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Energy Intelligence Group, Inc. v. Chs Mcpherson Refinery, Inc.

United States District Court, D. Kansas

January 30, 2019

ENERGY INTELLIGENCE GROUP, INC. and ENERGY INTELLIGENCE GROUP UK LIMITED, Plaintiffs,
v.
CHS McPHERSON REFINERY, INC. F/K/A NATIONAL COOPERATIVE REFINERY ASSOCIATION, Defendant.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN UNITED STATES DISTRICT JUDGE

         A jury trial was held in this copyright infringement case from May 14 through May 21, 2018. The jury awarded Plaintiffs Energy Intelligence Group, Inc., and Energy Intelligence Group (UK) Limited (collectively “EIG”) an award of $1, 119, 750 in statutory damages based on Defendant CHS McPherson Refinery, Inc.'s (the “Refinery's”) infringement of its copyrighted publications. EIG now moves for its attorneys' fees and costs under 17 U.S.C. § 505 (Doc. 181). The Refinery opposes EIG's motion and moves for its attorneys' fees and costs under Fed.R.Civ.P. 68 (Doc. 180). For the reasons set forth below, the Court grants in part and denies in part both motions.

         I. Factual and Procedural Background

         A detailed history of the parties' business relationship is set forth in a prior opinion.[1] In short, EIG contends that the Refinery copied and distributed its Oil Daily and Petroleum Intelligence Weekly publications in violation of its subscription agreements from June 2004 through January 2016. Specifically, EIG contends that the Refinery purchased a single subscription to Oil Daily for use by Refinery employee Galen Menard and a single subscription to Petroleum Intelligence Weekly for use by Refinery employee Jim Loving. These subscriptions were routinely forwarded by electronic mail to multiple Refinery employees. EIG filed this lawsuit on January 18, 2016, seeking statutory damages, attorney's fees, and costs for the Refinery's alleged copyright infringement.

         On February 5, 2018, the Refinery made a Rule 68 offer for judgment in the amount of $750, 000. EIG ignored this offer. On April 25, 2018, the Refinery made a second Rule 68 Offer for Judgment in the amount of $ 1, 500, 000. Specifically, this offer was made “to settle fully and completely all claims for relief by [EIG] including any and all claims for attorneys' fees and costs, pre-judgment interest and other costs and disbursements.” EIG did not respond to the offer, and therefore it also expired as unaccepted.

         The Court held a jury trial from May 14 through May 21. The jury found that the Refinery willfully infringed 571 copyrighted works of Oil Daily between January 18, 2013, and January 18, 2016; that EIG knew or should have known on or before January 18, 2013, that the Refinery was infringing their copyrights in Oil Daily; and that the Refinery did not have an implied license for Oil Daily. The jury also found that the Refinery willfully infringed 117 copyrighted works of Petroleum Intelligence Weekly; that EIG knew or should have known on or before January 18, 2013, that the Refinery was infringing its copyrights in Petroleum Intelligence Weekly; and that the Refinery did not have an implied license for Petroleum Intelligence Weekly. The jury awarded $1, 500 in statutory damages for each work of Oil Daily infringed and $2, 250 for each work of Petroleum Intelligence Weekly infringed. In total, the jury awarded EIG $1, 119, 750 in statutory damages.

         Following trial, EIG moved for its attorneys' fees in the amount of $2, 373, 381.25 and its costs in the amount of $274, 531.91. The Refinery disputes that EIG is entitled to either amount. The Refinery also moved for its post-offer attorneys' fees and costs under Rule 68. The Refinery claims that it is entitled to $291, 392 in attorneys' fees and $41, 324.65 in costs it incurred after making its second offer for judgment on April 25, 2018. The parties have met pursuant to Local Rule 54.2(a) regarding their respective applications for fees and costs. Therefore, the parties' motions are ripe for the Court's consideration.

         II. Analysis

         A. EIG is the prevailing party.

         Section 505 of the Copyright Act states:

In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney's fee to the prevailing party as part of the costs.[2] To be considered a prevailing party, “the plaintiff must be able to point to a resolution of the dispute which changes the legal relationship between itself and the defendant.”[3] “A judgment for damages in any amount, whether compensatory or nominal, modifies the defendant's behavior for the plaintiff's benefit by forcing the defendant to pay an amount of money he otherwise would not pay, ” and constitutes a change in the legal relationship between the parties.[4] In this case, EIG is the prevailing party under § 505 of the Copyright Act because the jury found that the Refinery infringed 688 of EIG's copyrighted works and awarded EIG $1, 119, 750 in statutory damages.

