Source: http://access-to-law.com/elaw/readings/West_bad_faith.htm
Timestamp: 2019-04-26 07:39:41+00:00

Document:
In an Opinion and Order dated December 16, 1999, this Court awarded Plaintiff Hyperlaw $ 813,724.25 in attorneys' fees. See Matthew Bender & Co. v. West Publ'g Co., 1999 U.S. Dist. LEXIS 19387, No. 94 Civ. 589, 1999 WL 1211836 (S.D.N.Y. Dec. 16, 1999). In a decision dated January 23, 2001, the Second Circuit, on the basis of its analysis of this Court's opinion, found that this Court's reasoning did not support that award. See Matthew Bender & Co. v. West Publ'g Co., 240 F.3d 116 (2d Cir. 2001) ("Hyperlaw III"). n1 The Circuit Court noted, however, that certain comments in this Court's opinion suggested that there might be other grounds that could justify the award. The Circuit Court, therefore, remanded the case for "clarification [*2] as to whether the District Court relied on instances of bad faith conduct not specifically identified in its opinion." Id. at 127.
n1 In keeping with the Second Circuit's practice in this litigation, see Matthew Bender & Co. v. West Publ'g Co., 158 F.3d 674 (2d Cir. 1998) ("Hyperlaw I"); Matthew Bender & Co. v. West Publ'g Co., 158 F.3d 693 (2d Cir. 1998) ("Hyperlaw II"), the remand decision will be referred to as "Hyperlaw III."
Accordingly, Hyperlaw has renewed its application for an award in the full amount of its attorneys' fees, pointing to certain specific instances of bad faith conduct by Defendant West. West disputes Hyperlaw's contention that the cited conduct amounted to bad faith and argues that, in any event, Hyperlaw has failed to comply with the Circuit Court's direction that it identify the precise costs attributable to that bad faith conduct. See 240 F.3d at 126.
This Court's ability to resolve the fee issue in these remand proceedings [*3] in a manner consistent with the intent of the Circuit Court is complicated by the fact that to some extent, the Second Circuit's holding that this Court's reasoning did not justify an award of attorneys' fees appears to have resulted from a misunderstanding of that reasoning, which no doubt resulted from a less-than-clear articulation of that reasoning in my opinion. As a result, this Court's opinion awarding fees and the Circuit Court's opinion vacating that award resemble ships passing in the night, leaving this Court in serious doubt as to the proper result on remand.
Because more than $ 800,000 is at issue, it is unlikely that this Court's determination will be accepted as final by the parties, and therefore it seems appropriate to more fully explain the reasons for the original award and to accept the Circuit Court's invitation to identify "instances of bad faith conduct not specifically identified in [my original] opinion." I will then address the more limited question of whether the specific bad faith acts cited by Hyperlaw justify an award of fees "solely on the basis of [that] bad faith conduct."
At the outset, it seems appropriate to attempt to clarify those portions [*4] of my prior opinion which appear to have mislead the Circuit Court concerning the basis of my decision.
Hyperlaw's action vindicated the public interest in wide dissemination of federal judicial opinions.
The Circuit Court differed with this statement because in its view, "judicial opinions are decidedly not creative works." Hyperlaw III, 240 F.3d at 124 n.8. While devotees of Cardozo, Hand, Friendly, Weinfeld and others might disagree with that statement, see generally The Law as Literature (Ephraim London ed., 1960), that is not the question that I was addressing.
Accepting that judicial opinions are not themselves creative works under the Copyright Act, and that the Act was not passed for the purpose of encouraging judges to write opinions, they do form the basic material out of which innumerable copyrighted articles, books, treatises and, in rarer instances, novels, plays, and movies are created. Even more importantly, the general availability of judicial opinions is essential to the proper functioning of our [*5] judicial system and to the dissemination of information about the development of the law to the public.
As such, judicial opinions are a highly sought-after commodity in the legal, literary, and news markets. Hyperlaw's action in this case served the public good because West was maintaining a monopoly over the market for several thousand judicial opinions based on a tenuous copyright claim. West was not the author of an original work seeking only to prevent another from making fair use of a portion of a work it had authored. West was attempting to use the fact that it had made inconsequential modifications to judicial opinions to maintain a monopoly in the publication of those opinions. Thus, rather than invoking the Copyright Act as a shield to protect legitimate creative work, West used it as a sword to perpetuate a monopoly over important government works.
