Mitek Holdings v. Arce Engineering , 198 F.3d 840 ( 1999 )

PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
_______________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
12/20/99
No. 98-5257
THOMAS K. KAHN
_______________ CLERK
D. C. Docket No. 91-2629-CIV-KMM
MITEK HOLDINGS, INCORPORATED and
MITEK INDUSTRIES, INCORPORATED
Plaintiffs-Counter-Defendants-Appellants,
versus
ARCE ENGINEERING COMPANY, INCORPORATED,
Defendant-Counter-Claimant-Appellee,
EMILIO SOTOLONGO,
Defendant-Appellee.
______________________________
Appeal from the United States District Court
for the Southern District of Florida
______________________________
(December 20, 1999)
Before BIRCH and DUBINA, Circuit Judges, and SMITH*, Senior District Judge.
BIRCH, Circuit Judge:
*
Honorable C. Lynwood Smith, U.S. District Judge for the Northern District of Alabama,
sitting by disignation.
Plaintiffs MiTek Holdings, Inc. and MiTek Industries, Inc. (“MiTek”) appeal
from an order awarding attorney's fees pursuant to the Copyright Act, 17 U.S.C. §
505,1 to Defendant Arce Engineering Co., Inc. (“Arce”). We VACATE and
REMAND for reevaluation of the attorney's fees issue.
I. Procedural History
On November 15, 1991, MiTek filed its complaint alleging copyright
infringement under the Copyright Act,17 U.S.C. § 101 et seq. Following a bench
trial, the district court entered judgment for Arce on MiTek's claim for copyright
infringement and denied MiTek's motion of a preliminary injunction. We affirmed
the entry of judgment in favor of Arce. See MiTek Holdings, Inc. v. Arce Eng’g
Co., 89 F.3d 1548 (11th Cir. 1996) (“MiTek I”). While MiTek I was pending in
this court, the district court referred Arce's request for attorney's fees and costs to a
magistrate judge, who recommended that Arce be awarded the full amount of fees
requested. In discussing whether MiTek had brought the lawsuit in good faith, the
magistrate judge noted:
[A] review of the record indicates that this case was closely contested
and required the consideration of sophisticated issues of fact and law.
The question of the scope of copyright protection for non-literal
1
Section 505 states, in relevant part: “Except as otherwise provided by this title, the court
may . . . award a reasonable attorney's fee to the prevailing party as part of the costs.
2
elements of computer programs is relatively new, has been litigated
only a few times, and has produced varying results in different courts.
R5-145-4-5. The magistrate judge noted that fees could be awarded to a prevailing
defendant despite the lack of bad faith on the part of the plaintiff and that the
relative abilities of the different parties to pay for the requested attorney's fees
could also be considered. See R5-145-5. Because MiTek “appear[s] to be more
than capable of funding an award” and because Arce “is a small family owned
company with limited resources,” the magistrate judge found that “considerations
of compensation tip the balance in favor of an award to” Arce. R5-145-5. While
Arce had sought attorney's fees to cover 553 hours of work at $250.00 per hour, the
magistrate judge recommended that the district court award Arce attorney's fees to
cover 550 hours of work at $200.00. See R-5-145-7-8. The district court adopted
the magistrate judge's report and recommendation in its entirety. See R-5-159.
MiTek then brought the instant appeal.
II. Analysis
In reviewing a district court's decision to grant or deny fees under the
Copyright Act, we first determine whether “the district court weighed the relevant
factors and exercised its discretion.” Montgomery v. Noga, 168 F.3d 1282, 1303
(11th Cir. 1999) (footnote omitted). If the district court weighed the proper
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factors, then “we will not question the court's decision to grant or deny fees absent
an abuse of that discretion.” Id.In Fogerty v. Fantasy, Inc., the Supreme Court stated:
[W]e reject both the “dual standard” adopted by several of the Courts
of Appeals and petitioner's claim that § 505 enacted the British Rule
for automatic recovery of attorney's fees by the prevailing party.
Prevailing plaintiffs and prevailing defendants are to be treated alike,
but attorney's fees are to be awarded to prevailing parties only as a
matter of the court's discretion.
510 U.S. 517, 534, 114 S. Ct. 1023, 1033 (1994). See also Sherry Mfg. Co. v.
Towel King of Fla., Inc., 822 F.2d 1031, 1034 (11th Cir. 1987) (applying same rule
to prevailing plaintiffs and defendants). Fogerty cited with approval the Third
Circuit's list of “several nonexclusive factors that courts should consider in making
awards of attorney's fees to any prevailing party” in a Copyright Act case; these
factor include “510 U.S. at 534 n.19, 114 S. Ct. at 1033 n.19 (quoting Lieb v. Topstone
Indus., Inc., 788 F.2d 151, 156 (3d Cir. 1986)). However, the Supreme Court
limited application of such factors to where they “are faithful to the purposes of the
Copyright Act and are applied to prevailing plaintiffs and defendants in an
evenhanded manner.” Id.4
Here, the magistrate judge was correct in noting that MiTek's good faith in
bringing its suit was not determinative of the issue of attorney's fees. See Sherry
Mfg. Co., 822 F.2d at 1034; see also Original Appalachian Artworks, Inc. v. Toy
Loft, Inc., 684 F.2d 821, 832 (11th Cir. 1982) (applying § 505 to a prevailing
plaintiff's fees demand; “While the defendant's good faith and the complexity of
the legal issues involved likely would justify a denial of fees to a successful
plaintiff, a showing of bad faith or frivolity is not a requirement of a grant of fees.
Rather, the only preconditions to an award of fees is that the party receiving the fee
be the 1 F.3d 225, 234 (4th Cir. 1993); Lieb, 788 F.2d at
156, we have found no case affirming a grant of attorney's fees based solely on an
economic disparity between the prevailing and losing parties. Indeed, the First
Circuit has held that differences in financial wealth are irrelevant where both
parties are able to pay for the costs of litigation. See Lotus Dev. Corp. v. Borland
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Int'l Inc., 140 F.3d 70, 75 (1st Cir. 1998). It is unsurprising that no case law
supports the proposition that a difference in financial wealth, in and of itself, is
sufficient to justify imposition of attorney's fees under § 505. 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 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. Fogerty,
510 U.S. at 526-27, 114 S. Ct. at 1029-30 (discussing the varied goals of the
Copyright Act); see also Lotus Dev., 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.”). Thus, in determining whether to award attorney's fees
under § 505, the district court should consider not whether the losing party can
afford to pay the fees but whether imposition of fees will further the goals of the
Copyright Act. See, e.g., id. at 74 (affirming denial of attorney's fees despite the
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claim that the prevailing defendant had “advanced the interest of copyright law by
litigating this case all the way through the Supreme Court against an unusually
wealthy plaintiff” and had “increased the availability of copyrighted works”).
Because the district court did not assess whether imposition of attorney's fees
would further the goals of the Copyright Act, we vacate district court’s order as to
the award of attorney’s fees and remand for reevaluation of Arce's fee request.2
III. Conclusion
We VACATE the award of attorney's fees to Arce and REMAND for further
consideration in light of this opinion.
2
We also decline to address MiTek's argument that the district court erred in adopting the
magistrate judge's recommendation as the amount of fees to be assessed. We note only that, if the
district court on remand finds that attorney's fees are appropriate, that the district court should apply
the standards discussed in Cable-Home Communication Corp. v. Network Productions, Inc., 902
F.2d 829, 853-54 & n.37 (11th Cir. 1990) in determining the reasonable fee and should also consider
whether the fee should be reduced for partial success as argued by MiTek.
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