SellPoolSuppliesOnline.com LLC v. Ugly Pools Arizona Inc.

          ORDER

          BRIDGET S. BADE, UNITED STATES MAGISTRATE JUDGE

         Defendants, Ugly Pools Arizona, Inc., and Brian Morris (“Defendants”), have filed a motion for attorney's fees and costs (Doc. 102) and a motion for sanctions. (Doc. 103.) Plaintiff opposes both motions, which are fully briefed. (Docs. 105, 106, 107, 109.) For the reasons below, the Court denies the motion for attorney's fees and costs. The Court considers the motion for sanctions in a separate order.

         I. Background

         On September 17, 2015, Plaintiff filed a complaint asserting copyright infringement under the Copyright Act, 17 U.S.C. § 501, and unfair competition under Arizona law. (Doc. 1.) The Court granted Plaintiff leave to file an amended complaint, and Plaintiff filed its First Amended Complaint (“FAC”). (Docs. 38, 30.) Plaintiff asserted the following three counts: (1) copyright infringement under the Copyright Act, 17 U.S.C. § 501(a) (Count One); (2) unfair competition under Arizona law (Count Two); and (3) violation of the Digital Millennium Copyright Act (“DMCA”), integrity of copyright management information under 17 U.S.C. § 1202 (Count Three). (Doc. 39.)

         The parties filed cross-motions for summary judgment on all three counts of the FAC. (Docs. 43, 45.) On June 9, 2017, the Court granted summary judgment in favor of Defendants on Count Two. (Doc. 64.) The Court granted summary judgment in favor of Defendants on Plaintiff's removal of copyright management information claim under 17 U.S.C. § 1202(b), asserted in Count Three. (Id. at 42.) The Court denied both motions for summary judgment on Plaintiff's falsification of copyright management information claim under 17 U.S.C. § 1202(a), asserted in Count Three. (Id.) The Court denied without prejudice both motions for summary judgment on Count One, copyright infringement. (Id.)

         In the June 2017 order, the Court considered whether Plaintiff had properly registered its copyright and met the registration precondition for bringing a copyright infringement suit. (Id. at 12-13); see 17 U.S.C. § 411(a) (“no action for infringement of the copyright in any United States work may be instituted until registration of the copyright has been made in accordance with this title.”).^[1] Based on evidence that Plaintiff had knowingly provided inaccurate information to the copyright office during the copyright registration process, the Court concluded that the statutory criteria for mandatory referral to the copyright office under 17 U.S.C. § 411(b)(2) had been satisfied. (Doc. 64 at 24.) Therefore, on June 27, 2017, the Court sent a request for advice to the Register of Copyrights. (Doc. 67.)

         On September 5, 2017, the Register of Copyrights responded to the Court's inquiry and stated that: (1) it would have refused registration of Plaintiff's copyright with a July 3, 2014 publication date had it known that the submitted website included copyrightable content that was added after July 3, 2014; and (2) it “would have demanded a copy of the deposit as published on July 3, 2014”; or (3) it would have “asked Plaintiff to limit its claim to material published on August 26, 2015, and to revert back to the 2015 year of completion, and the August 26, 2015 date of publication, for the original application.” (Doc. 72-1 at 8.) If Plaintiff had “refused to limit the claim and revert back to the August 26, 2015 date of first publication and 2015 year of completion, the Acting Register would have refused registration.” (Id.)

         After receiving the Register of Copyrights' response, the Court permitted the parties to file second motions for summary judgment on Plaintiff's copyright infringement claim asserted in Count One of the FAC. (Docs. 73, 78, 79.) On September 24, 2018, the Court granted Defendants' second motion for summary judgment on Plaintiff's copyright infringement claim and denied Plaintiff's second motion for summary judgment on that claim. (Doc. 95.) The Court explained that Plaintiff had “not properly registered the work at issue in this case” and, therefore, “the copyright registration [was] insufficient to support a copyright infringement claim . . . .” (Id. at 26.) The Court also allowed Defendants to file a third motion for summary judgment on Plaintiff's claim for false copyright marking under 17 U.S.C. § 1202(a). (Docs. 83, 94.) On September 24, 2018, the Court granted summary judgment in favor of Defendants on that claim. (Doc. 96.) The Court entered judgment in Defendants' favor and dismissed Plaintiff's cause of action. (Doc. 97.)

         Defendants have now filed a motion for attorney's fees and costs.^[2] (Doc. 102.) A party requesting an award of attorneys' fees must show that it is (a) eligible for an award, (b) entitled to an award, and (c) requesting a reasonable amount. See LRCiv 54.2(c). Defendants seek attorney's fees and costs pursuant to 17 U.S.C. § 505 on Plaintiff's copyright infringement claim (Count One), unfair competition claim (Count Two), and DMCA claims (Count Three). (Id. at 3-8.) Defendants alternatively seek attorney's fees pursuant to 17 U.S.C. § 1203(b)(5) on Plaintiff's DMCA claims. (Id. at 8-11.) As set forth below, the Court denies Defendants' motion for attorney's fees and costs.

