The Twists and Turns of Offers of Judgment in Copyright Cases

Several years ago, Kayne Capital Advisors did a bad, bad thing. It had one of its employees subscribe to the Oil Daily newsletter, then copied and distributed that one copy to multiple employees.9Eventually, Kayne Capital Advisors increased the subscription to five employees but still distributed the newsletter to more than five employees. It might not be immediately obvious, but this is copyright infringement. Oil Daily was distributed on a per-person basis, as was its right, so Kayne Capital effectively had no right to more than one10Or, later, five. copy of each newsletter. Distributing the newsletter—so easy when it’s delivered by email!—violated both the reproduction and distribution rights11Er, assuming you can “distribute” electronic copies, which you can’t do under a literal reading of the Copyright Act, but courts just assume you can do because it’d be weird otherwise..
You might surprised to learn that this is a fairly common type of copyright dispute. There have been several multi-million-dollar awards in copyright cases like this, because the number of “works” that have been infringed can be quite large. This case was no exception. Kayne Capital infringed the copyright in 1,646 individual Oil Daily newsletters. Even at the minimum statutory damages—$750—the award would be $1,234,500! As it happened, the jury awarded $15,000 per work.
Kayne Capital caught a break, though. The jury also found that the copyright owner—Energy Intelligence—should have kept better tabs on Kayne Capital’s infringing uses. In legal parlance, Energy Intelligence didn’t “mitigate its damages.”12This use of the affirmative defense of failure to mitigate is controversial. This issue will certainly be appealed (barring settlement). There is a long but shallow strand of legal authority holding that failure to mitigate is NEVER an affirmative defense to any type of statutory damages. The theory is that statutory damages aren’t really damages but a penalty and thus can’t be mitigated. Indeed, in a court decision in another case in which Energy Intelligence asserted its copyright in Oil Daily, the court summarily struck the defendants’ failure-to-mitigate affirmative defense. This case might be distinguishable from others in that the jury threw out specific works, rather than just reduced the award. We’ll see. It threw out 1,607 acts of infringement, so the award was “only” $585,000, instead of $24,690,000.13Which is more than what Kayne Capital would have been liable for had its financial advice somehow gotten someone killed. See the opinion affirming the jury’s award here.
Kayne Capital must have been pretty surprised that its mitigation-of-damages defense actually worked, because earlier in the case, it made an “offer of judgment” to Energy Intelligence of $5 million14Plus $300,000 to fund a copyright infringement ad campaign.“ For its part, Energy Intelligence must not only have thought the failure-to-mitigate defense was bunk, but that it would recover at least $3,037.67 per work infringed in statutory damages, because it rejected the ”offer of judgment.”

An Offer You Really Can Refuse

Offers of judgment are a legitimate, if rarely used, litigation tactic. They’re designed to short-circuit lawsuits and work like this: The defendant writes up a judgment that it is willing to have entered against it and serves it on the plaintiff. If the plaintiff timely accepts, the court enters the offered judgment, which operates just like any normal judgment. This is perhaps the main reason for its unpopularity. Unlike a settlement, which can be secret and doesn’t have to admit fault, judgments are an admission of fault and are as public as any other filing.
If the offer is rejected, things might get interesting. If the ultimate judgment is better than what was offered, nothing happens. But if the ultimate judgment is worse than what was offered, the plaintiff “must pay the costs incurred after the offer was made.” That’s what happened here: Kayne Capital offered $5 million, but Energy Intelligence obtained a judgment of only $585,000. So Kayne Capital gets to recover from Energy Intelligence the “costs” it incurred starting from the date of the offer of judgment.15Are you wondering what happens if the defendant just wins outright? Nothing. I am not kidding. Sometimes, a defendant would be better off losing but with a very small judgment than winning outright.
Before you get too excited, you should know that normally “costs” just means only expenses like filing fees, witness fees, certain photocopying and the like. These can add up! But they’re still just a tiny fraction of the big “cost”: attorney’s fees. And attorney’s fees are usually not part of “costs.”
But there is an exception. If the law you’re suing under itself defines “costs” as including attorney’s fees, then attorney’s fees (post-offer) are recoverable under this rule. And guess what? The Copyright Act does exactly that: “The court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.”
At this point, things get a little counter-intuitive. You might think that Kayne Capital should recover its post-offer attorney’s fees. You might might also think that, if Energy Intelligence is also awarded its attorney’s fees—after all, it’s still the prevailing party—both parties might be entitled to an award of attorney’s fees. But somehow it doesn’t quite work that way. Instead, Energy Intelligence has its award of attorney’s fees cut off as of the date of the offer, but Kayne Capital is not entitled to any attorney’s fees.16The reasoning is a bit convoluted but goes something like this: The Supreme Court decision that interpreted the offer-of-judgment rule to  sometimes include attorney’s fees also said that the “costs” must be “properly awardable” under the controlling statute. Since, under the Copyright Act, only “prevailing parties” are entitled to attorney’s fees, and a defendant who is entitled to costs because of an offer of judgment is, by definition, NOT a “prevailing party, a defendant entitled to attorney’s fees as part of costs as a result of a rejected offer of judgment cannot recover those attorney’s fees. This sounds like a Catch-22 to me. Here’s the leading decision, and you can see if you understand it better. Note that if the defendant won the case, it would be eligible to recover attorney’s fees under the Copyright Act as a matter of course.
Kayne Capital is still better off, thanks to the offer of judgment. Energy Intelligence had incurred—and had previously been awarded—a little less than $4.3 million in attorney’s fees. But thanks to the offer the judgment, which cut off recovery of attorney’s fees as of the date it was made, the award was reduced to just shy of $2.6 million. That’s a savings of almost 40%!
Read the opinion paring back the court’s previous award of attorney’s fees to Energy Intelligence here.
Thanks for reading!

Rick Sanders

Rick is the litigation half of Aaron & Sanders, PLLC; and, from 2012 to 2014, an adjunct professor at Vanderbilt University Law School, where he was teaching Copyright Law. Vandy also happens to be where he got his law degree in 2000. After graduation, he practiced at a major intellectual-property law firm in Silicon Valley for a few years. He returned to Nashville in 2004, where he worked for a large Nashville firm, practicing as much intellectual-property law as he could, but also a lot of commercial law. He left that firm in 2011 to start Aaron & Sanders with Tara Aaron, so he could practice intellectual-property law full time and work with start-ups and other non-institutional clients.