Riviera Distributors v. Jones, Timothy S. ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 06-2043 & 06-3692
RIVIERA DISTRIBUTORS, INC., and
LARRY L. HARTLEY,
Plaintiffs-Appellees,
v.
TIMOTHY S. JONES and MIDWEST
ELECTRONIC SPECIALTIES, INC.,
Defendants-Appellants.
____________
Appeals from the United States District Court
for the Central District of Illinois.
No. 04-1430—Michael M. Mihm, Judge.
____________
ARGUED OCTOBER 25, 2007—DECIDED FEBRUARY 20, 2008
____________
Before EASTERBROOK, Chief Judge, and RIPPLE and
KANNE, Circuit Judges.
EASTERBROOK, Chief Judge. Both sides to this litiga-
tion hold copyrights in software. Plaintiffs (which we
call Riviera) contend that the “Stars and Stripes” video-
poker game sold by defendants (which we call Midwest)
infringes Riviera’s “Americana” source code. (There are
several other games and sets of code, which we bypass to
simplify the exposition.) After the suit had been pending
for more than a year—and long after the time for a
voluntary dismissal, without prejudice, under Fed. R. Civ.
2 Nos. 06-2043 & 06-3692
P. 41(a)(1) had passed—Riviera filed a motion to dis-
miss. It conceded that it lacked the evidence to prove its
claim, though hoping to acquire better evidence in the
future it asked the district judge to dismiss without
prejudice under Rule 41(a)(2). The district judge dis-
missed the case, but with prejudice.
Midwest then applied for attorneys’ fees under §101 of
the Copyright Act of 1976, codified at 17 U.S.C. §505. That
section authorizes a district court to “award a reasonable
attorney’s fee to the prevailing party as part of the costs.”
Unlike many fee-shifting statutes, which entitle prevailing
plaintiffs to recover fees as a matter of course but allow
prevailing defendants to recover fees only if the suit
was frivolous, §505 treats both sides equally and allows
an award in either direction. Fogerty v. Fantasy, Inc.,
510 U.S. 517 (1994). Since Fogerty we have held that the
prevailing party in copyright litigation is presumptively
entitled to reimbursement of its attorneys’ fees. See, e.g.,
Woodhaven Homes & Realty, Inc. v. Hotz, 396 F.3d 822,
824 (7th Cir. 2005); Assessment Technologies of Wis-
consin, LLC v. WIREdata, Inc., 361 F.3d 434 (7th Cir.
2004).
The district court denied Midwest’s request for fees,
ruling that it is not the prevailing party. The judge wrote
that he “did not in any way pass on the merits of the
litigation. . . . [T]here has been no evidence of lack of
merit to [Riviera’s] copyright infringement claims and no
finding with respect to the merits of the case. The Court
therefore does not believe that [Midwest is] entitled to
prevailing party status on the facts of this case.”
This approach supposes that the content of a judge’s
opinion is what makes a litigant a prevailing party. If
the judge sustains a litigant’s position on the merits, then
it “prevails”; otherwise not. The Supreme Court took a
different view in Buckhannon Board & Care Home, Inc. v.
Nos. 06-2043 & 06-3692 3
West Virginia Dep’t of Health & Human Resources, 532
U.S. 598 (2001), which holds that a litigant “prevails” (for
the purpose of fee-shifting statutes) when it obtains a
“material alteration of the legal relationship of the par-
ties”, 532 U.S. at 604, quoting from Texas State Teachers
Ass’n v. Garland Independent School District, 489 U.S.
782, 792–93 (1989). A judgment in a party’s favor has
such an effect, which is why a consent decree confers
prevailing-party status even though everyone denies
liability as part of the underlying settlement, and the
judge takes no position on the merits.
Midwest obtained a favorable judgment. That this
came about when Riviera threw in the towel does not
make Midwest less the victor than it would have been
had the judge granted summary judgment or a jury
returned a verdict in its favor. Riviera sued; Midwest
won; no more is required. See Mother & Father v.
Cassidy, 338 F.3d 704, 708 (7th Cir. 2003) (dismissal
under Rule 41(a)(2), with prejudice, after a plaintiff
gives up makes the defendant the prevailing party). The
district court recognized as much when it awarded costs
to Midwest under Fed. R. Civ. P. 54. Only the “prevailing
party” is entitled to costs. Because Midwest is the pre-
vailing party for regular costs, it must be the prevailing
party for the purpose of §505, which allows an award of
attorneys’ fees as part of costs.
