Eagle Services Corp v. H2O Indus Services ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 07-1997
EAGLE SERVICES CORP.,
Plaintiff-Appellee,
v.
H2O INDUSTRIAL SERVICES, INC., et al.,
Defendants-Appellants.
____________
Appeal from the United States District Court
for the Northern District of Indiana, Hammond Division.
No. 2:02-CV-36—Paul R. Cherry, Magistrate Judge.
____________
ARGUED MAY 29, 2008—DECIDED JULY 9, 2008
____________
Before CUDAHY, POSNER, and TINDER, Circuit Judges.
POSNER, Circuit Judge. The Copyright Act authorizes a
court to award a reasonable attorney’s fee to the prevailing
party in a copyright suit. 17 U.S.C. § 505. The defendants
prevailed but the district court refused to award them
attorney’s fees, and they have appealed.
The plaintiff, Eagle, is in the business of cleaning up
contaminated sites. The four individual defendants left
their employment with Eagle to form their own com-
pany (the corporate defendant, H2O) to compete with
Eagle.
2 No. 07-1997
Eagle has a copyrighted safety manual. The copyright
is a compilation copyright, 17 U.S.C. §§ 101 (“compila-
tion”), 103(b), as the manual consists mostly of quota-
tions from OSHA regulations; the provenance of the
remaining text of the manual is unclear. Suspecting that
the individual defendants had taken the manual with
them when they left to form their own company and
had made copies of it, Eagle sent two people to H2O in the
guise of prospective customers to request H2O’s safety
manual, and, sure enough, they were shown copies of
Eagle’s manual. H2O later prepared its own manual, and
other than the two Eagle spies no prospective customer
of H2O was ever shown the Eagle manual. Thus the
defendants derived no profits from the alleged copy-
right infringement—or so one would think; but Eagle
argued that without a manual, H2O could not provide
any services without violating OSHA regulations, and
therefore that Eagle should be entitled to recover, on a
theory of restitution, all the profits that H2O made in its
business before it created its own manual. Eagle acknowl-
edged that it could not prove actual damages and that
it was not entitled to statutory damages.
The district court allowed the case to go to the jury. But
after Eagle rested its case the court granted the defend-
ants’ motion for judgment as a matter of law, as no
evidence had been presented that either the Occupational
Safety and Health Act or the regulations under it require
companies that the Occupational Safety and Health
Administration regulates to have a safety manual—safety
standards, yes, 29 C.F.R. § 1910.2(f), and instructions in
safety, § 1926.21; see Danis-Shook Joint Venture XXV v.
Secretary of Labor, 319 F.3d 805, 812-13 (6th Cir. 2003);
Valdak Corp. v. OSHRC, 73 F.3d 1466, 1469 (8th Cir. 1996),
No. 07-1997 3
but not a manual, though that is a useful element of a
safety program. See P. Gioioso & Sons, Inc. v. OSHRC,
115 F.3d 100, 110 (1st Cir. 1997). Moreover, had Indiana
tried to shut down H2O for a violation of the Occupational
Safety and Health Act or a regulation issued under it
(the Act is enforced in Indiana by the state, pursuant to
29 C.F.R. § 1952.324(b)-(c)), it would have had to give
H2O a grace period within which to comply. Ind. Code
§ 22-8-1.1-25.1(a)(3). H2O could easily have complied by
creating its own compilation of OSHA regulations; and if
it failed to do so, still the state could not shut it down
without first obtaining a judicial order. Ind. Code §§ 4-21.5-
6-6, 22-8-1.1-35.6. The process would take years. LTV
Steel Co. v. Griffin, 730 N.E.2d 1251, 1255-56 (Ind. 2000);
Union Tank Car, Fleet Operations v. Commissioner of Labor,
671 N.E.2d 885, 887-88 (Ind. App. 1996). Creating a
safety manual would take days, or less, since fully cus-
tomized OSHA safety manuals are available for pur-
chase, at prices ranging from about $250 to $300, from
OSHA Source, LLC, www.safetymanualexperts.com; from
OSHA Compliance Group, Inc., www.safetymanual.com/;
from DigitalREG, www.safetymanualpro.com/ (“With
the click of a mouse button and for only $269.99 you
can have a completely customized, OSHA compliant
safety manual in as little as 24 hours”) (all visited June 13,
2008); and from other vendors as well.
There has been no determination of whether Eagle’s
copyright is valid. The defendants argue that it is not
because little of the material in the manual is original. But
while for the most part the manual does just reproduce
OSHA regulations, the manual’s sequencing of them is
original—there is not just a single sequence that every
OSHA safety manual would have to follow—and there is
4 No. 07-1997
other text in the manual as well, though it may have
been copied from works in the public domain. We shall
assume that Eagle’s compilation copyright is valid. Feist
Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340,
348-50, 357-59 (1991); Assessment Technologies of WI, LLC
v. WIREData, Inc., 350 F.3d 640, 643 (7th Cir. 2003). The
assumption does not affect our decision.
The district court refused to award attorney’s fees, on
the ground that the suit was not frivolous and had not
been filed in bad faith and that the standards for what
the parties call an “indirect profits” suit are vague. The
court was wrong on all three counts, but even if it had
been right it would not have been justified in refusing to
award fees.
It is apparent that the suit was filed in order to cramp
the style of a competitor and perhaps warn off any other
employee of Eagle who might have the temerity to set up
in competition with it. Eagle engaged in extensive dis-
covery that included deposing all of H2O’s customers
and a number of its prospective customers as well; the
defendants claim without contradiction that as a result
H2O lost many customers.
The suit could not have been brought in good faith
because Eagle never had any basis for thinking that
Indiana would have shut down H2O had H2O not
copied Eagle’s manual. And not only for the reasons that
we have explained already, but for another: if a manual
had been required by law and H2O had not copied
Eagle’s manual, then, given how simple it is to create a
manual by copying OSHA regulations or buying a cus-
tomized manual, H2O, rather than abandoning its busi-
ness for want of a manual would have prepared or pro-
No. 07-1997 5
cured another manual post haste—at some expense, to
be sure, but, as we know, a trivial one; unsurprisingly,
recovery of the negligible profit that H2O made by avoid-
ing for a time that trivial expense is not sought by Eagle.
So the suit was frivolous even if there was a copy-
right violation. When a plaintiff is just suing for money
and he has no ground at all for obtaining a money judg-
ment, the fact that his rights may have been violated does
not save his suit from being adjudged frivolous. Durr v.
Intercounty Title Co., 14 F.3d 1183, 1188 (7th Cir. 1994);
Compaq Computer Corp. v. Ergonome Inc., 387 F.3d 403(5th Cir. 2004); Devices for Medicine, Inc. v. Boehl, 822
F.2d 1062, 1063, 1068-69 (Fed. Cir. 1987); Olympia Co. v.
Celotex Corp., 771 F.2d 888, 893 (5th Cir. 1985). At least this
is true in a case in which there is no right to nominal
damages, and there is none in a copyright suit. 6 William
F. Patry, Patry on Copyright § 22:124, p. 297 (2008). (Compaq
Computer Corp. v. Ergonome Inc., supra, was such a
suit.) Eagle’s only remedial theory was that H2O would
have had to shut down had it not copied Eagle’s man-
ual; and the theory was groundless.
The only uncertainty is whether, if Eagle had proved
that H2O would have shut down had it not copied
Eagle’s manual, it could have obtained the profits that
H2O obtained as a result of not having to shut down. It
is doubtful that profits from the sale of noninfringing
goods or services (in this case, H2O’s clean-up services)
can be attributed to a copyright infringement with
enough confidence to support a judgment. 6 Patry, supra,
§ 22:131, pp. 312-15; cf. MindGames, Inc. v. Western Publish-
ing Co., 218 F.3d 652, 658 (7th Cir. 2000); Compaq Computer
Corp. v. Ergonome Inc., supra, 387 F.3d at 412; Polar Bear
6 No. 07-1997
Productions, Inc. v. Timex Corp., 384 F.3d 700, 709-10 (9th
Cir. 2004); Mackie v. Rieser, 296 F.3d 909, 916 (9th Cir. 2002).
The reason for allowing the copyright holder to
choose between the damages caused by the infringe-
ment and the infringer’s profits is that otherwise a more
efficient competitor would have an incentive to infringe
because its profit would exceed its victim’s loss, with
the result that capping relief at damages would create
in effect a compulsory-licensing scheme, the damages to
the copyright holder being the license fee. Bucklew v.
Hawkins, Ash, Baptie & Co., LLP, 329 F.3d 923, 931 (7th Cir.
2003); Taylor v. Meirick, 712 F.2d 1112, 1120 (7th Cir. 1983);
Walker v. Forbes, Inc., 28 F.3d 409, 415 n. 7 (4th Cir. 1994);
Roger D. Blair & Thomas F. Cotter, Intellectual Property:
Economic and Legal Dimensions of Rights and Remedies 59, 67
(2005). There is nothing like that here. H2O was not trying
to obtain customers or otherwise profit from Eagle’s
manual. At worst, had it needed the manual to avert being
forced to shut down (which it didn’t), it avoided a business
disaster by infringing. Suppose it would have been
forced into bankruptcy had it not infringed. Then Eagle
would be seeking by way of restitution a sum of money
large enough to bankrupt H2O. In other words, for want
of a nail the kingdom was lost. We doubt that so unat-
tractive a basis for a legal judgment was intended by
Congress when it authorized restitution as a remedy
for copyright infringement.