The policies served by the Copyright Act are more complex, more measured, than simply maximizing the number of meritorious suits for copyright infringement.
"The limited scope of the copyright holder's statutory monopoly . . . reflects a balance of competing claims upon the public interest: Creative work is to be encouraged and rewarded, but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and the other arts.
The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good."
510 U.S. 517, 526, 114 S. Ct. 1023, 1029, 127 L. Ed. 2d 455 (1994).
While this Court was clearly in error in stating that West's conduct "violated" Section 403 of the Copyright Act, it is correct to say that Hyperlaw's action fostered the public access to government documents that Congress was attempting to promote in adopting Section 403. It is also correct that Congress would consider the notice used by West to be misleading. See Notes of Committee on the Judiciary, H.R. Rep. No. 94-1476, at 145-46 (1976), reprinted in 1976 U.S.C.C.A.N. 5659 (" [*7] To make the notice meaningful rather than misleading, section 403 . . . requires that, when the copies or phonorecords consist 'preponderantly of one or more works of the United States Government,' the copyright notice (if any) identify those parts of the work in which copyright is claimed." (emphasis added)).
In any event, this Court did not award Hyperlaw its attorneys' fees in order to punish West for a violation of Section 403; it awarded the fees because West engaged in bad faith conduct in an attempt to maintain a monopoly in the lucrative market for judicial opinions when it knew that there was little likelihood that it would prevail if the issue was presented to a court.
This Court is persuaded that West did not act in good faith both before and during the course of this litigation. The Circuit Court noted in its opinion that "unfortunately . . . the District Court did not make a clear finding on [the issue of good faith]." Hyperlaw III, 240 F.3d at 122. The Circuit Court went on to state, however, that "West's arguments at trial were objectively reasonable," noting that there was prior authority supporting West's position and that its arguments [*8] were accepted by Judge Sweet in his dissents from the affirmance of this Court's rulings against West. Id.
In assessing whether West acted in good faith both before and during this litigation, it should be noted that the Circuit Court's focus on this issue was much narrower than that which lead me to conclude that West did not act in good faith. The Circuit Court focused on the narrow issue of whether West believed its arguments "were objectively reasonable." This Court recognizes that West had non-frivolous arguments that it could urge in support of its copyright claims.
However, if one asks "Did West have a good faith belief that it would prevail on its copyright claims?", the answer is "No." This Court's substantial experience with West's tactics in this litigation, including false statements, belated concessions, delaying tactics, and strained attempts to avoid a judicial resolution of the copyright claims, leads to the firm conclusion that West knew that if the cases was finally adjudicated, its monopoly over judicial opinions would be terminated. West, therefore, decided to do everything in its power to avoid such an adjudication, or, at a minimum, delay the adjudication [*9] as long as possible and thereby extend its monopoly.
A question may exist as to whether the misuse of a valid copyright in order to maintain a monopoly is a defense to a copyright infringement action. See generally Basic Books, Inc. v. Kinko's Graphics Corp., 758 F. Supp. 1522, 1537-38 (S.D.N.Y. 1991). However, permitting a party to utilize a meritless claim of copyright infringement to monopolize the market for judicial opinions would "seriously impair the policy of the copyright law that seeks to preserve free public access to ideas." Torah Soft Ltd. v. Drosnin, 136 F. Supp. 2d 276, 291 (S.D.N.Y. 2001).
n2 The one relevant district court case decided after Feist was not decided until after this action was commenced. See Oasis Publ'g Co. v. West Publ'g Co., 924 F. Supp. 918, 922-25 (D. Minn. 1996).
Thus, at least from the time that the Supreme Court decided Feist in 1991, West knew that there was substantial reason to question the continuing validity of the cases upholding its copyright claim for star pagination and that the Supreme Court's holding that there was no copyright protection for "sweat of the brow" activity created serious doubt as to its claims to a copyright in its alleged "enhancements" to judicial opinions.
Knowing that its copyright claims were marginal at best, West engaged in a concerted course of action in an attempt to prevent a judicial determination [*11] of its claim. West did not merely refuse to detail for potential competitors the "enhancements" it allegedly made to judicial opinions, it threatened them with litigation if they went forward with their competing products. This tactic was used on Matthew Bender, Hyperlaw, and at least two other potential competitors. That these threats were not made in good faith is evidenced by the fact that when those competitors proceeded to develop their products undeterred by West's threats, West did not bring the threatened lawsuits but instead did everything it could to prevent an adjudication of the copyright issues, including falsely denying that threats had been made.
