Awards of Attorney Fees in Copyright Infringement Cases Are Justified for “Vexatious Conduct” by Attorney

by Christina Frangiosa


In FM Industries, Inc. v. Citicorp Credit Services, Inc., the U.S. Court of Appeals for the Seventh Circuit (“Seventh Circuit”) affirmed an award of attorneys’ fees to a prevailing defendant in a copyright infringement action, explaining that plaintiff’s attorney’s conduct was “vexatious,” “amateurish and absurd”. FM Indus., Inc. v. Citicorp Credit Svcs., Inc., No. 08-3184, 2010 U.S. App. LEXIS 15057 at *4, *13 (7th Cir. July 22, 2010). Written by Chief Judge Easterbrook, this is a colorful opinion that richly deserves reading (as his opinions usually are).

Prevailing parties (whether plaintiffs or defendants) in copyright infringement actions can be awarded attorneys’ fees pursuant to 17 U.S.C. § 505 (“the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs”). The Seventh Circuit explained that this provision “vindicates the public’s interest in the use of intellectual property” and that in the absence of such a provision, prevailing defendants would have “only losses to show for the litigation.” FM Indus., 2010 U.S. App. LEXIS 15057 at *12.

In this case, after the district court dismissed all of plaintiff’s claims for failure to prosecute, the court ordered plaintiff to pay attorneys’ fees of $750,000 to defendant pursuant to 17 U.S.C. § 505. The court also ruled that plaintiff’s counsel (Wayne D. Rhine) “vexatiously multiplied the proceedings and is liable for attorneys’ fees under 28 U.S.C. § 1927.” The court concluded that another lawyer, William T. McGrath (“a copyright specialist who Rhine engaged to assist him”) was jointly and severally liable for the attorneys’ fees awarded under § 1927. The total award, for which the two attorneys were jointly and severally liable, was $35,000 (“because the district judge deemed only a subset of the filings sanctionable under § 1927). The court made a separate award against Rhine for $2,694 (although the Seventh Circuit did not explain why).

The Seventh Circuit affirmed all of the attorney’s fee awards except for one: the joint and several liability award against McGrath, concluding that McGrath’s only sanctionable conduct was “making the mistake of agreeing to help a careless lawyer (Rhine) who put his name to frivolous and malicious documents drafted by a self-interested layman [the client], and then not reviewing all of the documents that [the client] prepared for Rhine’s signature.” Id. at *15.

The Seventh Circuit explained that liability under § 1927 is direct, not vicarious (Id.), and nothing required one attorney to take responsibility for another attorney’s filings in the same case. “Section 1927 does not require every lawyer who files an appearance to review and vet every paper filed by every other lawyer. Neither the text of § 1927, nor any decision of which we are aware, imposes on any lawyer a duty to supervise or correct another lawyer’s work.” Id. at *15-*16. As a result, the Seventh Circuit reversed the district court’s award of sanctions against McGrath.  Id. (“We appreciate that the judge was disgusted by the behavior of FM Industries and its counsel, but personal responsibility remains essential to an award of sanctions under § 1927.”).

Summarized below is the conduct that the Seventh Circuit cited in its opinion as supporting the various awards of attorneys’ fees in this case (“There is more, but extending this recitation would not serve much purpose” Id. at *12.):

Problems with the Complaint

  • The client’s (plaintiff’s) repeated demands for $15 billion in statutory damages (notwithstanding the statute’s limitation of $150,000 in statutory damages per copyrighted work (not per use of a copy). Rhine argued that the figure $15 billion never appeared in plaintiff’s papers. Labeling these arguments as “quibbles,” the Seventh Circuit noted that “A complaint that demands $150,000 (the statutory cap) times 100,000 (the complaint’s estimate of the number of times computers copied the software into random access memory) is demanding $15 billion. Even lawyers can multiply two numbers.” Id. at *13 (emphasis added). It seems the Seventh Circuit has a sense of humor.
  • Plaintiff also sought a separate item of damage of $7.2 million (“$150,000 times 48, the number of outside law firms that used the software” at issue in this case), which was “no more tenable than $15 billion.” Id.
  • Plaintiff also sought $ 235 million in actual damages – which plaintiff never attempted to prove. Id.