What remains is the question whether this is an appro-
priate occasion for fee shifting. The district judge thought
not, writing that “the Court rejects the suggestion that
[Riviera’s] pursuit of this action was frivolous, baseless, or
objectively unreasonable.” This is not, however, the
standard for an award under §505; it is the standard used
under statutes such as 42 U.S.C. §1988 that authorize
an award to a prevailing defendant only if the suit is
frivolous or vexatious. Fogerty rejects such an asymmetric
approach for §505.
4 Nos. 06-2043 & 06-3692
Is there any reason not to honor the presumption that
the prevailing party, plaintiff or defendant, recovers
attorneys’ fees under §505? The district judge observed
that he denied Midwest’s motion to dismiss the complaint,
but that’s a common step on the way to a decision and not
a good reason to force the prevailing party to swallow
the legal costs of the suit. The judge hinted that Mid-
west should be penalized for abandoning an attempt at
mediation, but any litigant is entitled to insist that its
case be adjudicated. Curtailing mediation actually held
down the costs of defense. The district court also chas-
tised Midwest for delay in responding to Riviera’s discov-
ery requests. The judge would have been within his
rights to lop off any fees incurred to frustrate or drag out
discovery, but an award of zero for the case as a whole
is not an appropriate response to the wrangling that is
regrettably common in discovery.
This case turns out to be an especially good candidate
for fee shifting under §505, because it was filed in the
teeth of an agreement not to sue. Riviera and Midwest
have been at each others’ throats for years, and this is
the second suit based on fundamentally the same claim of
infringement. Eventually the first suit was settled. One
clause of the settlement provides for alternative dispute
resolution of any future claims:
In the event that either party hereto believes that
its rights as to the Riviera [intellectual property]
Rights or Enhancements have been violated by
[Midwest], then such source code and programs
shall be provided to a mutually agreeable, inde-
pendent software expert who shall inspect and
review such applicable source code and programs
and determine such questions. The parties agree
to be bound by the findings of the independent
software expert.
Nos. 06-2043 & 06-3692 5
Riviera says that, after the settlement, Midwest went
right on infringing its copyrights. But the point of a
clause such as the one quoted above is to submit to an
expert the question whether any of Midwest’s games uses
Riviera’s source code. Riviera can’t justify this suit by
assuming an affirmative answer to the very question that
the expert is supposed to decide.
When Midwest moved to dismiss Riviera’s complaint,
it brought this clause to the district judge’s attention.
The judge’s order denying the motion to dismiss does not
mention Riviera’s agreement to have an expert, rather
than a judge, resolve any controversy about infringement.
Perhaps the judge assumed that, because this agree-
ment is not a traditional arbitration clause, it is ineffec-
tual. But we held in Omni Tech Corp. v. MPC Solutions
Sales, LLC, 432 F.3d 797 (7th Cir. 2005), that agreements
to engage in alternative dispute resolution must be
enforced, if they are valid as a matter of state contract law,
whether or not they are aptly labeled “arbitration.” In
Omni Tech the agreement was one to have a financial
dispute resolved by an accountant; here the agreement
is one to have a dispute about how software source code
has been used resolved by a programmer. There is no
basis on which Omni Tech can be distinguished—and
Riviera does not even try. Its sole argument is that by
asserting that infringement has continued, it liberates
itself from the agreement to have an expert resolve any
dispute about infringement.
Riviera came to the wrong forum. Agreements such as
the one between Riviera and Midwest are designed to
reduce the price tag of decision-making. By filing an-
other suit, Riviera forced Midwest to bear the very ex-
penses that the parties had agreed to avoid. The party
responsible for creating excessive legal costs must bear
them itself in the end.
6 Nos. 06-2043 & 06-3692
This conclusion makes it unnecessary to discuss the
parties’ other disputes, such as whether by filing a sec-
ond suit Riviera entitled Midwest to an award under 28
U.S.C. §1927.
The judgment is reversed, and the case is remanded for
an award of reasonable attorneys’ fees to Midwest under
17 U.S.C. §505. The award should include the legal fees
that Midwest has incurred to vindicate its rights on
appeal.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-20-08