Addressing the award of attorneys’ fees under the Copyright Act, the US Court of Appeals for the Seventh Circuit affirmed a district court’s finding that a defendant was not the “prevailing party” for purposes of a fee award determination because the settlement resulted in a dismissal with prejudice. Bell v. Vacuforce, LLC, Case Nos. 18-1159, -1368 (7th Cir. Nov. 14, 2018) (Hamilton, J).

Bell filed a copyright infringement lawsuit alleging that Vacuforce had published Bell’s photograph on its website without a license. Vacuforce hired a lawyer, Paul Overhauser, to defend against the allegations. This was not the first time Bell and Overhauser were on opposing sides: Bell filed dozens of similar copyright lawsuits in the past, and Overhauser previously defended an unrelated defendant, Lantz, in one of those cases. Ultimately, Bell and Vacuforce settled the current lawsuit, which was then dismissed with prejudice.

After Vacuforce was dismissed, Overhauser filed a motion seeking to recover attorneys’ fees under the applicable provisions of the Copyright Act. Vacuforce’s motion made no mention of the settlement and further argued that this suit was identical to the prior case against Lantz. Bell opposed the motion, explaining that the current case had been dismissed because of settlement and that the prior Lantz case was dismissed because Bell lacked sufficient factual basis to maintain the suit, and not because of a settlement. The district court denied the motion and ordered Overhauser to show cause why he should not be sanctioned under Rule 11. In response, Overhauser argued that Vacuforce was the prevailing party for purposes of the fee provision of the Copyright Act, and the settlement agreement was irrelevant because a dismissal with prejudice should count as a win for a defendant. Overhauser also argued that Rule 11 sanctions cannot be imposed for an omission of fact. The district court rejected these arguments, entering a sanction of $500 against Overhauser. Overhauser appealed.

The Seventh Circuit affirmed the district court’s finding. The Court found no US jurisprudence supporting the proposition that a settlement requiring dismissal with prejudice allows a court to treat a defendant as the prevailing party such that it is entitled to costs and attorneys’ fees. The Court also found that the district court did not abuse its discretion by imposing sanctions against Overhauser, noting that a party’s failure to disclose settlement is sanctionable conduct. The Court saw no reason why Rule 11 should be interpreted to allow lawyers to file frivolous and abusive pleadings after a judgment without the threat of court-initiated monetary sanctions.