788 F.2d 151 (3rd Cir. 1986), 85-5401, Lieb v. Topstone Industries, Inc.

Docket Nº:85-5401.
Citation:788 F.2d 151
Party Name:U.S.P.Q. 426, 1986 Copr.L.Dec. P 25,920, 4 Fed.R.Serv.3d 638 Lloyd LIEB, trading as Specialized Cassettes, Appellee, v. TOPSTONE INDUSTRIES, INC., and D. Robbins & Co., Inc., Appellants.
Case Date:April 14, 1986
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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788 F.2d 151 (3rd Cir. 1986)

U.S.P.Q. 426,

1986 Copr.L.Dec. P 25,920, 4 Fed.R.Serv.3d 638

Lloyd LIEB, trading as Specialized Cassettes, Appellee,


TOPSTONE INDUSTRIES, INC., and D. Robbins & Co., Inc., Appellants.

No. 85-5401.

United States Court of Appeals, Third Circuit

April 14, 1986

Submitted Pursuant To Third Circuit Rule 12(6) Feb. 18, 1986.

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Andrew S. Langsam, Mandeville and Schweitzer, New York City, for appellants.

Joseph Scalia, Alan P. Fox, Berry, Kagan, Privetera & Sahradnik, Toms River, N.J., for appellee.

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Before WEIS and SLOVITER, Circuit Judges, and POLLAK, [*] District judge.


WEIS, Circuit Judge.

The district court granted summary judgment for defendants in this copyright infringement suit but denied statutory counsel fees without discussion. Because we are unable to determine whether the district court properly exercised its discretion, we will remand for an articulation of reasons. In an effort to assist the district courts, we review some of the factors pertinent to the award of fees under the Copyright Act as well as to the matter of sanctions under Fed.R.Civ.P. 11, which has also been invoked here.

Plaintiff had conceived the idea of an audio-cassette tape of sounds appropriate for Halloween. After producing and copyrighting his recording, titled "Haunted Horror," he entered into an agreement designating defendant Topstone Industries as the exclusive distributor. Topstone later terminated the contract and began marketing a similar Halloween cassette titled "Horror Sounds of the Night." After purchasing copies of the plaintiff's tape from Topstone, defendant D. Robbins & Co. sold those copies, as well as Topstone's "Horror Sounds" tape, to retail customers.

On learning of the defendants' activities, plaintiff filed a complaint in the district court alleging copyright infringement and pendent state law claims of breach of contract and bad faith.

During the course of discovery, plaintiff admitted he was not contending that any portion of Topstone's tape had been copied from the Haunted Horror production. Defendants moved for summary judgment, asserting that they had not violated the Copyright Act. In response, plaintiff argued that he believed in good faith that the defendant's tape was an "imitation of format, style, concept and content of plaintiff's copyrighted work" and would cause confusion in the public mind.

Defendants requested attorney's fees, contending that the copyright infringement claim was filed in bad faith, was frivolous, and should not have been brought after reasonable investigation.

The district court determined that the Copyright Act, 17 U.S.C. Sec. 114(b), precludes duplication of a "sound recording [through forms that] directly or indirectly recapture the actual sounds fixed in the recording." The court granted summary judgment, concluding that defendants had not violated the Act because the legislative history makes clear that deliberate imitation does not contravene the limited protection extended to recordings. When plaintiff was unable to assert the requisite monetary amount to support diversity jurisdiction, the court dismissed the pendent state law claims as well. The court also ruled, without stating any reason, that the "[d]efendants' motion for attorney's fees is denied."

On appeal, defendants contend that the district court abused its discretion in failing to award counsel fees under the Copyright Act, or in the alternative, pursuant to Fed.R.Civ.P. 11.


We note preliminarily that the denial of the defendants' fee request is a final order, and therefore we have jurisdiction over this appeal. 28 U.S.C. Sec. 1291; see, e.g., Jeff D. v. Evans, 743 F.2d 648 (9th Cir.1984), cert. granted, --- U.S. ----, 105 S.Ct. 2319, 85 L.Ed.2d 838 (1985). Where, as here, the district court disposes of both the substantive merits of the case and the request for counsel fees in the same order, we do not face the more difficult situation where the order on the merits is final but some aspect of the fees question remains pending. See White v. New Hampshire Dept. of Employment Sec., 455 U.S. 445, 102 S.Ct. 1162, 71 L.Ed.2d 325 (1982); West

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v. Keve, 721 F.2d 91 (3d Cir.1983); Badillo v. Central Steel & Wire Co., 717 F.2d 1160 (7th Cir.1983). See also Nelson v. Piedmont Aviation, Inc., 750 F.2d 1234 (4th Cir.1984).