         B. EIG is not entitled to its attorneys' fees.

         The Copyright Act gives the district court discretion to award a prevailing party attorney's fees, but it does not provide any precise rule or formula for when or how to do so.[5]The Supreme Court has established two important restrictions for district courts to abide by when making this determination.[6] First, a district court may not award attorney's fees as a matter of course.[7] Instead, it must make a particularized, case-by-case assessment.[8] Second, a court may not treat prevailing plaintiffs and prevailing defendants differently.[9]

         In addition, the Supreme Court has set forth a list of non-exclusive factors a district court may consider in determining whether to award attorney's fees: objective unreasonableness (as to both factual and legal arguments in the case), motivation, the need in particular circumstances to advance considerations of compensation and deterrence, and frivolousness.[10] The Court will review each of the factors below in evaluating whether to award EIG its attorneys' fees in this case.

         1. Objective reasonableness

         In Kirstaeng, the Supreme Court directed district courts to “give substantial weight to the objective reasonableness of the losing party's position” while still providing “due consideration” to other factors.[11] The Court noted that the objective-reasonableness approach “encourages parties with strong legal positions to stand on their rights and deters those with weak ones from proceeding with litigation.”[12] Here, EIG contends that the Refinery took several unreasonable positions during the litigation of this case. Specifically, EIG points to the Refinery's failure to mitigate defense, the Refinery's assertion that EIG could only recover damages for each group registration, and the Refinery's motion for referral to the Register of Copyrights. The Refinery disputes that these positions were unreasonable and further argues that EIG's prosecution of its claims were unreasonable, particularly EIG's settlement offers.

         a. The Refinery's defenses

         EIG first asserts that the Refinery's continued assertion of the failure to mitigate defense was unreasonable. The Refinery relied heavily on this defense, taking fact and expert discovery and serving an expert report solely related to it. According to EIG, Tenth Circuit precedent “is unequivocal that ‘a failure to mitigate does not apply to an award of statutory damages' ” and thus, the Refinery's choice to persist with defense despite being aware of Tenth Circuit law was unreasonable.[13]

         The Court disagrees that the Refinery's position on this defense was unreasonable. Tenth Circuit precedent is not “unequivocal” in regard to the application of this defense in the context of copyright infringement.[14] And, as the Refinery pointed out, other courts throughout the country have allowed a defendant to assert this defense even when the plaintiff selects statutory damages.[15] Simply because the Refinery did not prevail on this defense on summary judgment does not mean that the Refinery's assertion of it was unreasonable. “Courts every day see reasonable defenses that ultimately fail (just as they see reasonable claims that come to nothing).”[16]

         Similarly, the Refinery's other defenses in this case, while not meritorious, were not unreasonable. Seeking to limit the amount of statutory damages EIG could recover, the Refinery moved for summary judgment arguing that EIG should only be awarded damages for each group registration instead of each individually infringed work. The Court denied its motion relying on language from the Compendium of U.S. Copyright Office Practices, which is published by the U.S. Copyright Office. The Refinery was well-aware of this Compendium when it filed its motion but this does not mean that the Refinery's assertion of such argument was unreasonable. There is a dearth of Tenth Circuit law on statutory damages under the Copyright Act, and the Tenth Circuit may interpret the Compendium differently than this Court.

         The Tenth Circuit also has not addressed motions for referral to the U.S. Register of Copyrights. This fact, in addition to the ambiguous language in the Copyright Act stating that where “inaccurate information . . . is alleged, the court shall request the Register of Copyrights to advise the Court whether the information, if known, would have caused the Register of Copyrights to refuse registration, ”[17] gave the Refinery a legitimate basis to assert its motion. The Refinery was justified in defending EIG's claims on this basis.

         “Because copyright law ultimately serves the purpose of enriching the general public through access to creative works, it is peculiarly important that the boundaries of copyright law be demarcated as clearly as possible.”[18] In this Circuit, the boundaries of copyright law are fuzzy at best. Not all the Refinery's positions may have been winning positions, but they helped to define the boundaries of copyright law in this circuit. “[P]arties who advance arguments of first impression should not be punished because the litigation could reasonably be seen as contributing to an informed discussion on the demarcation of copyright law.”[19]

         In any event, EIG seems to ignore that the primary issue at trial was not whether the Refinery infringed Oil Daily and Petroleum Intelligence Weekly-the Refinery essentially admitted infringement during its closing argument-but the amount of statutory damages EIG should receive. In its closing argument, EIG asked the jury to award the maximum amount of statutory damages per infringed work for a total amount of $50 million.[20] The Refinery asserted that EIG's damages should be limited based on the statute of limitations and the existence of an implied license. The Refinery proposed to the jury that if it did not find that the Refinery had an implied license for Petroleum Intelligence Weekly, the total damage amount should be $390, 750, which is based on the lowest statutory damage amount of $750 per work infringed and an infringement period of only three years based on the statute of limitations. Ultimately, the jury found in favor of the Refinery on its statute of limitations defense, limiting EIG's recovery to a three-year period of infringement. EIG prevailed on only 21% of its claims.[21] In addition, the jury awarded EIG a minimal amount of statutory damages-approximately $1.19 million- compared to the $50 million EIG sought.[22] The fact that the Refinery limited the overall statutory damage amount to a mere 2% of what EIG sought demonstrates that their overall defense of the case was objectively reasonable.