         II. Attorney's Fees under § 505 of the Copyright Act

         Section 505 of the Copyright Act provides that the court “may . . . award reasonable attorney's fees to the prevailing party as part of the costs.” 17 U.S.C. § 505. The same standard applies to both prevailing defendants and plaintiffs. Fogerty v. Fantasy, Inc., 510 U.S. 517, 523 (1994). The determination of attorney's fees under § 505 is left to the court's discretion. Id. However, “[t]he automatic awarding of attorney's fees to the prevailing party would pretermit the exercise of that discretion.” Id. at 533; see also Kirtsaeng v. John Wiley & Sons, Inc., U.S., 136 S.Ct. 1979, 1985 (2016) (“[A] district court may not ‘award [ ] attorney's fees as a matter of course' . . . .”) (quoting Fogerty, 510 U.S. at 533).

         When determining whether to award attorney's fees in a copyright case, the court may consider “several non-exclusive factors” including: “[the degree of success obtained], frivolousness, motivation, objective unreasonableness (both in the factual and in the legal components of the case), and the need in particular circumstances to advance considerations of compensation and deterrence.” Kirtsaeng, 136 S.Ct. at 1985 (citing Fogerty, 510 U.S. at 534 n.19); Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657, 675 (9th Cir. 2017) (stating that the court may consider “the degree of success obtained in the litigation” and “whether the chilling effect of attorney's fees may be too great”). District courts should “accord substantial weight to” the “reasonableness of [the] losing party's legal and factual arguments.” Shame on You Prods., Inc. v. Banks, 893 F.3d 661, 666 (9th Cir. 2018); see also Kirtsaeng, 136 S.Ct. at 1989 (giving the reasonableness factor “significant weight”). “But the court must also give due consideration to all other circumstances relevant to granting fees; and it retains discretion, in light of those factors, to make an award even when the losing party advanced a reasonable claim or defense.” Kirtsaeng, 136 S.Ct. at 1983.

         A. Attorney's Fees for the Copyright Infringement Claim

         In their motion, Defendants seek an award attorney's fees incurred in defending against Plaintiff's copyright infringement claim. Plaintiff opposes the motion.^[3] (Doc. 106.) Upon consideration of the relevant factors, discussed below, the Court concludes that Defendants are not entitled to an award of attorney's fees on the copyright infringement claim.

         1. Prevailing Party

         “[A] ‘prevailing party' is one who has been awarded some relief by the court. The key inquiry is whether some court action has created a material alteration of the legal relationship of the parties.” Cadkin v. Loose, 569 F.3d 1142, 1148-49 (9th Cir. 2009) (internal citation and quotation marks omitted). A court action materially alters “the legal relationship of the parties” when it “deprive[s the losing party] of the ability to seek relief in federal court” under the Copyright Act against the party that is seeking a fee award. Id. at 1150 (defendants were not “prevailing parties” under § 505 because the claims against them were dismissed voluntarily and without prejudice and defendants “remain[ed] subject to the risk” that the plaintiffs could refile the copyright claims). Thus, a “defendant is a prevailing party following dismissal of a claim if the plaintiff is judicially precluded from refiling the claim against the defendant in federal court.” Id.; see Tavory v. NTP, Inc., 297 Fed.Appx. 986, 989-90 (Fed. Cir. 2008) (dismissal of copyright infringement claim based on invalid registration materially altered the legal relationship between the parties because “[b]y finding the deposit copy of that work to be an invalid reconstruction, the court essentially decided that [plaintiff] cannot ever succeed in a copyright infringement claim against [defendant] based on the work represented in that invalid copy”).

         Defendants assert that they are the prevailing party in this matter. (Doc. 102 at 1.) Plaintiff does not oppose that assertion. (Doc. 106.) The Court concludes that Defendants are the prevailing party because the Court dismissed the claims against them with prejudice, which materially altered the relationship between Plaintiff and Defendants. See Cadkin, 569 F.3d at 1148-49. Therefore, this factor favors an award of attorney's fees.