Before turning to specific examples of such conduct, it is important to note the economics of the market that West was attempting to monopolize. As noted above, this is not a case in which an author was attempting to protect its copyright in a single original work or a single compilation, where the cost of producing the allegedly infringing work would not be considered a deterrent to a potential competitor. Here, West was claiming copyright protection in thousands of judicial opinions that were to be incorporated into CD-Rom [*12] collections. The cost of producing these collections was very substantial. Thus, when West threatened its potential competitors with litigation if they chose to go forward with their competing products, it knew that the mere threat of litigation would place the competitors in such a difficult position that they may well have chosen not to develop their products at all. If the competitors could not obtain an early judicial resolution of the copyright claims, they ran the risk of spending hundreds of thousands of dollars to produce a product that a court might find to infringe West's copyright. Even after West learned that Hyperlaw and Matthew Bender would not be inhibited by its threats, West knew that the longer it delayed a judicial resolution of its copyright claims, the longer it could maintain its monopoly. Moreover, by making this litigation as expensive as possible for its adversaries, West sought to deter other competitors who were more risk-averse than Hyperlaw from entering the market. Thus, the tactics that West employed against Hyperlaw and Matthew Bender must be viewed against this larger canvas.
n3 West may have had a good faith belief that it had a non-frivolous argument that Hyperlaw's product was not advanced far enough to render the issues justiciable.
n4 Due to this Court's reluctance to brand someone as a perjurer on the basis of the preponderance-of-the-evidence standard that applies in civil litigation, the court did not make the specific finding that West's officer knowingly testified falsely. However, the Court's opinion took note of his inconsistent statements and the Court accepted the testimony of Hyperlaw's witness, Mr. Sugarman, and rejected that of West's executive.
Similar evidence of West's bad faith is found in its almost identical conduct in relation to Matthew Bender. When representatives of West met with representatives of Matthew Bender to discuss a product that Matthew Bender planned to offer to the public, West threatened them with litigation. But once again, when Matthew Bender commenced a declaratory judgment action, West denied that it had threatened suit and moved to dismiss on the ground that Matthew Bender had no legitimate fear of being sued by West. While the Court did not have to hold a hearing on this issue because the Uncontested facts established that Matthew Bender had a legitimate apprehension of suit, there were factual disputes that were not resolved in which West's version of the events at issue was dramatically different from those of the Bender witnesses, whose testimony concerning West's threats was similar to that of Mr. Sugarman of Hyperlaw.
In addition to threatening suit and then denying those threats, West attempted to avoid judicial resolution of its copyright claims by first threatening suit and then, when a declaratory judgment action was filed, making a belated concession that it would not sue with respect [*15] to the particular product at issue. West would then move to dismiss on the ground that its concession rendered the action moot. See Matthew Bender & Co. v. West Publ'g Co., 1996 U.S. Dist. LEXIS 5871, No. 94 Civ. 0589, 1996 WL 223917 (S.D.N.Y. May 2, 1996).
West also tried to avoid judicial resolution of its copyright claims by making last-minute concessions that a use of a particular feature constituted fair use, and then moving to dismiss the claim as moot. In Hyperlaw I, the Circuit Court noted that "immediately prior to trial," West made this type of "last-minute concession" with respect to Hyperlaw's use of star pagination in order to argue that its action should be dismissed on justiciability grounds. Hyperlaw I, 158 F.3d at 678. Although the ability to make these types of motions is a "right provided by the Federal Rules," Hyperlaw III, 240 F.3d at 126, they formed part of a wider bad faith effort to perpetuate West's tenuous hold on its exclusive right to publish judicial opinions.
Further evidence that West was attempting to maintain a monopoly by asserting copyright claims that it was afraid to have the courts resolve is found in the fact that, [*16] in order to avoid a judicial resolution of its copyright claims with respect to star pagination, it was willing to concede that it would not sue Matthew Bender with respect to its New York product. Because that product would include star pagination for hundreds of cases, it is difficult to understand why West would make such a concession if it had a good faith belief that its copyright claim would prevail.
In sum, the totality of West's conduct indicates that it knowingly attempted to maintain a monopoly in the vastly lucrative market for judicial opinions when it knew that it was likely that the courts wold reject its copyright claims. It did this by falsely threatening potential competitors with lawsuits that it knew it would not bring and by falsely denying that such threats had been made, in addition to the procedural tactics it employed to delay a final judicial ruling.
