DRK Photo v. McGraw-Hill Global Education Holdings LLC

          ORDER

          Honorable Diane J. Humetewa United States District Judge

         This matter is before the Court on Defendant^[1] McGraw-Hill Global Education Holdings LLC's (“McGraw-Hill”) Motion for Attorney's Fees (Doc. 72). Plaintiff DRK Photo (“DRK”) filed a Response (Doc. 78), and McGraw-Hill filed a Reply (Doc. 84). DRK also filed a Motion to Seal an unredacted copy of DRK's Response to Defendant's Motion for Attorney's Fees and related exhibits. (Doc. 80). McGraw-Hill did not file a Response to the Motion to Seal and the time to do so has expired. See LRCiv. 7.2(c).

         I. BACKGROUND

         This was a copyright suit filed by DRK, a stock photo agency, against McGraw-Hill, a textbook publisher for allegedly infringing on DRK's copyright by exceeding the scope of license restrictions pertaining to certain photographs or failing to obtain permission to use the photographs. (Doc. 27). This was not DRK's first copyright suit in which DRK asserted that it had standing to bring the action pursuant to the “Representation Agreements”^[2] and “Transfer Agreements”^[3] between DRK and the photographers. In 2012, DRK filed suit against McGraw-Hill in the District Court of Arizona (“2012 Action”), in which the Court granted partial summary judgment in favor of McGraw-Hill finding that DRK lacked standing under 17 U.S.C. § 501(b) for the majority of its claims (June 10, 2014 Order”). DRK Photo v. McGraw-Hill Companies, Inc., 2014 WL 2584811, at *8 (D. Ariz. June 10, 2014), aff'd sub nom. DRK Photo v. McGraw-Hill Glob. Educ. Holdings, LLC, 870 F.3d 978 (9th Cir. 2017). In the 2012 Action, the Court held that neither the Representation Agreements nor the Assignment Agreements transferred legal ownership to DRK; therefore, as DRK was not the legal or beneficial owner of an exclusive right under a copyright, DRK did not have standing to sue for infringement of that right. Id. DRK appealed the June 10, 2014 Order.

         Despite the ongoing 2012 Action appeal, DRK filed this current suit, again relying on the Representation Agreements and Assignment Agreements to provide standing, even though in the 2012 Action the Representation Agreements and Assignment Agreements had been deemed ineffectual to confer standing under the Copyright Act. (Docs. 72 at 8-9, 78 at 4).^[4] On April 5, 2017, the parties filed their Joint Case Management Report, in which DRK stated that it would opposes a stay of this case pending the outcome of the 2012 Action appeal. (Doc. 37 at 7). In the course of this litigation McGraw-Hill filed multiple motions, including a Motion for Summary Judgment (Doc. 45) and a Motion to Disqualify Counsel. (Doc. 49). On April 16, 2018, McGraw-Hill filed a notice of supplemental authority, which provided that on September 12, 2017, the Ninth Circuit had upheld the June 10, 2014 Order in the 2012 Action and the U.S. Supreme Court had denied DRK's Petition for Writ of Certiorari. (Doc. 67). Before the Court issued an Order on McGraw-Hill's Motion for Summary Judgment, on May 11, 2018, the parties filed a Stipulation of Dismissal with Prejudice. (Doc. 69).

         Shortly after the Court approved the parties' stipulation and dismissed the case with prejudice (Doc. 71), McGraw-Hill filed the instant Motion for Attorneys' Fees. (Doc. 72). Along with filing their Response (Doc. 78), DRK filed the Motion to Seal an unredacted copy of the Response and Exhibits 1 and 2 to the Declaration of Daniel Krasemann in Support of DRK's Response. (Doc. 80). DRK lodged the proposed sealed Unredacted Response and Exhibits 1 and 2. (Docs. 81, 82). McGraw-Hill filed a Reply in Support of its Motion for Attorneys' Fees, but did not file a Response to DRK's Motion to Seal. (Doc. 84).

         II. MOTION FOR ATTORNEYS' FEES

         McGraw-Hill argues that as the prevailing party^[5] it is entitled to an award of attorneys' fees because: (1) DRK's pursuit of this lawsuit was objectively unreasonable and frivolous as a matter of law, (2) DRK and its counsel acted in bad faith in bringing this lawsuit, and (3) a fee award to McGraw-Hill would serve the interests of the Copyright Act by deterring future improper litigation tactics. (Doc. 72). Additionally, McGraw-Hill argues that the amount of fees sought is reasonable. (Id. at 20). DRK disputes whether any award is warranted, but in any event, claims that McGraw-Hill has not demonstrated that the fee award requested is reasonable. (Doc. 78 at 16).