So we have a suit brought almost certainly in bad faith,
a frivolous suit, a suit against a newer and probably
smaller and weaker firm. Under any standard we know
for shifting attorney’s fees from a losing plaintiff to a
winning defendant, H2O (and the individuals joined as
defendants along with it) would be entitled to an award
No. 07-1997 7
of attorney’s fees. E.g., Alyeska Pipeline Service Co. v.
Wilderness Society, 421 U.S. 240, 258 (1975); Chambers v.
NASCO, Inc., 501 U.S. 32, 46 (1991); IDS Life Ins. Co. v. Royal
Alliance Associates, Inc., 266 F.3d 645, 654 (7th Cir. 2001).
Under the standard for such shifting in a copyright case,
the defendants’ entitlement is even stronger. The Su-
preme Court in Fogerty v. Fantasy, Inc., 510 U.S. 517, 534
(1994), said that, unlike the rule in an employment dis-
crimination case, where the plaintiff is presumptively
entitled to his attorney’s fees if he wins but the defend-
ant only if the suit was frivolous, in copyright suits
“prevailing plaintiffs and prevailing defendants are to be
treated alike.” That is why we concluded in Assessment
Technologies of WI, LLC v. WIREData, Inc., 361 F.3d 434, 437
(7th Cir. 2004), that “when the prevailing party is the
defendant, who by definition receives not a small award
but no award, the presumption in favor of awarding fees
is very strong.” See also Mostly Memories, Inc. v. For Your
Ease Only, Inc., No. 06-3560, 2008 WL 2168642, at *5 (7th
Cir. May 27, 2008); Riviera Distributors, Inc. v. Jones, 517 F.3d
926, 927-29 (7th Cir. 2008); Woodhaven Homes & Realty, Inc.
v. Hotz, 396 F.3d 822, 824 (7th Cir. 2005). The conclusion is
implicit in the Supreme Court’s directive in Fogerty to treat
the parties to a copyright case symmetrically. If the only
thing disturbing the symmetry is that the defendant
prevailed, it is presumptively entitled to an award of its
reasonable attorney’s fees. Here, of course, the presump-
tion is not rebutted, but instead is reinforced, by the
considerations that we have reviewed.
Yet Murray Hill Publications, Inc. v. ABC Communications,
Inc., 264 F.3d 622, 640 (6th Cir. 2001), disregarding Fogarty,
says (and is not alone in saying) that “because we be-
lieve the plaintiffs presented one or more colorable, albeit
8 No. 07-1997
meritless, claims to the district court, we reverse the award
of attorneys fees” to the defendant. Such decisions
(criticized in 6 Patry, supra, § 22:210, pp. 469-70), by
treating a copyright case as if it were an employment
discrimination case, ignore the symmetry of interests in
a copyright or other intellectual property case. In the
typical copyright case a victory for the defendant en-
larges the public domain by denying the plaintiff’s right
to prevent the defendant—or anyone else—from using
the intellectual property alleged to infringe the plain-
tiff’s copyright. The public domain is “an important
resource for creators of expressive works and therefore
there should be no thumb on the scales” in deciding
whether to award attorneys’ fees. Gonzales v. Transfer
Technologies, Inc., 301 F.3d 608, 609 (7th Cir. 2002); see
also Assessment Technologies of WI, LLC v. WIREData, Inc.,
supra, 361 F.3d at 436.
If there is an asymmetry in copyright, it is one that
actually favors defendants. The successful assertion of a
copyright confirms the plaintiff’s possession of an ex-
clusive, and sometimes very valuable, right, and thus
gives it an incentive to spend heavily on litigation. In
contrast, a successful defense against a copyright claim,
when it throws the copyrighted work into the public
domain, benefits all users of the public domain, not just
the defendant; he obtains no exclusive right and so his
incentive to spend on defense is reduced and he may be
forced into an unfavorable settlement.
This case is atypical, because the defendants did not
succeed in forcing the plaintiff’s manuals into the public
domain. But there is nothing in the cases to suggest that
the thumb is to be taken off the scales only when a de-
fendant by his successful defense enlarges the public
No. 07-1997 9
domain. That would be cutting things too fine. The pre-
sumption in a copyright case is that the prevailing
party (though if it is the plaintiff, only if his copyright
had been registered, 17 U.S.C. § 412; Budget Cinema, Inc. v.
Watertower Associates, 81 F.3d 729, 733 (7th Cir. 1996))
receives an award of fees. Gonzales v. Transfer Technologies,
Inc., supra, 301 F.3d at 610; see also Hogan Systems, Inc. v.
Cybresource Int’l, Inc., 158 F.3d 319, 325 (5th Cir. 1998);
McGaughey v. Twentieth Century Fox Film Corp., 12 F.3d
62, 65 (5th Cir. 1994). The presumption has not been
rebutted.
The judgment is therefore reversed and the case re-
manded with instructions to compute and award rea-
sonable attorney’s fees to the defendants.
USCA-02-C-0072—7-9-08