Problems with Litigation Conduct

  • The Seventh Circuit called plaintiff’s litigation tactics “extortionate” – including the subpoenaing of several law firms who were not parties to the suit, but completely ignoring the requirements of Fed. R. Civ. P. 45 (regulating the manner and extent of discovery to be sought from non-parties), and thus causing the recipients to engage in expensive efforts to respond to improperly served subpoenas. On top of that, plaintiff failed to serve proper subpoenas after being informed of the deficiencies. The Seventh Circuit labeled these efforts as “extortionate discovery, the kind a litigant undertakes when it hopes to be paid to go away.” Id. at *12.
  • Filing motions for sanctions against defendants when they missed one discovery deadline, by a single day, seeking sanctions in the amount of $ 815 million. “The defendants and district judge were not amused, but defendants had to devote substantial time (and thus expense) to responding, because if the judge were prepared to award even a tiny fraction of the request the outlay would be considerable.” Id. at *10.
  • Attempting to “force” the current and former chairs of Citigroup’s board of directors to appear for deposition “even though they had nothing to do with Citigroup’s use of [the software at issue], is further evidence that FM Industries and its lawyers were engaged in the abuse of legal process.

One of the particularly notable points the Seventh Circuit made was that Rhine had only recently returned to private practice (in 2006) after 24 years as a judge of the Circuit Court of Cook County, Illinois (which I understand to be the trial level in Illinois state court). With regard to his handling of this case, the Seventh Circuit admonished, “The problem here, and in much else that went wrong with this case, is that Rhine allowed Friedman [the client], a non-lawyer, to draft many of the papers that were filed over Rhine’s name. Rhine insists that he did not simply rent out his law license but instead reviewed and edited the documents before filing them. We accept that representation, but it also means that Rhine, who resumed legal practice in 2006 after 24 years as a judge . . . bears the responsibility for amateurish and absurd filings.” Id. at *4.

The take away? If you permit your clients to prepare the first draft of any pleading – especially where they may be inspired to vent their spleens on their opponents – be sure to really edit the result to ensure that what is ultimately filed is professional, meritorious, respectful and complies with the applicable rules of civil procedure. Ultimately, the attorney must take full responsibility for the accuracy and propriety of any filing that bears his or her signature. Such responsibility cannot be abdicated to the client, even though the client may ultimately have to pay the sanctions.

ISPs Are Not Required to Search Independently for Potential Infringement

by Christina Frangiosa

Recently, the Southern District of New York confirmed that a copyright owner bears the sole responsibility for searching the marketplace for evidence of piracy or infringement of its works. In Viacom Int’l v. YouTube, Inc., the court explained that as long as an Internet Service Provider (“ISP”) such as YouTube complied with the notice and take down requirements of the Copyright Act (specifically the Digital Millennium Copyright Act, or “DMCA”), it could not be held liable for failing to proactively search for content on its site that might infringe copyrights owned by others. Viacom Int’l v. YouTube, Inc., No. 07 Civ. 2103, 2010 U.S. Dist. LEXIS 62829 (S.D.N.Y. June 23, 2010) (available on Justia.com).

Both parties moved for summary judgment. YouTube argued that the safe harbor of 17 U.S.C. § 512(c) protected it from liability for others’ infringing acts. Id. at *8-*9. In turn, Viacom argued that YouTube was liable for intentional infringement of thousands of Viacom’s copyrighted works and was not protected by the DMCA’s safe harbor rules because 1) it had actual knowledge of the infringement and failed to stop it, 2) YouTube benefited financially from the infringement because of the increased traffic to YouTube’s site; and 3) the safe harbor protected those ISPs that only provided storage at the direction of the user. Id.

The court was persuaded that the safe harbor applied and found that the phrases “actual knowledge that the material or an activity using the material on the system or network is infringing” and “facts or circumstances from which infringing activity is apparent” as used in § 512(c) meant “actual or constructive knowledge of specific and identifiable infringements of individual items” and not “general awareness that there are infringements (here, claimed to be widespread and common).” Id. at *15-*16. Ultimately, the court granted YouTube’s motion for summary judgment on the basis of the § 512(c) safe harbor and denied all of Viacom’s claims that YouTube was liable for direct and secondary copyright infringement. Id. at *45.

In this case, Viacom collected approximately 100,000 videos from YouTube that it claimed to be infringing and sent a single “mass take-down notice” listing each one. Id. at *30-*31. By the following business day, YouTube had removed “nearly all” of the videos identified in the notice. Id. at *31. YouTube’s prompt response was apparently key to the court’s holding. Id. at *37-*38. (YouTube’s current copyright policy (which relies on the § 512(c) safe harbor) can be found here.) Perhaps the court was also persuaded by the potentially daunting task facing an ISP that had “over 24 hours of new video-viewing time . . . uploaded to the YouTube website every minute” if it were required to search proactively for content that potentially infringed others’ rights. Id. at *14.

The court evaluated the legislative history of the DMCA and focused on its articulation of a “red-flag” test: “[A] service provider need not monitor its service or affirmatively seek facts indicating infringing activity (except to the extent consistent with a standard technical measure complying with subsection (h)), in order to claim this limitation on liability (or, indeed any other limitation provided by the legislation). However, if the service provider becomes aware of a ‘red flag’ from which infringing activity is apparent, it will lose the limitation of liability if it takes no action.” Id. at *20 (quoting Senate Judiciary Comm. Report, S. Rep. No. 105-190 at 44-45 (1998); House Comm. on Commerce Report, H.R. Rep. No. 105-551, pt. 2, at 53-54 (1998)).

