$1.8M Award Against Plaintiff to Deter Push for Settlement

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By Anandashankar Mazumdar

Nov. 17 — To discourage high-pressure settlement tactics, the U.S. District Court for the Eastern District of Virginia awarded $1.8 million in attorneys' fees to defendants in a copyright infringement case after evidence showed the plaintiff was trying to force a settlement by demanding unusually high damages and complicating litigation by suing multiple parties.

The court's Nov. 13 ruling in favor of three groups of defendants came in a dispute over the building of a high-rise in the Washington, D.C. suburbs. One of the factors heavily relied upon by the court was the plaintiff's demand for $260 million in wrongful profits, compared to $400,000 in actual damages.

“There is some indication that plaintiff brought this lawsuit in an effort to extract money through a settlement rather than protecting its purported copyright,” the court said.

Laurence F. Pulgram of Fenwick & West LLP, San Francisco emphasized that the court paid attention to the plaintiff's litigation tactics—even while it did not find that the plaintiff's case had been objectively unreasonable.

“The court essentially said that tactics matter as much as the merits do,” he told Bloomberg BNA in an e-mail message.

“The decision follows a line of cases that increasingly suggest that defendants who win in copyright cases should generally recover attorneys' fees since there is nothing else for them to win that would deter prosecution of weak cases,” Pulgram said. “The lesson to copyright counsel is clear: inflate your damage demand and you may be inflating your liability for attorneys' fees along with it.”

Laura Goldbard George of Stroock & Stroock & Lavan LLP, New York, said that this decision was “confirming established practice.”

“A plaintiff whose conduct evinces a desire to extract a large settlement rather than to protect its copyright may be moving uncomfortably close to copyright misuse, which encourages an award of attorneys' fees,” she said in an e-mail message to Bloomberg BNA.

Losing Case Over Architectural Design

Humphreys & Partners Architects LP of Dallas is an architectural planning and design firm that claimed copyright interest in “Home Rise,” a 2000 design that was the basis for the 27-story Grant Park Condominiums built in Minneapolis in 2004.

In 2010, Humphreys met with real estate developer the Penrose Group of Vienna, Va., to discuss using the Grant Park design as the basis for a building in McLean, Va. Humphreys shared drawings of Grant Park, but Penrose ultimately chose Lessard Design Inc. of Vienna as the project's designer.

Penrose then began building the 19-story Two Park Crest building in McLean. At a 2012 conference, Humphreys saw a presentation by Lessard that displayed the Park Crest design and subsequently sued Penrose, Lessard and several other entities involved in the construction, alleging copyright infringement.

In September 2014, the court granted summary judgment in favor of Penrose, Lessard and the other defendants, after finding no evidence of copying and that Park Crest was not substantially similar to Grant Park in design. This was affirmed on appeal. Humphreys & Partners Architects, L.P. v. Lessard Design, Inc., 790 F.3d 532 (4th Cir. 2015).

The defendants then moved for an award of their legal fees as the prevailing party, pursuant to Section 505 of the Copyright Act of 1976, 17 U.S.C. §505.

Clearly Prevailing Party; Standards for Award Unclear

The court rejected Humphreys' argument that the defendants were not prevailing parties because they had not prevailed in all their counter-claims. This was “too high a bar” for qualification as a prevailing party, the court said. It was sufficient that they won summary judgment on all the claims brought by Humphreys to qualify for an award under Section 505.

Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), said there was no precise rule or formula for attorneys' fees awards in these cases, but that courts should use their “equitable discretion.”

This was “plainly vague,” the court said, and this vagueness was not cleared up by applying Rosciszewski v. Arete Assoc., 1 F.3d 225 (4th Cir. 1993), which gave importance to the idea that a finding that a party's assertions in litigation were objectively reasonable was important.

While a “frivolous legal and factual position” was objectively unreasonable, a position that ultimately lost the case was not necessarily objectively unreasonable.

In this case, the court said, Humphreys' legal and factual positions were plausible but based on a “fatally flawed theory.” This did not make them frivolous, the court concluded; however, “the result in this case was far from unexpected.” The question of whether the case was objectively reasonable was “a close question.”

Even if Humphreys' position was objectively reasonable, there were other considerations set forth by Rosciszewski that were relevant to this case—specifically, Humphreys' motivation in pressing its copyright claims against the defendants.

Rosciszewski indicated that fee awards had a very important role in deterring unwanted behavior, and this was relevant here, the court said, noting efforts by Humphreys to “drive up the costs of litigation by seeking unusually high damages and naming a number of parties.” Ultimately, it determined that Humphreys' type of behavior should be deterred with an award of fees; it added up a total of $1.8 million in attorneys' fees and taxable costs to be paid to three groups of defendants.

The court's ruling was issued by Judge Thomas Selby “Tim” Ellis III.

Humphreys was represented by Tara Lynn Renee Zurawski of Jones Day, Washington. Lessard was represented by Christopher P. Foley of Finnegan Henderson Farabow Garrett & Dunner LLP, Reston, Va. Penrose was represented by Antigone Gabriella Peyton of Cloudigy Law PLLC, McLean, Va.

To contact the reporter on this story: Anandashankar Mazumdar in Washington at amazumdar@bna.com

To contact the editor responsible for this story: Mike Wilczek in Washington at mwilczek@bna.com

Text is available at: http://src.bna.com/6s.

Goldbard George is a member of this publication's board of advisors.