         A. Entitlement to Fees

         McGraw-Hill requests attorneys' fees pursuant to 17 U.S.C. § 505 of the Copyright Act. Under the Copyright Act, a court may “award a reasonable attorney's fee to the prevailing party.” 17 U.S.C. § 505. “Fees are proper under this statute when either successful prosecution or successful defense of the action furthers the purposes of the Copyright Act.” Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102, 1120 (9th Cir. 2007). Whether to award attorneys' fees is in the district court's discretion. See Fogerty v. Fantasy, Inc., 510 U.S. 517, 535 n.19, (1994). In deciding whether to award attorneys' fees under the Copyright Act, courts may consider multiple nonexclusive factors, including: (1) the degree of success obtained on the claim, (2) frivolousness, (3) motivation, (4) objective reasonableness of factual and legal arguments, and (5) need for compensation and deterrence. Jackson v. Axton, 25 F.3d 884 (9th Cir. 1994), overruled on other grounds by Fogerty, 510 U.S. 517. Blameworthiness, including a finding of bad faith or frivolousness, can be an influential consideration, is not a a prerequisite to awarding fees to a prevailing defendant, and these nonexclusive factors “need not all be met.” Fantasy, Inc. v. Fogerty, 94 F.3d 553, 558 (9th Cir. 1996). Weighing each of these factors, and taking into account other relevant considerations as set forth below, the Court finds that all five factors weigh in favor of awarding McGraw-Hill's attorneys' fees.

         i. Degree of Success Obtained

         While McGraw-Hill was the prevailing party, at no point did the Court issue a ruling on the merits of the litigation. Thus, the Court finds that McGraw-Hill “obtained a relatively small degree of success for the purposes of determining a fee award.” Nutrivita Labs., 160 F.Supp.3d at 1190; see also Bridgeport Music, Inc. v. London Music, U.K., 345 F.Supp.2d 836, 843 (M.D. Tenn. 2004) (“[A] stipulation of dismissal with prejudice is clearly a much lesser degree of success than a judicial vindication of the defendants' position.”), aff'd, 226 Fed.Appx. 491 (6th Cir. 2007). Thus, the degree of success factor weighs minimally in favor of a fee award to McGraw-Hill.

         ii. Frivolousness and Objective Unreasonableness^[6]

         Here, McGraw-Hill avers that DRK choose to litigate this case on a standing theory that the Court in the 2012 Action and another federal district court had already determined did not convey DRK standing under the Copyright Act. (Doc. 72 at 13); see also 2012 Action, 2014 WL 2584811, at *8; John Wiley & Sons, Inc. v. DRK Photo, 998 F.Supp.2d 262, 276 (S.D.N.Y. 2014), aff'd, 882 F.3d 394 (2nd Cir. 2018). DRK claims that, while its standing theory was ultimately unsuccessful, it was not objectively unreasonable.^[7](Doc. 78 at 6).

         The action was objectively unreasonable because at the time this action was filed, two federal courts, including the Court in the 2012 Action, had previously held that DRK did not have standing to bring these claims under the Copyright Act. See 2012 Action, 2014 WL 2584816; John Wiley, 998 F.Supp.2d 262 (S.D.N.Y. 2014). Although, in a Ninth Circuit concurrence and Second Circuit dissent, there is some support for DRK's position, those decisions both are not controlling and were not issued until after DRK filed this suit, thus those opinions could not have been the basis for DRK's decision to pursue this action. See DRK Photo, 870 F.3d at 990 (Berzon, J. concurring); John Wiley & Sons, Inc. v. DRK Photo, 882 F.3d 394, 415 (2d Cir.) (Parker, J. dissenting). Moreover, DRK refused to stay this litigation even though it had pending appeals in the Ninth and Second Circuits regarding it standing theory. Thus, the Court finds it was objectively unreasonable for DRK to file this suit after two federal courts had held that the Representation Agreements and Transfer Agreements did not provide DRK standing to maintain a copyright infringement action. See Stan Lee Media, Inc. v. Walt Disney Co., 2014 WL 3767191, at *2 (D. Colo. July 31, 2014) (“The Court, finds that it was objectively unreasonable for Plaintiff to pursue its copyright claims under the 1998 Agreement after three District Courts had previously found that it had no basis for asserting ownership of any of the claimed copyrights.”); see also Yue v. Storage Tech. Corp., 2008 WL 4185835, at *4 (N.D. Cal. Sept. 5, 2008) (awarding fees because no objectively reasonable claim presented where “the same basic claims had already been previously rejected by the District Court”); Contractual Obligation Productions, LLC v. AMC Networks, Inc., 546 F.Supp.2d 120, 128 (S.D.N.Y. 2008) (holding that plaintiff's legal theories concerning its standing to pursue a copyright infringement claim are objectively unreasonable because the plaintiff was notice that the courts had already determined that plaintiff did not have standing to assert a claim under the Copyright Act).

         Moreover, as previously discussed, the Court finds that DRK was on notice that it did not have standing to bring the copyright claims; therefore, the claims were also frivolous. See Goldberg v. Cameron, 2011 WL 3515899, at *4 (N.D. Cal. Aug. 11, 2011) (holding that the continued litigation of claims that plaintiff knew were barred by statute of limitations were frivolous); Scott v. Meyer, 2010 WL 2569286, at *3 (C.D. Cal. June 21, 2010) (holding that the connotations of frivolity are difficult to escape when considering a plaintiff's continued pursuance of objective unreasonable claims in spite of notice that her ...