         b. EIG's reasonableness in prosecuting its claims

         The Refinery argues that a fee award is not appropriate because EIG took unreasonable litigating positions in prosecuting its claims, particularly when making settlement offers. EIG made three settlement offers during the pendency of the litigation. EIG's first offer, made in November 2015, was for a Global Enterprise License for company-wide use by the Refinery of all EIG's publications for three years. EIG offered this license to the Refinery at the market price of $580, 000 per year, or $1.74 million total. The Refinery rejected this offer. It also contends that at the time EIG made the offer, EIG informed the Refinery not to make a counteroffer. EIG's second offer, made in October 2016, was for approximately $4.1 million including over $240, 000 in attorneys' fees. EIG calculated this offer based on the Refinery's willful infringement of 2, 588 works between June 2004 and April 2015 and a statutory damage award of $1, 500 per work. EIG's final offer was made at the Court ordered mediation on March 23, 2017, just four months after its second offer. This offer was for $7.1 million including $558, 600 in attorneys' fees. At this time, there was still no significant motion practice on EIG's part (the Refinery had submitted its partial motion for summary judgment a few days before) and only one deposition had been taken.

         The Refinery also made three settlement offers during the litigation. In response to EIG's offer of $4.1 million, the Refinery offered to settle the case for $40, 500. This offer was based on the Refinery's statute of limitations defense and its argument that EIG could only recover statutory damages for each group registration and not each work infringed. In addition, the Refinery extended two Rule 68 offers for judgment: the first for $750, 000 on February 5, 2018, and the second for $1.5 million on April 25, 2018. EIG rejected both offers.

         A review of these settlements offers explains why this case didn't settle before trial. At most, there were only two reasonable offers made by the parties-EIG's first settlement offer for the Global Enterprise License and the Refinery's final Rule 68 offer-but each of these was rejected or ignored.[23] The remaining offers were either so exorbitantly high or excessively low such that they did not even invite a counter-offer. EIG's second and third offers, for $4.1 million and $7.1 million respectively, were entirely unreasonable. Neither offer took any of the Refinery's defenses into account. And EIG fails to explain why its settlement position increased by $3 million with its third offer when the Court had not made any significant findings by that time. Likewise, the Refinery's offer of $40, 500 was entirely unreasonable as the Refinery refused to acknowledge that its defenses may not prevail on summary judgment or at trial.

         Neither party is blameless in its attempt to resolve this case prior to trial. But, EIG's conduct is certainly more unreasonable than the Refinery's given its failure to make at least one reasonable settlement offer after filing this lawsuit. Overall, this factor weighs against awarding EIG its attorneys' fees.

         2. Motivation

         EIG claims that its motivation in this case was to protect its federally registered copyrights. EIG argues that it pursued its claims to trial because it had direct, systematic evidence of infringement, and the Refinery was not willing to make a reasonable settlement offer until EIG incurred significant fees and costs. The Refinery argues that EIG's motivation was not to protect its copyrights but to obtain a windfall-as evidenced by its unreasonable settlement offers and over-aggressive prosecution of its claims.

         The Refinery points out that in prosecuting its claims, EIG incurred $2, 373, 381.25 in attorneys' fees. This is $1 million more than the Refinery incurred defending EIG's claims. By the time EIG sued the Refinery for infringement, EIG spent $103, 887 reviewing and producing thousands of documents that were likely to have already been reviewed and produced in the 47 other copyright infringement lawsuits EIG had already filed. When taking depositions, EIG often used two or three lawyers to prepare and attend the deposition while only one lawyer questioned the witness. After depositions of key witnesses, two additional lawyers would review the deposition, with one of these lawyers spending significant time creating a “digest” of the deposition. In addition, EIG's counsel billed in quarter-hour increments, inflating its attorneys' fees. Finally, EIG sought a total damage amount of $50 million-a staggering amount compared to the amount of licensing fees it would have obtained over the period of alleged infringement.

         The Court acknowledges that protecting one's intellectual property is a valid motivation to pursue litigation. But EIG's litigious conduct belies this claimed motivation. EIG has filed over 50 similar copyright infringement lawsuits against its subscribers. Furthermore, the Refinery introduced evidence at trial showing that EIG uses its copyright enforcement efforts as a potential revenue stream, and as part of these efforts, it planned to sue its larger clients. When EIG's conduct is viewed in this context, the Court cannot conclude that its underlying motivation is solely to protect its copyright registrations.

         EIG argues that because the Court dismissed the Refinery's copyright misuse claim, there is no evidence that it acted with improper motivation in litigating this case. That argument, however, inappropriately extends the Court's summary judgment decision. Just because the Court determined that the Refinery had not met its burden to show EIG engaged in copyright misuse does not mean that the Court made any determination regarding EIG's motivation for purposes of awarding attorney's fees. EIG may not have acted in bad faith, but its conduct and the evidence shows that it operated this litigation as profit center. The Court therefore concludes that this factor weighs against awarding EIG its attorneys' fees.

         3. ...


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