Two New U.S. Supreme Court Cases on Copyright Law

The U.S. Supreme Court has issued a pair of copyright decisions.  The first concerns the award of costs and the second is directed to registration as a prerequisite to bringing an infringement action.  The first case, Rimini Street v. Oracle, determined that an award of costs is limited to the costs specified in 28 U.S.C. section 1920 and 1821.  The opinion quotes section 1920 and states:

The six categories that a federal court may award as costs are:
"(1) Fees of the clerk and marshal;
(2) Fees for printed or electronically recorded transcripts necessarily obtained for use in the case;
(3) Fees and disbursements for printing and witnesses;
(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;
(5) Docket fees under section 1923 of this title;
(6) Compensation of court appointed experts, compensation of interpreters, and salaries, fees, expenses, and costs of special interpretation services under section 1828 of this title." 28 U. S. C. §1920.

Moreover, the general costs statute “§1821 provides particular reimbursement rates for witnesses' "[p]er diem and mileage" expenses.”  Thus, Oracle is unable to recover for costs such as “expert witness fees, e-discovery expenses, and jury consultant fees.”

The second case, Fourth Estate Public Benefit Corp. v.Wall-Street.com, determined that generally a copyright owner must obtain a registration before filing an infringement suit.  This clears up a prior split of jurisdictions concerning whether an application for registration was sufficient to file an infringement suit. 

Summary judgment, but no quick fix on costs

At least in England and Wales, where a large-scale IP owner finds itself constantly having to commence proceedings against small defendants, where (i) the value of each infringement is very small in financial terms but (ii) the perception that infringers can "get away with it" damages the confidence of lawful traders, the IP owner often commences proceedings which the defendant cannot and/or will not defend, being willing to accept an undertaking not to infringe in future and delivery up of infringing stock if applicable. The threat held over the head of the small defendant is that, if the case goes to trial, the IP owner will seek an order for costs.

In the Patents County Court, in Nike International Ltd & Ors v Bateman [2010] EWPCC 010 (11 October 2010), a small-scale infringer imported a single pair of Nike trainers which he purchased over the internet. Since he put in a defence that he did not know the trainers were counterfeit, Nike could not obtain judgment in default and had to seek summary judgment. Said Judge Birss QC:

"It may be questioned whether the sledge hammer of these proceedings is necessary in order to crack this nut of this magnitude but ... I accept, that brand owners in this situation have no realistic alternative to enforcing their rights this way. Accordingly although this appears to be the smallest of cases, nevertheless the Claimant is entitled to bring proceedings".

But what of the question of costs? Nike's solicitor warned the defendant of the problem the defendant faced with his defence (i.e. that it was not a defence to the action) and offer to settle on terms, warning him that, if he did not settle, his client would seek its costs. The defendant wrote back:

"Could this action please be transferred to my local county court?
Unfortunately I cannot deliver any goods as I have not received anything as these goods were seized on entry to the country.
I ordered these goods in good faith over the internet believing them to be authentic; I will not be ordering anything else.
This was a simple mistake. and the only information I can you give about the supplier is the msn contact I used this is Trademount.com
I undertake not to infringe the Claimants rights in the future and consent to the destruction of the goods".

On this offer Judge Birss QC had this to say:

"In substance the Defendant offered the Claimant all the relief it sought in the letter and it seems to me that the better course would have been for the Claimant to engage with the defendant to produce a consent order in appropriate terms. I understand ... that the Claimant proceeded with this application for judgment because [the defendant] had sought to transfer the case to another county court. While I can understand the Claimant's desire in a case like this not to devote undue resources to the matter that does not seem to me to be a cogent reason for avoiding doing so. Even if, which is unclear but may be the case, the letter was only sent after the application for summary judgment had been served, it still seems to me that some sort of engagement with the Defendant would have been preferable in the circumstances. 

Accordingly I will make no order as to costs".

The moral is clear: both pressing for judgment and sorting out a consent order will cost an IP owner money -- but if he doesn't opt for the latter in cases such as this, he won't get costs when he goes for the former. Multiply this a few hundred times over and you have an enforcement spend issue that requires budgeting aforethought.

How much should you invest in patents?

How much should you invest in patents?” ask Kelce Wilson and Claudia Tapia Garcia in a recent edition (XLV, No. 1) of the Licensing Executives Society journal LES Nouvelles. The authors are Senior Patent Attorney and IPR Counsel at Research in Motion, makers of the BlackBerry smartphone.

“Should you spend more, spend less, or keep things constant?” they ask, noting that “Only a few organisations have a system for objectively evaluating whether they are allocating the right amount of funding. Unfortunately, most seem to be at risk for spending either too much or too little on IP protection.”

In the same way that economic theory suggests that the optimal market price is to be found at the intersection of a supply curve with a demand curve, the authors suggest that the optimal IP protection budget can be found at the intersection of “Value” and “Effectiveness” curves.