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.
510 U.S. at 527, 114 S. Ct. at 1030. [*17] Here, Hyperlaw's lawsuit resulted in just such a demarcation of the boundaries of West's copyright claim and thereby broke West's monopoly grip on thousands of judicial opinions.
While I particularly regret that these remand proceedings may have been made necessary by my failure to articulate more carefully the basis for the award in my earlier opinion, I hope that this further exposition of the reasons for the award will persuade the Circuit Court that Hyperlaw should prevail. As was noted at the [*18] outset, however, it is not certain that the Circuit Court will agree. To avoid another remand should the Circuit Court again find that I have abused my discretion by awarding Hyperlaw all of its attorneys fees, I will now turn to the narrower question of whether Hyperlaw should be awarded some portion of its attorneys' fees resulting from specific instances of bad faith conduct by West.
The court should not lose sight of the fact that it is awarding fees solely on the basis of West's bad faith conduct when it turns to the question of the precise amount of fees to which Hyperlaw is entitled. Any fees it awards should be related to costs or expenses incurred as a direct result of bad faith conduct by West.
Hyperlaw III, 240 F.3d at 126.
Although Hyperlaw points to certain specific actions of West that it claims were taken in bad faith, it completely fails to demonstrate any "costs or expenses incurred as a direct result of" that conduct. While some of the conduct that Hyperlaw cites, such as the false denial [*19] of threats by West, may have resulted in costs that could be identified at this late date in the litigation, Hyperlaw has not attempted to identify them. Thus, even though the Court agrees that the actions in question were committed in bad faith, it cannot calculate the costs incurred by Hyperlaw as a result of that conduct.
To the extent that Hyperlaw cites examples of West's refusal to supply appropriate discovery responses, it is obvious that, at this late stage in a case that has been pending for over seven years, it would be very difficult to identify with any degree of certainty the specific costs incurred as a result of a bad faith answer to an interrogatory or other discovery abuse. If Hyperlaw thought that these discovery abuses warranted an award of attorneys' fees, it should have brought a motion for costs under Rule 37 at that time, rather than requesting those costs as part of a request for counsel fees pursuant to 17 U.S.C. § 505.
n5 Hyperlaw also asks the Court to reconsider the rate at which its attorneys' fees should be calculated. However, that issue is not within the scope of the remand.
JOSE A. CABRANES, CHESTER J. STRAUB, SONIA SOTOMAYOR, Circuit Judges.
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of said District Court be and is REVERSED.
Defendants West Publishing Co. And West Publishing Corporation (collectively, "West") appeal from a judgment entered on July 2, 2001, by Judge Martin awarding Intervenor-Plaintiff Hyperlaw Inc. $ 813,824.25 for attorneys' fees and costs incurred in a suit brought under the Copyright Act. Because we conclude that the record does not support the District Court's finding that West acted in "bad faith," we reverse the judgment of the District Court.
The instant appeal represents the fourth time this dispute has reached our Court. See Matthew Bender & Co. v. West Publ'g Co., 158 F.3d 674 (2d Cir. 1998); Matthew Bender & Co. V. West Publ'g Co., 158 F.3d 693 (2d Cir. 1998); Matthew Bender & Co. v. West Publ'g Co., 240 F.3d 116 (2d Cir. 2001) ("Hyperlaw III"). The judgment appealed from resulted from proceedings after our remand in Hyperlaw III, in which we vacated an identical award of fees and costs. See Hyperlaw III, 240 F.3d 116 at 118.
Assuming West legitimately believed that its products were protected--a reasonable belief, in light of the previous court decisions on the same issue--it had no duty to "recognize that there was an open question concerning its right to assert copyright protection in court opinions" and had the right vigorously to challenge any actions by Hyperlaw that might infringe on its copyrights. A party's good faith refusal to cooperate with a suspected infringer prior to the filing of suit is not a proper ground for the award of attorneys' fees to the prevailing party in the subsequent suit.
Because we found it unclear precisely what conduct on West's part the District Court relied upon in awarding fees, however, we vacated the judgment on fees and remanded for further clarification. See Hyperlaw III, 240 F.3d 116 at 126-27. We noted that "any fees [the District Court] awards should be related to costs or expenses incurred as a direct result of bad faith conduct by West." Id. at 126. Thus, on remand, Hyperlaw bore the burden of (1) identifying specific actions of West that were taken in bad faith, and (2) linking that conduct to costs it incurred as a result.
