.3d 881, 890 (9th Cir. 1996) (awarding fees because, inter alia,
plaintiff's claims were "factually unreasonable"); Diamond Star
Bldg. Corp. v. Freed, 30 F.3d 503, 506 (4th Cir. 1994) (affirming award of
fees because, inter alia, "the objective reasonableness factor
strongly weighed in favor of awarding attorney's fees and costs"). The
same is true of the district courts in this Circuit. See, e.g., EMI
Catalogue P'ship v. CBS/Fox Co., 1996 U.S. Dist. LEXIS 7240, No. 86 Civ.
1149, 1996 WL 280813, at *2 (S.D.N.Y. May 24, 1996) (holding that copyright
owner's claim was "not so objectively unreasonable as to justify" an
award); Williams v. Crichton, 891 F. Supp. 120, 122 (S.D.N.Y. 1994)
[*16] (awarding fees solely because losing
party's claims were objectively unreasonable); Screenlife Establishment v.
Tower Video, Inc., 868 F. Supp. 47, 52 (S.D.N.Y. 1994) (same).
This emphasis on
objective reasonableness is firmly rooted in Fogerty's admonition that
any factor a court considers in deciding whether to award attorneys' fees must
be "faithful to the purposes of the Copyright Act." 510 U.S. at
535 n.19. The "principle purpose of the [Copyright Act] is to
encourage the origination of creative works by attaching enforceable property
rights to them." Diamond v. Am-Law Publ'g Corp., 745 F.2d 142, 147 (2d
Cir. 1984). As such, the imposition of a fee award against a copyright
holder with an objectively reasonable litigation position will generally not
promote the purposes of the Copyright Act. See Mitek Holdings, Inc. v. Arce
Eng'g Co., 198 F.3d 840, 842-43 (11th Cir. 1999) ("The touchstone of
attorney's fees under § 505 is whether
imposition of attorney's fees will further the interests of the Copyright Act, i.e.,
by encouraging the raising of objectively reasonable claims and defenses, which
may serve [*17] not only to deter
infringement but also to ensure 'that the boundaries of copyright law [are]
demarcated as clearly as possible' in order to maximize the public exposure to
valuable works." (quoting Fogerty, 510 U.S. at 526-27)); Lotus,
140 F.3d at 75 ("When close infringement cases are litigated,
copyright law benefits from the resulting clarification of the doctrine's
boundaries. But because novel cases require a plaintiff to sue in the first
place, the need to encourage meritorious defenses is a factor that a district
court may balance against the potentially chilling effect of imposing a large
fee award on a plaintiff, who, in a particular case, may have advanced a
reasonable, albeit unsuccessful, claim."). In sum, objective
reasonableness is a factor that should be given substantial weight in
determining whether an award of attorneys' fees is warranted.
This is not to say,
however, that a finding of objective reasonableness necessarily precludes the
award of fees. In an appropriate case, the presence of other factors might
justify an award of fees despite a finding that the nonprevailing party's
position was objectively reasonable. See Matthews v. Freedman, 157 F.3d 25,
29 (1st Cir. 1998) [*18]
("Depending on other circumstances, a district court could conclude
that the losing party should pay even if all of the arguments it made were
reasonable.").
The District Court here
began its assessment of West's opposition to HyperLaw's fee request by
acknowledging West's contention that its arguments at trial were objectively
reasonable. Unfortunately, however, the District Court did not make a clear
finding on this claim. The court's assessment of this point is limited to the
statement that, "although there is some merit to West's argument that . .
. there was a non-frivolous basis for West's claims [at trial], that does not
end the inquiry. An objectively unreasonable argument is not necessarily
frivolous or made in bad faith."
We are uncertain why the
District Court did not clearly address the issue because it is beyond dispute
that West's arguments at trial were objectively reasonable. Both the editorial
enhancements appeal and the star pagination appeal provoked vigorous dissenting
opinions agreeing with West's positions. See Hyperlaw I, 158 F.3d at 689-93
(Sweet, J., dissenting); Hyperlaw II, 158 F.3d at 708-11 (Sweet, J.,
dissenting). [*19] n4 Moreover, the Eighth Circuit has ruled in
West's favor on a substantially similar star pagination issue. See West
Publ'g Co. v. Mead Data Cent., Inc., 799 F.2d 1219, 1227-28 (8th Cir. 1986),
cert. denied, 479 U.S. 1070, 93 L. Ed. 2d 1010, 107 S. Ct. 962
(1987); see also Hyperlaw II, 158 F.3d at 707 (noting disagreement
with Eighth Circuit's holding). We hold, therefore, that West's positions in
this litigation were objectively reasonable. Cf. Lotus, 140 F.3d at 73-74 (indicating that
the facts that "various judges . . . had different views" and that
the losing party had previously prevailed on a "virtually identical
claim" demonstrated objective reasonableness).[4]
This holding, however,
does not necessarily require reversal of the District Court's determination
that Hyperlaw is entitled to attorneys'
[*20] fees. As noted, in an
appropriate case, other factors may support a fee award despite a finding of
objective reasonableness. Here, the District Court found that HyperLaw was
entitled to fees because West "violated" section 403 and because
West's conduct of the litigation was in bad faith. We consider each of these
other factors in turn.
