Addressing the appropriateness of the district court’s decision to deny attorneys’ fees relating to a copyright claim it labeled “frivolous,” the US Court of Appeals for the Seventh Circuit affirmed the denial, despite the strong presumption in favor of awarding fees. Timothy B. O’Brien LLC v. Knott, Case No. 19-2138 (7th Cir. June 17, 2020) (Flaum, J).

Apple Wellness owns and operates a small chain of vitamin stores in the Madison, Wisconsin, area. David Knott was hired as an employee of Apple Wellness in 2013 and was fired in 2017. Upon his termination, Knott founded a competing vitamin shop, Embrace Wellness, which allegedly shared several design features and a similar layout, and stocked similar products to those of Apple Wellness’s stores.

Apple Wellness sued Knott and Embrace Wellness, alleging trademark, trade dress and copyright infringement. Apple Wellness moved for a preliminary injunction on only the trademark and trade dress claims, which was denied when the district court found insufficient evidence of a likelihood of irreparable harm. Apple Wellness then moved to dismiss the pending claims without prejudice, but because both parties had already expended resources litigating the injunction, the district court ordered that Apple Wellness either withdraw its motion or accept dismissal with prejudice. Apple Wellness chose to dismiss with prejudice.

After the dismissal, Knott moved for attorneys’ fees. Despite labeling Apple Wellness’s copyright claims as frivolous, the district court denied Knott’s motion for fees, noting that although neither party’s claim was particularly strong, “the perceived wrongs were deeply felt.” Knott appealed the denial of fees with respect to the copyright claims only.

In analyzing whether attorneys’ fees were properly denied, the Seventh Circuit noted that there is a “strong presumption” that defendants who prevail against copyright claims are entitled to attorneys’ fees. This presumption exists because without the prospect of a fee award, a party might be forced into a nuisance settlement or deterred altogether from exercising its rights. Nevertheless, the Court ultimately found that the district court did not abuse its discretion in denying fees. The Seventh Circuit referenced the Supreme Court of the United States’ 1994 decision in Fogerty v. Fantasy, Inc., which lists several nonexclusive factors that courts should consider when making a fees determination. The factors include frivolousness, motivation, objective unreasonableness (from both a factual and legal perspective) and the need to advance considerations of compensation and deterrence in particular circumstances. The Seventh Circuit noted that substantial weight should be given to the objective reasonableness of the losing party’s position.

Ultimately, the Seventh Circuit found sufficient evidence that the district court took all of these considerations into account in its decision to deny fees. Although Apple Wellness’s copyright claims were frivolous and objectively unreasonable, they appeared to have been brought in good faith, and there were minimal concerns regarding compensation and deterrence because Knott had expended little to no energy litigating the copyright claims beyond answering the complaint. The Court also noted that because the copyright claims had been voluntarily dismissed, Knott was under no pressure to abandon a meritorious defense and settle. In addressing the “strong presumption” in favor of fees, the Seventh Circuit noted that “our case law has never held that the strong presumption was insurmountable; rather we have consistently required a fact-specific, case-by-case inquiry.”

Practice Note: The Seventh Circuit stated that courts should look to the nonexclusive factors in Fogerty v. Fantasy, Inc., which include frivolousness, motivation, objective unreasonableness and the need to advance considerations of compensation and deterrence. When summarizing the procedural history prior to appeal, however, the Court called out specific language used by the district court that although no one party’s claim was particularly strong, “the perceived wrongs were deeply felt.” This suggests that the Fogerty factors are not limited to objective inquiries only, but may also include the subjective views of the parties when deciding to bring their respective claims.