According to the article, the Value curve represents “the actual economic value achieved by reducing the risk of IP loss”. The authors suggest that an IP owner should be able to identify the economic value associated with a given level of risk reduction by analysing the expected impact on profits, brand image and other business or marketing considerations. They note that the value assigned to a particular risk reduction target is the money that the IP owner would be willing to pay to achieve that target.

The Effectiveness curve corresponds to the actual costs incurred in achieving a given level of risk reduction and is determined empirically. “For example, patent applications filed for a moderate cost may be shown to deter infringement by most small competitors, but perhaps not large competitors that are willing to devote sufficient resources to attempt invalidating the patents” the authors note. “However, if a greater amount were to be spent on patent application preparation and prosecution, the resulting patents could have a higher quality that is sufficient to deter even large, well-financed competitors”.

The devil is in the data – how does one quantify, for example, the extent to which low cost applications deter small competitors? No such data is contained in the article. Nevertheless, this “Protection Valuation Tool”, as it is called, does represent another way of looking at the IP cost/benefit question that may be easier for investors and financial directors to understand.

Who pays when a copyright claim is dropped?

Far Out Productions Inc v Unilever UK & CN Holdings Ltd and others [2009] EWHC 3484 (Ch), a Chancery Division decision last December 2009 from Nicholas Strauss QC, sitting as a deputy judge, dealt with an interesting question relating to costs in IP litigation.

Far Out, a substantial Californian corporation, brought proceedings alleging that music production company Water Music (the fourth defendant) deliberately infringed its copyright and deliberately concealed that infringement. As it turned out, Far Out -- which brought no significant evidence in support of its claim -- knew that Water Music was a small family company with an excellent reputation, which would inevitably be subjected to great pressure by litigation involving detailed investigation into a routine piece of business which had been conducted over ten years earlier. Far Out was also responsible for considerable delays, which resulted in the proceedings, and the consequent pressure on Water Music, extending over a period of more than four years before Far Out eventually dropped the claim. This occurred shortly after mediation but before the service of Water Music's witness statements. Appealing to the fact that it was so good as to drop its action, Far Out then applied to the court to be relieved from the usual consequence in costs of discontinuing its action and arguing that it had been necessary to bring proceedings, and to join Water Music in the proceedings, because the first to third defendants (part of the Unilever group) had failed to make a reasonable offer. Accordingly, Far Out submitted, Water Music should pay Far Out's costs and try to get them back against the other defendants -- either that or no costs order should be made.

Nicholas Strauss QC dismissed Far Out's application. In his view the Civil Procedure Rules (CPR 38.6) provided that, unless the court ordered otherwise, a claimant who discontinued an action was liable for the costs which a defendant, against whom the claimant discontinued, incurred on or before the date on which notice of discontinuance was served on the defendant. This rule would apply unless there were a valid reason for departing from it, and it was for the party seeking to vary that rule to bear the burden of proving that it should not apply. If Far Out had properly evaluated its prospects of success on deliberate infringement against any of the defendants, it would have come to the conclusion that its case was inherently improbable. He added:

"The claimant [submits] that the 4th defendant should pay the claimant's costs, and be responsible for its own. I reject this out of hand. It is not easy to imagine circumstances in which a defendant against whom proceedings have been discontinued should nevertheless pay the costs. There may be circumstances in which such an order would be appropriate, but it is certainly not appropriate in this case".

Over-defended IP action -- who pays the costs?

Who pays for the cost of intellectual property litigation (here, copyright) where the successful defendant in what might be regarded as a test case effectively "over-defends" by unnecessarily raising several issues each of which went against the otherwise successful defendant? In Peer International Corporation, Southern Music Publishing Co and Peermusic (UK) Ltd v Editoria Musical de Cuba [2008] EWCA Civ 1260 the Court of Appeal for England and Wales (Arden LJ, Lloyd LJ, Moore-Bick LJ) held yesterday that the trial judge had been correct in deciding to make no costs order at all. Although his decision was described as "unusual", it was supported by the judge's reasoning.

The costs of the case were no doubt increased by the need to argue the various issues for two days before the Court of Appeal itself.

Monster trade mark infringement case: court reveals its thinking on calculating costs

The six separate but closely intertwined trade mark infringement actions in Boehringer Ingelheim KG v Swingward Ltd etc commenced in the previous century and were twice referred to the European Court of Justice for preliminary rulings, as well as visiting the Court of Appeal on a few occasions too. The case is by no means concluded, since the Court of Appeal awaits a ruling from the European Court of Justice in a further case, referred from Austria, before it gives its final decision.

Every party embarking upon IP litigation is well advised to examine it as a commercial proposition: what will it cost to sue or to enter a defence? what are the viable alternatives? can the money be better deployed elsewhere? But no-one was likely to predict the remarkably protracted and convoluted path taken by this action, where the total cost in terms of stress, uncertainty, they tying up of time on the part of key management figures, as well as the money, took such a toll.

Today, the parties having unsurprisingly failed to agree the costs issue, Lord Justice Jacob gave a good deal of guidance, including quite a lot of arithmetic and real figures. If you'd like to see the judgment (which is 26 paragraphs long), email me and I'll forward a copy since it's not yet on BAILII.