The District Court found on remand, however, that Hyperlaw did not link specific acts taken in bad faith to discrete costs it incurred. See Matthew Bender & Co. v. West Publ'g Co., 2001 U.S. Dist. LEXIS 8936, No. 94 Civ. 0589, 2001 WL 740781, at *6 (S.D.N.Y. July 2, 2001). Thus, the District Court properly considered only whether West's conduct of the entire litigation [**4] was in bad faith. See id. at *7 ("It appears that this is an all or [*509] nothing affair. Either Hyperlaw is entitled to recover the entirety of its attorneys' fees, or it has failed to establish a link between specific bad faith conduct and the fees incurred that might justify a more limited award."); see also Hyperlaw III, 240 F.3d 116 at 125 ("Bad faith in the conduct of the litigation is a valid ground for an award of fees.").
The District Court found that West's conduct throughout its dispute with Hyperlaw indeed had been in bad faith. See West Publ'g, 2001 U.S. Dist. LEXIS 8936, 2001 WL 740781, at *3 ("West engaged in bad faith conduct in an attempt to maintain a monopoly in the lucrative market for judicial opinions when it knew that there was little likelihood that it would prevail if the issue was presented to a court."); id. ("This Court is persuaded that West did not act in good faith both before and during the course of this litigation."). Put another way, the District Court found that, contrary to what we assumed in Hyperlaw III, West did not "legitimately believe that its products were protected," Hyperlaw III, 240 F.3d 116 at 125, and that its [**5] refusal to cooperate was not "in good faith," id.
In light of our request in Hyperlaw III for clarification of the basis for the fee award, the District Court set forth in detail the evidentiary basis for its conclusion that West did not subjectively believe that its claims were meritorious. See West Publ'g, 2001 U.S. Dist. LEXIS 8936, 2001 WL 740781, at *1. Specifically, the District Court relied upon the following: (1) West threatened suit against Matthew Bender and Hyperlaw then later falsely denied making the threats; (2) West's conduct of the litigation evinced the desire to prevent the copyright issues from being decided; and (3) West made a concession to Matthew Bender with respect to its New York product inconsistent with a good faith belief in its copyright claim. Id. at *4-5. Moreover, the District Court noted that West's reliance on West Publ'g Co. v. Mead Data Cent., Inc., 799 F.2d 1219 (8th Cir. 1986) as the basis of its purported "good faith" belief in its claims was substantially undermined by the Supreme Court's decision in Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 113 L. Ed. 2d 358, 111 S. Ct. 1282 (1991). [**6] West Publ'g,2001 U.S. Dist. LEXIS 8936, 2001 WL 740781, at *3.
We review the District Court's finding of bad faith for clear error. See Sierra Club v. United States Army Corps of Engineers, 776 F.2d 383, 390 (2d Cir. 1985). Factual findings that are not supported by sufficient evidence are clearly erroneous. See United States v. Barone, 913 F.2d 46, 51 (2d Cir. 1990).
We hold that the evidence cited by the District Court is insufficient to support its finding of bad faith with respect to West's conduct of the entire litigation. Neither a desire to avoid having an issue decided nor a settlement of an action leads inexorably to the conclusion that the party seeking to avoid adjudication does not believe its claims have merit. Indeed, even if West subjectively believed its claims were valid, it may nevertheless have been rational for West to choose to settle with those competitors that disagreed with it so long as at least some other competitors or potential competitors were deterred by its arguments from engaging in the allegedly infringing conduct and it also believed that there was a substantial risk that a court would rule against it. Thus, neither West's efforts to delay the litigation nor its settlement with Matthew Bender, standing alone, support the District Court's finding of bad faith.
West's false denials that it had threatened Hyperlaw with suit, which were made in support of its motion to dismiss Hyperlaw's declaratory judgment action, may have provided sufficient support for a finding of bad faith with respect to that motion. n1 [*510] Those denials do not, however, even considered in conjunction with West's efforts to avoid an adjudication of the rights it was asserting, support an inference that West subjectively believed that its claims were not valid.
- n1 Because Hyperlaw did not link that motion to any specific costs, the District Court did not make such a finding.
In sum, we hold that Hyperlaw failed to adduce sufficient evidence that West's conduct of the entire litigation was in bad faith, and that, therefore, the District Court's finding of bad faith was clearly erroneous. Accordingly, we reverse the judgment of the District Court.

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