A case recently decided at the district court for the Southern District of New York began with a simple request for a bond to be posted in a copyright case, and ended with a discussion of the interplay between the Copyright Act’s fee shifting statute (17 U.S.C. § 505), Federal Rule of Civil Procedure 68 regarding Offer of Judgment, Local Civil Rule 54.2 “Security for Costs,” the 1985 Supreme Court case Marek v. Chesny, and a circuit split. All this discussion led to the district court’s conclusion that Congress designed a statutory scheme intended to encourage meritorious litigation, discourage frivolous suits and encourage settlement. 

The Case

In Seidman v. Authentic Brands Group (ABG) LLC, No. 19-8343, Seidman accused ABG of copyright infringement based on the posting of a photo to a website. ABG made an “Offer of Judgment” under FRCP 68 (essentially a settlement offer) to Seidman in an amount that, according to ABG, “well exceeded more than five (5) times Plaintiff’s best-case scenario historical licensing fees.” Seidman rejected the offer. 

ABG then moved the court to require Seidman to post bond of at least $20,000 to secure ABG’s ability to eventually recover its costs under FRCP 68. FRCP 68(d) provides that “If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.” ABG argued that if Seidman prevailed at trial, but the award was not more than the Offer of Judgment, Seidman would be required to pay ABG’s attorney’s fees from the time after the Offer of Judgment was made. The requested bond was to secure that eventual payment of a fee award to ABG. 

To determine whether to grant the motion for bond made under Local Civil Rule 54.2, the court first undertook a discussion of whether attorneys’ fees constituted “costs” for purposes of FRCP 68, when read in conjunction with the Copyright Act. Ultimately, the court decided that in the event Seidman prevailed at trial, but the award was not more than the Offer for Judgment, FRCP 68 would not shift ABG’s attorney’s fees to Seidman. The court therefore denied the motion for the posting of bond. 

The court first looked to the Supreme Court decision in Marek v. Chesny, which held that only costs that are “properly awardable in an action are to be considered within the scope of Rule 68 ‘costs.’” To determine the costs that are “properly awardable,” one must look to the statute authorizing the fee shifting in the original action. The question in Marek was whether a prevailing plaintiff whose award was less than the rejected Offer of Judgment could recover her own attorney’s fees from the defendant. The Supreme Court ruled that according to the statute underlying the original action in Marek, he could not. The Supreme Court did not answer the question presented here, whether the losing defendant would still be able to collect attorney’s fees from a prevailing plaintiff due to operation of Rule 68. 

The SDNY then turned to the statute underlying the original action, i.e., the Copyright Act. Under the Copyright Act’s fee shifting provision, 17 U.S.C. § 505, “the court may award a reasonable attorney’s fee to the prevailing party as part of the costs.” 

The circuits are split over the interplay between this statute and FRCP 68(d). The Seventh and Ninth circuits have held that a losing defendant may not collect attorney’s fees even if an Offer of Judgment was more than the award granted by the court because the defendant was not the “prevailing party” under the Copyright Act. The Eleventh circuit, however, has held the opposite, allowing a non-prevailing defendant/offeror to recoup his attorney’s fees. 

The Second Circuit has not addressed this issue, and even the district courts within the circuit are split. The court in Seidman agreed with the Seventh and Ninth circuits and held that in the event Seidman prevails at trial, regardless of the amount of the award, ABG would not be permitted to collect attorney’s fees because it is not the prevailing party. Therefore, the court denied the motion and did not require Seidman to post bond. 

The Statutory Scheme

The court went on to discuss the various incentives for settlement and deterrents inherent in the seemingly conflicting statutes. The fee-shifting provision of the Copyright Act, limiting the collection of attorney’s fees to prevailing parties, whether plaintiff or defendant, incentivizes either party to prosecute or defend a meritorious claim. However, an award of fees is not guaranteed, but is at the discretion of the court, so a party only should pursue a claim if it expects a sizeable award from the claim itself, at least enough to cover fees. At the same time, if a party has a weak claim, the party should be aware that if it loses, it may be responsible for paying its opponent’s attorney’s fees, and even if it prevails, it may not recover its own attorney’s fees. The court explained that its interpretation of FRCP 68 did not disturb this balance: it provides only that a plaintiff with a meritorious claim, whether strong or weak, will not be responsible for paying the defendant’s fees, despite Rule 68. 

The court ended with a lesson on how the statutory scheme is designed to prevent plaintiffs from pursuing meritorious but marginal claims. It is not by the potential for having to pay defendant’s attorney’s fees even if the plaintiff wins, as ABG would have it. Instead the balance is maintained due to the “little, if anything, in statutory damages” that the plaintiff in a marginal case may recover, such that the plaintiff “may well not receive an award to cover attorney’s fees.” 

Takeaway

Until the Supreme Court resolves the circuit split described above, which is not limited to copyright infringement actions but applies to many statutory schemes, some courts still will award attorney’s fees to a losing defendant by applying Rule 68. In these courts, Rule 68 may help to encourage settlement upon an Offer of Judgment. In contrast, in those courts where only a prevailing party can recover attorney’s fees, Rule 68’s influence over a plaintiff’s decision to settle is weaker.