No. 97-1399, No. 97-1857.United States Court of Appeals, First Circuit.Heard January 9, 1998.
Decided May 15, 1998.
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Gary L. Reback, with whom Michael Barclay, Colleen Bal, Wilson Sonsini Goodrich Rosati, Peter E. Gelhaar, Katherine L. Parks, Donnelly, Conroy Gelhaar, LLP, Steven Brower, and Ginsburg, Stephan, Oringher Richman, were on brief for appellant.
Henry B. Gutman with whom Simpson Thacher Bartlett, Kerry L. Konrad, and Lori E. Lesser were on brief for appellee.
Appeal from the United States District Court for the District of Massachusetts. Hon. Douglas P. Woodlock, U.S. District Judge.
Before Stahl, Circuit Judge, Campbell, Senior Circuit Judge, and Lynch, Circuit Judge.
STAHL, Circuit Judge.
[1] Defendant-appellant Borland International, Inc. (“Borland”) appeals from the district court’s order denying its motion for attorney’s fees and costs incurred during extendedPage 72
litigation concerning its alleged infringement of plaintiff-appellee Lotus Development Corporation’s (“Lotus”) copyright in a computer program, Lotus 1-2-3. Borland, the prevailing party in this copyright infringement action, now claims that the district court abused its discretion in declining to award fees. We affirm.
I.
[2] Background
II.
[6] Discussion
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exercise their equitable discretion to award fees in an even-handed manner, and with the goal of vindicating the overriding purpose of the Copyright Act: to encourage the production of original literary, artistic, and musical expression for the public good. See id. at 524, 534. Rather than formulate a specific standard for district courts to apply, the Court identified a list of nonexclusive factors that district courts may consider, such as “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in some cases to advance considerations of compensation and deterrence.” Id. at 534 n. 19 (citing Lieb v. Topstone Indus., Inc. 788 F.2d 151, 156 (3d Cir. 1986)). Notably, the Fogerty Court eschewed arguments that courts should employ the so-called “British rule,” which mandates the award of attorney’s fees to prevailing parties. See id. at 534.
[9] In denying Borland’s fee application, the district court reasoned, in part, as follows: [10] Fogerty opened the possibility of the shifting of attorney’s fees, but it did not embrace a regime of the automatic award of attorney’s fees. Rather it recognized that there is to be undertaken an exercise of equitable discretion for which there is no precise formula. [11] . . . [12] What we dealt with here is a case dealing with what I call the open-textured dimensions of the copyright law in which the interstices were quite broad and in which judges attempted to knit a fabric that maintained the integrity of copyright law itself. . . . [T]here was merit on both sides, and [the court of appeals was] dealing with an area that was . . . moving copyright law into a relatively uncharted area that would benefit from further directions from Congress and in which both parties had an important economic interest. I find that the claims made by Lotus were meritorious. I also find that this is a case in which the various judges . . . had different views. . . . [13] . . . [14] And so, while I find that this was not frivolous, [and that] the claims were objectively reasonable . . . that we deal with a quite unique set of circumstances as to which the larger directions of Fogerty are not to make an award of attorney’s fees. . . . [15] The district court then considered whether an award was warranted in light of the other factors mentioned in Fogerty: motivation, compensation, and deterrence. Finding that these factors did not militate in favor of an award, the court denied fees. [16] Borland mounts both legal and factual challenges to the district court’s decision. We turn first to Borland’s claims of legal error. Borland asserts that the court applied the Fogerty standard incorrectly because it placed two factors, the non-frivolous nature of the plaintiff’s claims and their objective reasonableness, above all other considerations. Borland contends that when corporate giants litigate important copyright questions of first impression, the resulting lack of frivolousness and objective unreasonableness will invariably preclude a prevailing defendant from obtaining attorney’s fees. This reasoning, Borland concludes, is no different from the “dual standard” rejected in Fogerty, and thus, under Fogerty and Edwards v. Red Farm Studio Co., 109 F.3d 80 (1st Cir. 1997), the district court’s analysis is legally erroneous. [17] Although we agree with Borland that defendants are no longer required as a matter of law to demonstrate culpable behavior on the plaintiff’s part, see Fantasy v. Fogerty, 94 F.3d 553, 558(9th Cir. 1996), we disagree with Borland’s characterization of the district court’s reasoning. Had the district court taken such a hard line, Borland would have a strong argument. In Edwards, we reversed the denial of attorney’s fees to a prevailing defendant because the district court had required a showing of bad faith or frivolousness. See 109 F.3d at 82. The district court here, however, committed no such error. Rather, it is evident that the court recognized that under Fogerty a showing of culpability