Section 101 of the Copyright Act, 17 U.S.C. Sec. 505, states that "In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party .... [T]he court may also award a reasonable attorney's fee to the prevailing party as part of the costs." This section was enacted in 1976 as a part of the revision of the Copyright Act, but the Act of 1909 similarly provided that "the court may award to the prevailing party a reasonable attorney's fee as part of the costs." 17 U.S.C. Sec. 40.

Because the matter of fees under the Act is entrusted to the discretion of the district court, our standard of review is limited to determining whether that power has been abused. If the ruling of the court rests on factual findings, we may reverse only if they are clearly erroneous. If the trial court decided the issue on a legal precept, our review is plenary.

As the prevailing parties, defendants have made out a case for consideration of an award. Because we are not aware of the basis on which the district court ruled, however, we are unable to perform our appellate function, and therefore must remand.

The statutory language provides that the allowance of fees to the prevailing party is not mandated in every case but is entrusted to the evaluation of the district court. The proper limits within which that discretion must be exercised remain unclear despite more than three-quarters of a century of experience with the statute.

Cases in the Court of Appeals for the Ninth Circuit have established a finding of bad faith as a prerequisite for a grant of fees. Cooling Systems and Flexibles, Inc. v. Stuart Radiator, Inc., 777 F.2d 485, 493 (9th Cir.1985); Jartech, Inc. v. Clancy, 666 F.2d 403, 407 (9th Cir.1982). The Court of Appeals for the Eleventh Circuit has taken a less restrictive position. In Original Appalachian Artworks, Inc. v. Toy Loft, Inc., 684 F.2d 821, 832 (11th Cir.1982), the court concluded that "a showing of bad faith or frivolity" is not required for an award. The "only preconditions ... [are] that the party receiving the fee be the 'prevailing party' and that the fee be reasonable." Id. at 832.

The decisions of other courts of appeals fall somewhere between these two extremes. In Eisenschiml v. Fawcett Publications, Inc., 246 F.2d 598, 604 (7th Cir.1957), the court reversed an award in favor of the defendant where the plaintiff had presented "a very close question." More recently that court found no abuse of discretion in a fee assessment where "there was abundant evidence that the infringement was willful." Taylor v. Meirick, 712 F.2d 1112, 1122 (7th Cir.1983).

The Court of Appeals for the Second Circuit appears to be shifting its standards. In Edward B. Marks Music Corp. v. Continental Record Co., 222 F.2d 488, 493 (2d Cir.1955), that court denied fees to a defendant, noting that the litigation "was not vexatious but involved a novel question of statutory interpretation." The court also found "no basis for questioning the good faith of the plaintiff." Id. A divided panel affirmed an imposition of fees in Mailer v. RKO Teleradio Pictures, Inc., 332 F.2d 747, 749 (2d Cir.1964), where the district court had found that although the plaintiff technically "had a legal argument," his claim was "unreasonable" and the court questioned whether it "was good as a matter of conscience."

The court adopted a double standard in Diamond v. Am-Law Publishing Corp., 745 F.2d 142 (2d Cir.1984), deciding that prevailing plaintiffs generally should receive attorney's fees, but a defendant should recover only if the plaintiff's claims are "objectively without arguable merit." Id. at 148. Subjective bad faith as a prerequisite was held to be unnecessary. The court based its newly found need for differentiation

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on a public policy to discourage infringement and to encourage plaintiffs to press "colorable" copyright claims. To the same effect, see Grosset & Dunlap, Inc. v. Gulf & Western Corp., 534 F.Supp. 606 (S.D.N.Y.1982).

The Diamond case was roundly criticized in Cohen v. Virginia Electric & Power Co., 617 F.Supp. 619 (E.D.Va.1985). That court found no support in the statutory language, legislative history, or policy considerations for anything other than an evenhanded approach. Finding no objective bad faith but noting that the "plaintiff lost and deserved to lose," the court awarded fees to the defendant, commenting however on the necessity for eliminating excessive charges. Id. at 623.

Precedents in this court are notable for their absence. The district judge in Harms, Inc. v. Sansom House Enterprises, Inc., 162 F.Supp. 129, 136-37 (E.D.Pa.1958), awarded a modest fee to the...

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