Even where a defendant in a copyright infringement case is found guilty of copyright infringement, the plaintiff may not receive an award of attorneys’ fees under the Copyright Act. In the recent case of HarperCollins Publishing, LLC v. Open Road Integrated Media, LLP, the United States District Court of the Southern District of New York declined to award the plaintiff any attorneys’ fees whatsoever under section 505 of the Copyright Act. A close reading of the decision suggests that the Court found the amount of attorneys’ fees sought by the plaintiff, namely over one million dollars, to be unreasonable especially when weighed against the actual damages in the case and that this is the underlying reason for refusing to award attorneys’ fees.
Some background on the copyrighted work and previous proceedings before the Court is warranted to better understand the decision. The copyrighted work at issue in Open Road was the acclaimed children’s novel, Julie of the Wolves, by Jean George. Ms. George had entered into a publishing contract in 1971 (1971 contract) with Harper & Row, the plaintiff’s predecessor in interest. In 2010, Open Road contacted Mrs. George with the proposition of publishing an e-book edition in exchange for a 50% royalty. Ms. George invited HarperCollins to match Open Road’s offer, but HarperCollins declined to publish an e-book edition on such royalty terms. The 50% rate was two times the royalty rate generally paid by Harper Row for e-book editions. Mrs. George subsequently entered into a publishing contract with Open Road, and the e-book edition was released in 2011. It is noted that copyright-related rights can last for decades including after the author has passed away.
HarperCollins sued Open Road for copyright infringement arguing that the e-book was within the scope of the 1971 contract and that HarperCollins therefore had sole rights in any e-book edition. The opinion is instructive because it acknowledges “the recurring problem of how to interpret the scope of old copyright agreements in light of later-developed technologies.” In finding that Open Book had indeed infringed HarperCollins’ copyright, the Court noted that Paragraph 20 of the 1971 contract had stated:
Anything to the contrary herein notwithstanding, the Publisher shall grant no license without the prior written consent of the Author [Ms. George] with respect to the following rights in the work: use thereof in storage and retrieval and information systems, and/or whether through computer, computer-stored, mechanical or other electronic means now or known or hereafter invented. Court’s emphasis.
In a March 17, 2014 opinion, the Court noted that the language in Paragraph 20 encompassed a forward-looking reference to e-book editions with the wording “now known or hereafter invented,” and found that HarperCollins had the exclusive right to license third parties to publish e-book version of Julie of the Wolves, subject to Ms. George’s approval. Accordingly, Open Road had infringed HarperCollins’ (as the successor in interest) copyright. The Court encouraged the parties to enter into a remedies settlement agreement after granting summary judgment to HarperCollins on the issue of liability.
A short time later the parties then attempted to negotiate a settlement wherein Open Road hoped to acquire a license to continue publishing the e-book. At the time, Open Road had not yet stopped selling the e-book edition. HarperCollins advised Open Road that it was not interested in a license and that HarperCollins would like Open Road to stop selling the book. Open Road continued to market the book on-line until June 2014 or for several months after the Court’s “infringement” opinion of March 2014. In late May, HarperCollins filed a motion for remedies including a permanent injunction and attorneys’ fees.
Open Road’s failure to comply with the Court’s March 2014 opinion by stopping all sales and marketing of the e-book edition until its failure to comply was called to the Court’s attention caused the Court to grant the permanent injunction requested by HarperCollins. As a result of Open Road’s continuing infringing activities, the Court found that there is “at least a reasonable likelihood of future infringement absent an injunction.” Additionally the Court found that a permanent injunction would not disserve the public interest of having access to creative works. Indeed another premise of copyright law is that “the public has a compelling interest in protecting copyright owners’ marketable title to their work.” Slip opinion at 10. Interestingly, Open Road apparently had the right to publish its e-book edition outside of the United States and Canada. Note 10 of Slip Opinion.
The Court then went on to determine monetary awards in the form of damages and attorney fees. Under the Copyright Act, the Court may award up to $150,000.00 in statutory damages for willful infringement and attorneys’ fees. The Court found that Open Road’s infringement was willful as a matter of law at least after March 17, 2014 and awarded statutory damages in the amount of $30,000. The Court based this amount on the “economic significance of this case” where the profit to Open Road from its infringing activity was less than $20,000.00. Slip opinion at 15. At first blush, this award may appear to be a pittance for willful infringement. Although a damages award may be based on the revenue lost by the copyright owner, the Court noted that HarperCollins had conceded that its lost revenue, if any, would be difficult to quantify. In addition, a higher award may well have been awarded by the Court had it found that the willful infringement had occurred for more than a few months. Slip opinion at 15.