I. Attorneys' Fees Based on West's
"Violation" of Section 403
Section 403 of the
Copyright Act states that
sections 401(d) and
402(d) shall not apply to a work published in copies or phonorecords consisting
predominantly of one or more works of the United States Government unless the
notice of copyright appearing on the published copies or phonorecords to which
a defendant in the copyright infringement suit had access includes a statement
identifying, either affirmatively or negatively, those portions of the copies
or phonorecords embodying any work or works protected under this title.
17 U.S.C. §
403. Sections 401(d) and 402(d) prevent an alleged infringer from
asserting an "innocent infringement" defense if a notice of copyright
appears on the material allegedly infringed.
17 U.S.C. § § 401
[*21] (d), 402(d). The innocent
infringement defense can result in the mitigation of actual or statutory
damages. See id.
Thus,
section 403 serves to reinstate the innocent infringement defense in certain
circumstances. The section does not impose any affirmative obligation on a
copyright holder, but rather simply states that, in the case of works
consisting predominantly of government material, the failure to provide the
specified form of notice allows an alleged infringer to assert an innocent
infringement defense and to mitigate his damages. n5 Indeed, the Copyright
Act's notice provision, section 401, is permissive rather than mandatory:
"Whenever a work protected under this title is published . . . by
authority of the copyright owner, a notice of copyright . . . may be
placed on publicly distributed copies . . . ." 17 U.S.C. § 401(a) (emphasis added); see also 17
U.S.C. § 401(b) ("If a
notice appears on the copies, it shall consist of the following three elements.
[*22]
Nonetheless, the
District Court based its award of fees in part on an [5]asserted
"violation" of section 403 by West. The court found that West
"was not endeavoring to protect an original work of authorship which would
clearly foster the purposes of the Copyright Act" but "was asserting
a copyright in a work consisting predominantly of the work of government
agencies, i.e., the courts." Accordingly, the court found, West's limited
copyright notice violated section 403, which the court characterized as
"prohibiting the assertion of copyright in a work consisting predominantly
of federal government works unless the copyright notice identifies the portions
that are not subject to copyright." n6[6]
The District Court's
interpretation of section 403 conflicts with the statutory text, which, as
discussed above, says nothing about prohibiting [*23] the assertion of copyright. See 2
MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 7.12[C][1] n.50 (effect of omission of
section 403 notice is to foreclose the notice from serving absolutely to
preclude a defense based on innocent infringement in mitigation of damages). In
support of its interpretation, the court invoked the legislative history of section
403, which observes that the section is aimed at the practice of publishing a
government work commercially after adding "some 'new matter' in the form
of an introduction, editing, illustrations, etc., and . . . including a general
copyright notice in the name of the commercial publisher." H.R. REP. NO.
94-1476, at 145-46 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5761-62.
However, while this history certainly reveals the impetus behind the
legislation, it does not suggest that a publisher can be said to have
"violated" section 403. A plain reading of the section demonstrates
that the sole consequence of failing to provide sufficient notice is that an
alleged infringer may mitigate his actual or statutory damages by asserting the
innocent infringement defense.[7]
See United States v. Dauray, 215 F.3d 257, 260 (2d Cir. 2000) [*24] ("Our starting point in statutory
interpretation is the statute's plain meaning, if it has one.").
The District Court's
imposition of attorneys' fees on the basis of a "violation" of
section 403 of the Copyright Act involves an application of the "wrong
legal standard," Knitwaves, Inc. v. Lollytogs Ltd., 71 F.3d 996, 1012
(2d Cir. 1995). Accordingly, we conclude that the District Court exceeded
its allowable discretion in awarding fees on this basis.[8]
See Revson v. Cinque & Cinque, P.C., 221 F.3d 71, 78 (2d Cir. 2000)
("A district court necessarily abuses its discretion if its conclusions
are based on an erroneous determination of law . . . ."). [*25]
II. Attorneys' Fees Based on West's
Pre-Litigation and Litigation Conduct
If a party's conduct
is unreasonable, a district court has the discretion to award fees. See
Harris Custom Builders, Inc. v. Hoffmeyer, 140 F.3d 728, 731 (7th Cir. 1998)
(noting that court may consider a party's sanctionable conduct in making a fee
decision); 4 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 14.10[D][1] (noting that attorneys' fees have
been awarded where a party conducted the litigation in a manner calculated to
delay a hearing on the merits and to increase the opposing party's costs). The
ultimate goal, according to Fogerty, is to be "faithful to the
purposes of the Copyright Act." 510 U.S. at 535 n.19. Thus, bad
faith in the conduct of the litigation is a valid ground for an award of fees.
The question, then, is whether West's
conduct in this litigation--both before and after the initiation of suit--was
truly in bad faith. In the District Court's view, West's conduct warranted an
award of fees to HyperLaw because West failed to "forthrightly recognize[]
that there was an open question concerning its right to assert copyright
[*26] protection in court opinions"
and refused to "cooperate[] in Hyperlaw's efforts to obtain a judicial
resolution of that question." According to the court, "West used
every effort to avoid an adjudication of its rights and to make it difficult
for Hyperlaw to determine what portions of the reported opinions were in the
public domain and could be freely copied." The court appears to have
relied on two types of misconduct by West. First, the court noted that
"every time Hyperlaw attempted to engage in a dialog with West to
determine which elements in a judicial opinion West considered protectable,
West rejected the effort and responded with platitudes that gave Hyperlaw no
guidance as to where West claimed its copyright protection began or
ended." Second, the court observed that after HyperLaw filed its
declaratory judgment action, "West again strove mightily to prevent a judicial
resolution of the question by arguing that the controversy was not
justiciable."
While there can be no
gainsaying the significant deference accorded to district courts when reviewing
fee decisions, we find that the District Court here exceeded its allowable
discretion in awarding fees on the grounds it cited. [*27]
First, as a party confronted by a suspected or potential infringer, West
did not act unreasonably by refusing to cooperate with HyperLaw before the
initiation of suit. Assuming West legitimately believed that its products were
protected--a reasonable belief, in light of the previous court decisions on the
same issue--it had no duty to "recognize[] that there was an open question
concerning its right to assert copyright protection in court opinions" and
had the right vigorously to challenge any actions by HyperLaw that might
infringe on its copyrights. A party's good faith refusal to cooperate with a
suspected infringer prior to the filing of suit is not a proper ground for the
award of attorneys' fees to the prevailing party in the subsequent suit.
In an analogous
situation, the Seventh Circuit held that a patent holder was not required to
"grant clearance to a competitor's designs upon request" and that the
patent holder's refusal to do so did not create declaratory judgment
jurisdiction. See International Harvester Co. v. Deere & Co., 623 F.2d
1207, 1213 (7th Cir. 1980). The court in that case held that the
competitor's "unsolicited demand that [the patent holder] [*28] admit noninfringement or face suit coupled
with [the patent holder's] noncommittal response could not have created a
reasonable apprehension" of suit. Id.; cf. Lotus Dev. Corp. v. Borland Int'l, Inc., 140
F.3d 70, 75 (1st Cir. 1998) ("Copyright defendants with strong legal
or factual defenses should not be deterred from litigation by the possibility
that their refusal to settle an invalid claim will be held against them after
they prevail."). Similarly, here, West's reluctance to express an opinion
as to the legality of HyperLaw's actions should not be held against West. To be
sure, if West had engaged in other conduct indicative of bad faith prior to the
filing of suit by HyperLaw, that misconduct could properly have contributed to
the District Court's decision to award fees to HyperLaw. However, the District
Court does not refer to any specific incidents of such bad faith; rather, it
simply points to West's repeated insistence that HyperLaw obtain copyright
counsel.
Second, with regard to
West's conduct during the litigation, the only "misconduct"
specifically identified by the District Court is West's filing of a motion to
dismiss under Federal Rule of Civil [*29]
Procedure 12(b)(1). According to the District Court, this motion
demonstrated an effort by West "to prevent a judicial resolution" of
the scope of its copyrights. We do not agree that this is a proper basis for an
award of attorneys' fees under the Copyright Act. The District Court's award
essentially punishes West for availing itself of a right provided by the Federal
Rules, namely, moving to dismiss the plaintiff's complaint. To allow fees on
this basis would be to deter the exercise of rights afforded to litigants in
federal court. Cf. Dow Chem. Pac.
Ltd. v. Rascator Mar. S.A., 782 F.2d 329, 344 (2d Cir. 1986) (noting,
though not in the copyright context, that an award of attorneys' fees should
not "deter persons with colorable claims from pursuing those
claims"). Of course, if West's motion had been frivolous, lacking any
plausible merit, an award of attorneys' fees may have been an appropriate
sanction. However, the District Court did not find, and there is no indication
in the record, that the motion was frivolous. Indeed, the District Court deemed
it necessary to hold an evidentiary hearing before deciding the motion.
Accordingly, under these circumstances,
[*30] we conclude that the
District Court's decision to base the fee award on West's efforts to dismiss
HyperLaw's case was improper.
