Energy Intelligence Grp., Inc. v. Kayne Anderson Capital Advisors, L.P.

• Decision Date: 15 January 2020
• Docket Number: cons w/18-20615,No. 18-20350,18-20350
• Citation: 948 F.3d 261
• Parties: ENERGY INTELLIGENCE GROUP, INCORPORATED; Energy Intelligence Group (UK) Limited, Plaintiffs - Appellants Cross-Appellees v. KAYNE ANDERSON CAPITAL ADVISORS, L.P.; K.A. Fund Advisors, L.L.C., Defendants - Appellees Cross-Appellants Energy Intelligence Group, Incorporated; Energy Intelligence Group (UK) Limited, Plaintiffs - Appellants v. Kayne Anderson Capital Advisors, L.P.; K.A. Fund Advisors, L.L.C., