MiTek Holdings, Inc. v. Arce Engineering Co. , 198 F.3d 840 ( 1999 )

MITEK HOLDINGS, INCORPORATED and Mitek Industries, Incorporated, Plaintiffs-Counter-
Defendants-Appellants,
v.
ARCE ENGINEERING COMPANY, INCORPORATED, Defendant-Counter-Claimant-Appellee,
Emilio Sotolongo, Defendant-Appellee.
No. 98-5257.
United States Court of Appeals,
Eleventh Circuit.
Dec. 20, 1999.
Appeal from the United States District Court for the Southern District of Florida.(No. 91-2629-CIV-KMM),
Kenneth Michael Moore, Judge.
Before BIRCH and DUBINA, Circuit Judges, and SMITH*, Senior District Judge.
BIRCH, Circuit Judge:
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
*
Honorable C. Lynwood Smith, U.S. District Judge for the Northern District of Alabama, sitting by
designation.
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."
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 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
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, 127 L.Ed.2d 455 (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 " 'frivolousness, motivation, objective unreasonableness (both in the factual and in the legal
components of the case) and the need in particular circumstances to advance considerations of compensation
and deterrence.' " Fogerty, 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.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 'prevailing party' and that the fee be reasonable.") (citation omitted; emphasis in
original). However, the district court erred in considering only the financial means of MiTek and of Arce in
determining that MiTek should be liable for Arce's attorney's fees.
While several courts have held that issues of compensation may, in appropriate cases, be considered
in ruling on a motion for attorney's fees, see, e.g., Rosciszewski v. Arete Assoc., 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 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 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.