We do not wish to
constrain district courts' discretion in awarding attorneys' fees under the
Copyright Act. Misconduct before or during litigation can, in appropriate
cases, provide the basis for an award of fees. However, here, although the
District Court found that West's "conduct of the litigation" was in
bad faith, it cited as support for this assertion only West's refusal to
cooperate with HyperLaw prior to the initiation of suit and West's attempt to
dismiss the suit on justiciability grounds. We hold that neither ground
supports an award of attorneys' fees.
In its brief to this
Court, HyperLaw lists numerous "dirty tricks" and "threats"
perpetrated by West before and during the litigation. These alleged abuses were
not cited by the District Court, however, and few of the incidents are
supported by references to the record. Likewise, the District Court observed
that the "record in this case" demonstrates that "West used
every effort to avoid an adjudication of its rights." If this statement
refers to conduct other than West's refusal to cooperate [*31] and its motion to dismiss, the court does not
specifically identify any such incidents in the record, making appellate review
difficult. With no indication in its decision to award fees that the District
Court relied on the incidents alleged by HyperLaw, we decline to address
whether they would have supported a fee award. However, we remand the case so
that the District Court may clarify whether it relied on any other specific
pre-litigation misconduct by West, as well as any frivolous or bad faith
conduct during the litigation, in awarding fees. If so, the court should
specifically identify that conduct in its decision. Cf. Mentor Ins. Co. (U.K.) Ltd. v. Brannkasse,
996 F.2d 506, 521 (2d Cir. 1993) (remanding for clarification of reasons
for attorneys' fees, since "this Court will not speculate as to whether
the award is appropriate under any other theory that has not been stated by the
district court"). Assuming that the District Court is able to identify
such conduct, and thus adheres to its determination that HyperLaw is entitled
to an award of attorneys' fees based on West's bad faith conduct, the court
should not lose sight of the fact that it is awarding fees [*32] solely on the basis of West's bad faith
conduct when it turns to the question of the precise amount of fees to which
HyperLaw is entitled. Any fees it awards should be related to costs or expenses
incurred as a direct result of bad faith conduct by West. See Hensley v.
Eckerhart, 461 U.S. 424, 437, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983)
(stating that it is "important . . . for the district court to provide a
concise but clear explanation of its reasons for [a] fee award"); In re
Bolar Pharm. Co. Sec. Litig., 966 F.2d 731, 732 (2d Cir. 1992) ("If we
are to be satisfied that a district court has properly exercised its
discretion, we must be informed by the record of why the district court acted
as it did.").
CONCLUSION
For the foregoing
reasons, we vacate the judgment ordering West to pay HyperLaw its reasonable
attorneys' fees and remand for clarification as to whether the District Court
relied on instances of bad faith conduct not specifically identified in its
opinion. In light of the fact that we vacate the award and remand, we decline
to address the arguments challenging the calculation of the award. Each party
shall bear its own costs [*33] on this
appeal.
[1] n1 The syllabus "digests and heralds the opinion's general holdings." HyperLaw I, 158 F.3d at 676. The headnotes "summarize the specific points of law recited in each opinion." Id. The key numbers "categorize points of law into different legal topics and subtopics." Id.
[2] n2 The appeals of both the star pagination issue and the editorial enhancements issue were heard together, and the opinions, though separate, were issued on the same day. See HyperLaw II, 158 F.3d at 695 n.2.
[3] n3 Bender also moved for an attorneys' fee award, but withdrew its motion after settling with West. Bender is thus not a party to this appeal.
[4] n4 Although the District Court acknowledged Judge Sweet's dissents, it did so only to support its finding that West's arguments were non-frivolous.
[5] n5 This Court has found no federal case law applying or interpreting 17 U.S.C. § 403, and commentary on the section is minimal. See JOHN W. HAZARD, JR., COPYRIGHT LAW IN BUSINESS AND PRACTICE § 9.06[2][a.1] (rev. ed. 2000) (noting that until the District Court opinion in this case, section 403 had been "entirely untested").
[6] n6 West's notice states: "Copyright is not claimed as to any part of the original work prepared by a United States Government officer or employee as part of that person's official duties."
[7] n7 We do not express an opinion as to whether West's copyright notice is sufficient under 17 U.S.C. § 403, for we hold that even if it is not, attorneys' fees may not be assessed on that basis.
[8] n8 The District Court noted that, in light of West's "violation" of 17 U.S.C. § 403, "HyperLaw's action vindicated the public interest in wide dissemination of federal judicial opinions." We differ with this statement. The public interest that copyright law is designed to promote is the wide availability of creative works. See Fogerty, 510 U.S. at 527 ("Copyright law ultimately serves the purpose of enriching the general public through access to creative works . . . ."); id. at 535 n.19 (goal in awarding fees is to be "faithful to the purposes of the Copyright Act"). Judicial opinions are decidedly not creative works.