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is not a prerequisite for awarding fees: after concluding that Lotus’s claims were neither frivolous nor objectively unreasonable, the court went on to consider the remaining Lieb factors. The district court merely reasoned, in part, that when a plaintiff prosecutes an action in good faith, in an unsettled area of law, and with a reasonable likelihood of success, against a party with similar financial resources, the prevailing party’s case for attorney’s fees is weaker, whether it be a plaintiff or a defendant. This view has a long history in copyright law, see, e.g., McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 322 (9th Cir. 1987); Official Aviation Guide Co. v. American Aviation Assocs., 162 F.2d 541, 542 (7th Cir. 1947), and in no way conflicts with Fogerty’s command to treat prevailing plaintiffs and defendants even-handedly. As a result, we see no basis for concluding that the district court applied an incorrect legal standard.
[18] Borland next contends that the district court committed legal error by relying on the Supreme Court’s affirmance by an equally divided court to buttress its conclusion that Borland narrowly prevailed on the merits. Borland argues that the inference made by the court, that four Justices of the Supreme Court were ready to reverse our opinion on the merits, is legally incorrect because there is no way to ascertain the position of the Justices on the merits of the litigation. [19] The relevance of this objection to our present analysis is not obvious to us. At points, the court did refer to the split on the Supreme Court as some evidence that Lotus’s claims had merit and thus were objectively reasonable. To the extent that Borland challenges this finding, its challenge is unpersuasive. The fact remains that Lotus filed this action only after prevailing on a virtually identical claim that was never appealed against a different software company. See Lotus Dev. Corp. v. Paperback Software Int’l, 740 F. Supp. 37 (D. Mass. 1990) (Keeton, U.S.D.J.). Although we ultimately held to the contrary, we cannot say that Lotus’s initial decision to rely on Paperback was objectively unreasonable. Regardless of the meaning of the Supreme Court’s narrow affirmance, the district court’s conclusion that Lotus’s chief claim was objectively reasonable is certainly a permissible one. [20] Borland also contends that the district court’s application of the various Lieb factors was clearly erroneous. See Lieb, 788 F.2d at 156. The court found that neither party had an improper motivation in litigating the case, reasoning that both parties had important economic interests in the litigation and that there were “no clear signs for judicial determination.” The court also held that the need to advance considerations of compensation and deterrence did not militate in favor of a fee award. The court found no “oppression by one party over the other in the ability to use their financial wherewithal to affect the litigation” and concluded that when “the parties are litigating a matter of some importance to the copyright laws, there is no need for deterrence.”Borland now contends that the district court erred by ignoring Lotus’s alleged anti-competitive purposes in bringing the litigation, relying impermissibly on Borland’s refusal to settle the case, and discounting the importance of encouraging copyright defendants to assert meritorious defenses. Borland notes that it advanced the interests of copyright law by litigating this case all the way through the Supreme Court against an unusually wealthy plaintiff. It also contends that the “vindication” of its own copyright in Quattro Pro increased the availability of copyrighted works. Borland concludes that “if ever there were a situation where the assertion of meritorious defenses should be encouraged, it is a case involving issues of first impression.” [21] None of these contentions provides a basis for overriding the denial of fees and costs. Both sides proffered evidence on the issue of whether Lotus had intended to use this litigation to bankrupt Borland and thus maintain its dominant position in the spreadsheet market.[3] We cannot say, on the recordPage 75
before us, that the presence of an impermissible motive on Lotus’s part is so clear that a contrary conclusion could not reasonably be reached. After all, copyright law often delineates the boundaries of economic competition. See, e.g., Feist Publications, Inc. v. Rural Tel. Servs., 499 U.S. 340, 349 (1990) (holding that the plaintiff’s telephone directory lacked originality and thus copyright law did not bar defendant from copying the information to create a competing product). Arguably, there is nothing inherently improper about bringing a claim that is well-founded in law and fact against one’s competitors, even when legal action, if successful, will inflict severe economic consequences upon them.
