Textbook Publishers’ Copyright Litigation Strategy Implodes in Bankruptcy Court

Textbook publishers Pearson EducationCengage Learning and The McGraw-Hill Companies filed suit against an individual for copyright infringement when, without authorization, that individual sold the publishers’ college textbook solutions manuals on the Internet.  The publishers probably could have stopped the infringing activities by sending a cease and desist letter.  Instead, the publishers sought to make an example of the infringer by filing a lawsuit in the Southern District of New York.  The publishers’ plan backfired when the litigation expenses overwhelmed the alleged infringer’s resources and he filed for bankruptcy in Minnesota, where he resides.

The bankruptcy court judge struck the publishers’ demand for a jury trial, awarded the publishers the minimum in statutory damages even after finding willful infringement of the publishers’ copyrights and denied the publishers’ motion for attorney’s fees.  The district court affirmed the bankruptcy court’s decision.  The Eighth Circuit Court of Appeals likewise affirmed the bankruptcy court’s decision.  On appeal to the Eighth Circuit, the publishers argued that they should have had a jury trial to determine damages and that they should have been awarded their attorney’s fees of more than $90,000.

The bankruptcy court is a court of equity and, as such, there is no right to a jury trial on the issue of copyright statutory damages.  The publishers argued that they were entitled to a jury trial to determine the amount of statutory damages.  Under 17 U.S.C. §504(c)(1), statutory damages range from $750 to $30,000 for each copyright infringed.  If the infringement is willful, damages of up to $150,000 per copyright infringed can be awarded.  The bankruptcy court awarded the statutory minimum of $750 per infringement, even though the bankruptcy court also found that the infringement was willful.  There were 19 copyrights infringed, for a total damages award of $14,250. 

Bankruptcy court is a court of equity.  The distinction between courts of law and courts of equity goes back to old English common law.  Courts of equity can make decisions based on fairness and can perform acts, such as contract modification.  Courts of law follow statutes and provide jury trials.  Historically, there are no jury trials in courts of equity.  Many courts today function as both courts of law and courts of equity, but not the bankruptcy court.

In this case, the publishers filed proofs of claim, initiated an adversarial proceeding in bankruptcy court and sought a declaration that the damages owed by the infringer on the copyright infringement claims were non-dischargeable in bankruptcy, i.e., that the infringer still owed that money after completing his bankruptcy.  The Eighth Circuit ruled that

the publishers relinquished their right to have a jury determine the amount of damages when they filed claims against [the infringer’s] bankruptcy estate.

(Opinion pdf page 4).

The bankruptcy court ruled that the statutory damages it awarded to the publishers were non-dischargeable in bankruptcy.  The Eighth Circuit’s opinion does not discuss the reason for the non-dischargeability ruling.

The bankruptcy court acted within its discretion in denying the publishers’ motion for attorney’s fees.  Under 17 U.S.C. §505, the court may, but is not required to, award a reasonable attorney’s fee to the prevailing party.  As §505 is interpreted, the court’s discretion to award attorney’s fees to a prevailing party “is to be exercised in an evenhanded manner by considering factors such as whether the lawsuit was frivolous or unreasonable, the losing litigant’s motivations, the need in a particular case to compensate or deter, and the purposes of the Copyright Act.”  (Opinion pdf page 7).

The bankruptcy court based its denial of attorney’s fees on the following factors:

  1. the publishers likely could have stopped the infringer’s conduct prior to any litigation, at minimal cost, with a simple cease-and-desist letter;
  2. the publishers filed suit in the busiest, largest, and furthest away court they could find in an effort to scare the infringer;
  3. the publishers resisted the bankruptcy court’s efforts to encourage settlement before litigating the adversarial action; and
  4. the publishers’ spare-no-expense litigation strategy was unreasonable in light of the absence of any real damages.

(Opinion pdf page 7). 

The infringer grossed about $5,000 from the sale of the solutions manuals.

The Eighth Circuit indicated that the publishers were not obligated to seek a “minimum-impact cease-and-desist strategy,” but that they were also not guaranteed that their choice of strategies would produce attorney’s fees.  Although a different court may have viewed the factors otherwise, the bankruptcy court’s decision to deny attorney’s fees was not clearly erroneous and the Eighth Circuit affirmed it on that basis.

 

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