         2. The Degree of Success Obtained

         The Ninth Circuit has noted that successful defenses “do not always implicate the ultimate interests of copyright” because “copyright defendants do not always reach the merits, prevailing instead on technical defenses, ” such as “statute of limitations, laches, or the copyright registration requirements.” Fantasy, Inc. v. Fogerty, 94 F.3d 553, 560 (9th Cir. 1996) (Fogerty II); see also VMG Salsoul, LLC v. Ciccone, 2014 WL 12585798, at *2 (C.D. Cal. Aug. 28, 2014). Thus, the degree of success factor “weighs more in favor of a party who prevailed on the merits, rather than on a technical defense.” DuckHole Inc. v. NBC Universal Media LLC, 2013 WL 5797204, at *2 (C.D. Cal. Oct. 25, 2013). When a defendant has prevailed on a technical defense, courts consider whether the defendant remains subject to future claims by the plaintiff or whether the plaintiff's claims were dismissed with prejudice. See Epikhin v. Game Insight N.A., 2016 WL 1258690, at *4-5 (N.D. Cal. Mar. 31, 2016) (finding the degree of success factor neutral when the defendants prevailed on a technical defense rather than on the merits and the plaintiff's claims were dismissed without prejudice).

         Defendants argue that their success in this matter was “complete.” (Doc. 102 at 3.) In support of this position they rely on the final judgment in their favor on Plaintiff's copyright claim. (Id.; see also Docs. 64, 95, 97.) Plaintiff responds that Defendants prevailed on a technical defense-Plaintiff's failure to satisfy the registration precondition-that does not support an award of attorney's fees. (Doc. 106 at 7-8.) Defendants prevailed on the issue of the invalidity of the copyright registration. (Doc. 95.) As Plaintiff argues, this was a technical defense. See Fogerty II, 94 F.3d at 560; Epikhin, 2016 WL 1258690, at *4.

         However, “it is important that parties who seek the benefits of copyright registration have proceeded in accordance with those rules to ensure that the process is fair and effective.” Gold Value Int'l Textile, Inc. v. Sanctuary Clothing, 2017 WL 8236267, at *5 (C.D. Cal., Dec. 5, 2017). The importance of complying with the rules governing copyright registration is illustrated by the Register of Copyright's response to the Court's inquiry- it would have refused the registration of Plaintiff's copyright with a July 3, 2014 publication date had it known that the submitted website included copyrightable content that was added after July 3, 2014. (See Doc. 72-1 at 8; Docs. 95 at 8-9.)

         Additionally, the Court dismissed Plaintiff's claims with prejudice. (Doc. 95, 96, 97); see Minden Pictures, Inc. v. John Wiley & Sons, Inc., 2014 WL 1724478, at *6 (N.D. Cal. Apr. 29, 2014) (stating that defendant's degree of success was “not insubstantial” when summary judgment precluded plaintiff from “assert[ing] similar claims against [the defendant] in any federal court based on the underlying assignment or agency agreements at issue”). The Court concludes that the degree of success factor provides “modest weight in support an award of fees and costs” because of the preclusive effect of the judgment. See Gold Value, 2017 WL 8236267, at *5.

         3. The Frivolousness of Plaintiff's Position

         A claim is frivolous when it is “clearly baseless, ” involving “fantastic or delusional scenarios.” Perfect 10, Inc. v. Visa Int'l Serv. Ass'n, 2005 WL 2007932, at *4 (N.D. Cal. Aug. 12, 2005) (quoting Neitzke v. Williams, 490 U.S. 324, 327-28 (1989)). An unsuccessful claim is not necessarily frivolous. Neitzke, 490 U.S. at 329. “The standard for frivolousness appears to be ‘somewhat' higher than the standard for objective reasonableness.” Epikhin, 2016 WL 1258690, at *6 (citation omitted).

         Defendants assert that Plaintiff's claim for copyright infringement was frivolous. (Doc. 102 at 4.) Defendants' assertion is based on Plaintiff's evolving description of the allegedly infringed copyrighted material as the “Platform, ” “photographs and the software required to show them in a 360-degree view, ” and later as a “collection of photos.” (Id.; see also Doc. 64 at 11-12 (discussing the changing description of the allegedly infringed work).) In response to Defendants' motion, Plaintiff does not directly address its changing description of the allegedly infringed work. (Doc. 106 at 5.) Rather, Plaintiff states that the FAC cannot be construed as frivolous because it asserted a copyright infringement claim against Defendants who admitted that they made a copy of Plaintiff's “copyrighted work (‘Works' or ‘Registered Photos' or U.S. Copyright Office (‘USCO') Registration TX 8-268-803).” (Doc. 106 at 5.)

         Although Plaintiff's continued narrowing of the description of the work that formed the basis of its copyright infringement claim complicated the resolution of the copyright infringement claim, the Court finds that it does not render Plaintiff's copyright infringement claim frivolous. See Karam v. City of Burbank, 352 F.3d 1188, 1195 (9th Cir. 2003) (stating that a case is considered frivolous only when the result is obvious or the arguments are wholly lack merit); Goldberg v. Cameron, 2011 WL 3515899, at *3 (N.D. Cal. Aug. 11, 2011) (finding copyright infringement claim frivolous when ...