The legislative history further clarified that “a service provider conducting a legitimate business would not be considered to receive a financial benefit directly attributable to the infringing activity’ where the infringer makes the same kind of payment as non-infringing users of the provider’s service.” Id. at *22 (quoting Senate Report at 44-45; House Rep. at 53-54). As a result, the court in the Viacom v. YouTube case concluded that any financial benefit YouTube received did not disqualify it from the safe harbor provisions because even those benefits must be tied to item-specific knowledge. Id. at *40-*41.

Congress similarly provided that the failure to recognize and act on “red flags” would preclude the application of the safe harbor. Id. at *25 (“a service provider would have no obligation to seek out copyright infringement, but it would not qualify for the safe harbor if it had turned a blind eye to ‘red flags’ of obvious infringement.”). Specifically, the ISP is not required to evaluate or reach any conclusion about the potential for infringement of someone else’s works. Id. at *26.

Ultimately, the court held that “[m]ere knowledge of prevalence of such activity in general is not enough” to justify imposing liability for indirect copyright infringement on an ISP. Id. at *29. Particularly, imposing liability on the ISP based solely on “knowledge of a generalized practice of infringement in the industry, or of a proclivity of users to post infringing materials . . . would contravene the structure and operation of the DMCA.”

The court also rejected Viacom’s argument that the take down list (identifying approximately 100,000 claimed infringing videos) was merely “representative” of a larger number of infringing videos to be found on YouTube, and that the take down notice required YouTube to search for other similar works and remove them in order for the safe harbor to apply. Id. at *44-*45. The court opined that “This ‘representative list’ reference would eviscerate the required specificity of notice . . . if it were construed to mean a merely generic description (“all works by Gershwin”) without also giving the works’ locations at the site, and would put the provider to the factual search forbidden by § 512(m).” Id. at *44. Instead, take down notices must provide specific locations to the infringing works, whether by providing the precise URL (uniform resource locator, or website address), in order to permit the ISP to react appropriately to the notice and remove the infringing work.

The upshot is this: copyright owners still bear the burden to police the market to find instances of infringement, and cannot abdicate this duty to any of the various ISPs that host “user generated content.”

Statutory Language:

The relevant DMCA safe harbor rules that the court considered are contained in 17 U.S.C. § 512(c), reprinted below. There are several other safe harbors that the court did not analyze that can also be found in § 512. They are not reprinted here in the interest of space.

17 U.S.C. § 512(c) Information residing on systems or networks at direction of users.
(1) In general. A service provider shall not be liable for monetary relief, or, except as provided in subsection (j), for injunctive or other equitable relief, for infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider, if the service provider—
     (A) (i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing;
          (ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent; or
          (iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material;
     (B) does not receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity; and
     (C) upon notification of claimed infringement as described in paragraph (3), responds expeditiously to remove, or disable access to, the material that is claimed to be infringing or to be the subject of infringing activity.

(2) Designated agent. The limitations on liability established in this subsection apply to a service provider only if the service provider has designated an agent to receive notifications of claimed infringement described in paragraph (3), by making available through its service, including on its website in a location accessible to the public, and by providing to the Copyright Office, substantially the following information:
     (A) the name, address, phone number, and electronic mail address of the agent.
     (B) other contact information which the Register of Copyrights may deem appropriate.
The Register of Copyrights shall maintain a current directory of agents available to the public for inspection, including through the Internet, in both electronic and hard copy formats, and may require payment of a fee by service providers to cover the costs of maintaining the directory.

(3) Elements of notification.
     (A) To be effective under this subsection, a notification of claimed infringement must be a written communication provided to the designated agent of a service provider that includes substantially the following:
          (i) A physical or electronic signature of a person authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.
          (ii) Identification of the copyrighted work claimed to have been infringed, or, if multiple copyrighted works at a single online site are covered by a single notification, a representative list of such works at that site.
          (iii) Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate the material.
          (iv) Information reasonably sufficient to permit the service provider to contact the complaining party, such as an address, telephone number, and, if available, an electronic mail address at which the complaining party may be contacted.
          (v) A statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.
          (vi) A statement that the information in the notification is accurate, and under penalty of perjury, that the complaining party is authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.
     (B) (i) Subject to clause (ii), a notification from a copyright owner or from a person authorized to act on behalf of the copyright owner that fails to comply substantially with the provisions of subparagraph (A) shall not be considered under paragraph (1)(A) in determining whether a service provider has actual knowledge or is aware of facts or circumstances from which infringing activity is apparent.
          (ii) In a case in which the notification that is provided to the service provider’s designated agent fails to comply substantially with all the provisions of subparagraph (A) but substantially complies with clauses (ii), (iii), and (iv) of subparagraph (A), clause (i) of this subparagraph applies only if the service provider promptly attempts to contact the person making the notification or takes other reasonable steps to assist in the receipt of notification that substantially complies with all the provisions of subparagraph (A).