In addition to damages, HarperCollins’ sought an award of attorneys’ fees for over a million dollars which was seventy percent (70%) of the sum billed by its outside counsel. The Copyright Act authorizes a Court “in its discretion to award a reasonable attorneys’ fees to the prevailing party.” In reaching its conclusion that HarperCollins was not entitled to such an award, the Court relied on the objective unreasonableness test in making its determination. This test was used to determine whether Open Road’s conduct in view of the 1971 contract was objectively unreasonable, i.e., “[was] clearly without merit or patently devoid of a legal or a factual basis.” Slip opinion at 18.
HarperCollins argued that Open Road’s position that the 1971 contract was devoid of electronic rights was objectively unreasonable because of the Court’s own finding that the 1971 Contract was unambiguous with respect to HarperCollins’ electronic rights. Slip opinion at 18. The Court’s opinion disposed of HarperCollins’ argument by stating that “[o]ur reticence to characterize the losing position as objectively unreasonable is informed by the fact that this dispute arose in the context of a developing, and still somewhat uncharted, area of copyright law. “ Slip opinion at 18. The Court further found that Open Road’s defenses were neither frivolous nor improperly motivated. Slip opinion at 19.
Despite the Court’s reliance on the objectively unreasonable test to find that an award of attorneys’ fees was not warranted, it is apparent from the last few paragraphs of the opinion that the Court found the sought-after attorneys’ fees of over one million dollars in the context of the economic significance of the case to be vastly excessive. This well may the real reason why the Court declined to award any fees at all. If it had concluded that attorneys’ fees were warranted under the objectively unreasonable test, the Court makes it very clear that it would have reduced the fee for a number of reasons including the fact that HarperCollins could have but refused to match the royalty offer to Ms. George made by Open Road. Had HarperCollins done so, “there would have been no disproportionately costly litigation.” Note 15 of slip opinion.
The case was closely watched in the book publishing industry. Even HarperCollins’ counsel opined at oral argument that the Court’s decision will likely have a ripple effect beyond the immediate parties, “both within a publishing house like HarperCollins and amongst other trade and other publishers.” Yet the decision provides no guidance as to other digital rights disputes concerning the interpretation of publishing contract language. The 1971 contract at issue was found to be unambiguous with respect to its “forward looking” language which, as the Court stated, “captured” or included the e-book edition of Julie of the Wolves. It is noted that the drafter of the 1971 contract anticipated that the technology of the publishing world may well change during the “lifetime” of the copyright which would cover many decades and incorporated appropriate language into Paragraph 20 of the 1971 contract to try and effectively cover that possibility. Interestingly the Court relied on this wording to both: 1) favor the plaintiff (granting of the permanent injunction as a result of willful infringement); and 2) disfavor the plaintiff (by refusing to find that Open Road’s conduct was objectively unreasonable and therefore attorneys’ fees to the plaintiff were not warranted).
Regarding the attorneys’ fees aspect of the case, the take-home point may well be that, prior to asking for attorneys’ fees, particularly where the fees are clearly disproportionate to the damages value of the case, the plaintiff should evaluate just what constitutes a reasonable attorneys’ fee under the Copyright Act and previous court decisions. Even though in this case the Court found that Open Road’s conduct was not objectively unreasonable and therefore not subject to any award of attorneys’ fees whatsoever, one cannot help but wonder what would have happened had the sought-after attorneys’ fees been considerably less. As the Court stated, “in calculating reasonable attorneys fees’ we are mindful that while parties to a litigation may fashion it according to their purse, it is not necessarily appropriate to require the losing party to wholly compensate the prevailing party for its approach to the litigation.” Note 15 of slip opinion where Court cites previous decisions. Perhaps the outcome would have been different had the Court found that the period of willful infringement had been for a considerably longer period of time and/or HarperCollins’ could have proven substantial revenue loss more in line with the sought-after award of attorneys’ fees.
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