[22] As for the district court’s consideration of the parties’ settlement negotiations, the court did note in its discussion of the motivation factor that “more careful evaluators of the expense of litigation might have chosen not to spend” the money to litigate the case. This statement does give us some concern. 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. Such reasoning would conflict with Fogerty’s direction that the award of fees should encourage copyright defendants to assert meritorious defenses. See 510 U.S. at 527. We are confident, however, that the court’s casual observation regarding the costs of litigation was not material to its ultimate determination. Rather, the court relied squarely on the parties’ clear economic interests in pursuing the litigation, about which there is little to dispute. [23] Turning to the need to encourage meritorious defenses, a copyright defendant’s success on the merits in a case of first impression may militate in favor of a fee award, but we are unwilling to hold that a successful defense in an important case necessarily mandates an award of attorney’s fees. 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. Fogerty made clear that courts are to evaluate cases on an individualized basis, with the primary responsibility resting on the shoulders of the district judge. Regardless of whether we would have approached the matter similarly, we are unable to say that the district court’s analysis strikes us as an abuse of that discretion. [24] Borland’s final contentions — that the district court erred by ignoring Borland’s “vindication” of its own copyrighted computer program and Lotus’s unusual wealth — are unpersuasive. As a basis for awarding fees, we see no meaningful distinction between Borland’s vindication of its own copyrighted work and its assertion of a meritorious defense. The latter necessarily implies the former. In addition, the district court supportably found that both parties were financially able to litigate this important case. Lotus’s unusual wealth in no way alters this conclusion. [25] As an alternative to its argument for all its fees and costs, Borland claims that the district court erred by not awarding Borland fees and costs attributable to those portions of the case in which Lotus’s conduct was objectively unreasonable. Specifically, Borland claims it was objectively unreasonable for Lotus (1) to litigate the “functional constraints” issue, see Borland II, 799 F. Supp. at 221; Borland III, 831 F. Supp. at 207; (2) to add the “Key Reader” claim in the midst of the case, see Borland IV, 831 F. Supp. at 230-31; and (3) to prosecute a trial on damages during the pendency of Borland’s successful appeal. [26] The district court denied Borland’s motion for “full costs” covering the entire litigation, but did not explicitly rule Borland’sPage 76
alternative request for “partial” fees and costs. The issue of awarding partial fees was, however, argued at some length during the hearing on Borland’s motion, which indicates that the district court considered Borland’s arguments.[4]
Although the district court’s silence is troubling, we think it implicit that his decision that no fees are warranted for the entirety of the case necessarily encompasses Borland’s request for fees resulting from individual parts of the litigation. In addition, there is no suggestion in the district court’s opinion that it was under the legally erroneous impression that an award of partial fees was not allowable under section 505.[5]
THE COURT: I understand the argument that some portion of the claims that [Lotus was] making were less persuasive than others. But that really expresses itself, doesn’t it, in parsing through some portion of the attorney’s fees that would be more likely to be awarded.
BORLAND: . . . Now, I am not going to suggest that we get a total parsing of all the issues. . . . I would hope that we wouldn’t have to get into a detailed discussion of the damage phase. We could set a conference in 30 days, 45 days, whatever Your Honor felt. . . .
THE COURT: Well, I have a motion I have to act on. So, Mr. Gutman?
During Lotus’s argument, the Court raised the issue of the Key Reader Claim with Lotus’s counsel.
THE COURT: What about the Key Reader aspect of this?
LOTUS: We have never withdrawn that claim. We have never apologized for that claim. We believe that Judge Keeton’s opinion was correct on the law at the time it was given based on the facts of this particular case. . . . I would not concede that it is either a frivolous or objectively unreasonable claim.
and that Judge Woodlock cannot return this case to Judge Keeton on remand because the case was reassigned via Local Rule 40.1(i). As we affirm the district court’s decision to deny fees and costs, we need not reach these issues.
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