17 U.S.C. § 512(c) (emphasis added).

Supreme Court Issues Opinion in Bilski v. Kappos Case

by Christina Frangiosa


Patent law is beyond my expertise, but even I am aware that the Supreme Court’s June 28 decision relating to the patentability of certain business methods is an important development that should be acknowledged here. However, I defer to my colleague Clark Jablon‘s summary of the case and its impact on the patent community, which can be found on my firm’s website. I encourage you to read it and contact him if you have any questions or concerns about this area of patent law.

IPEC Releases Joint Strategic Plan on Intellectual Property Enforcement

by Christina Frangiosa


Last week (on June 22), the Intellectual Property Enforcement Coordinator (IPEC) Victoria Espinel published the Joint Strategic Plan mandated by the PRO-IP Act. (For prior posts about the IPEC’s duties and responsibilities, see my June 1, 2010 post.) A full copy of the Plan can be found on the IPEC’s site and remarks about the program can be found on the White House’s Blog, (IPEC’s announcement of the Plan’s availability and some general remarks about the program).
This report outlines 33 “enforcement strategy action items”, divided into six categories: 1) leading by example; 2) increasing transparency; 3) ensuring efficiency and coordination; 4) enforcing our rights internationally; 5) securing our supply chain; and 6) building a data-driven government. Listed below are just some of the highlights – not a full list or explanation of each of the 33 action items.

  • A “government-wide working group” will be established to determine how best to ensure that the U.S. government does not obtain counterfeit parts in connection with its government contracts. This group would be required to submit a formal report within 180 days after its first meeting that details its findings and issues remaining for determination. (Page 7)
  • The U.S. government “will review its practices and policies” to ensure that it is not purchasing pirated software so that it can “set an example to our trading partners.” In this regard, the IPEC will propose legislative amendments necessary to implement a 1998 Executive Order. (Page 7)
  • Enhance communications with rightsholders and victims of IP infringement/crimes/piracy, to inform them about how to report IP crime, which types of cases are generally accepted by the U.S. government for prosecution, and the types of information victims could provide to support an enforcement action. (Page 8-9)
  • The U.S. Trade Representative is currently responsible – through its Special 301 process – for providing a Notorious Markets list (defined in the Plan as “a combination of examples of Internet and physical markets that have been the subject of enforcement action or that may merit further investigation for possible intellectual property infringements.”) (Page 9)
  • The U.S. government will create a database (or combination of databases that function as a unitary whole) that contains information about IP cases, case-specific information about pending investigations. The database “need not” include sensitive IP information such as national security information, trade secrets or grand jury investigation that cannot be disclosed under the Federal Rules of Criminal Procedure (Rule 6(e)). (Page 11)
  • The U.S. Customs and Border Protection will provide samples of allegedly infringing products to rightsholders for testing, provided that a bond is posted for each sample “to cover the potential loss or damage to the sample if the products are ultimately found to be non-infringing.” In this Plan, the IPEC described a streamlined bond option that allows the posting of a single bond to cover multiple samples released by CBP. (Page 17).
  • The U.S. government broadly encourages cooperation in the private sector to police infringing activity and to enforce existing IP rights: “the Administration encourages actions by the private sector to effectively address repeated acts of infringement, while preserving the norms of legitimate competition, free speech, fair process and the privacy of users.” (Page 17)
  • Google, Yahoo and Bing were lauded specifically for their development of “voluntary protocols to prevent the sale of sponsored results for unlawful businesses selling counterfeit medications on-line.” Their list of so-called “unlawful businesses” is based, in part, on verification by the National Association of Boards of Pharmacy’s Verified Internet Pharmacy Practice Sites and/or certifications from the original manufacturers of legitimate and FDA-approved pharmaceuticals. (Page 18) – See also Pharmaceutical Security Institute (PSI) and the Partnership for Safe Medicines. (Page 53).
  • The IPEC will initiate and coordinate a process of reviewing existing IP laws and their penalties (whether civil or criminal) to determine whether their reach is far enough, or whether there are modifications required to “enhance enforcement efforts.” (Page 19).

The Plan also summarizes various Federal Agencies’ enforcement activities in 2010 (to date) (Page 35).
Please comment below about other portions of the Plan if there are other points that should not be overlooked here.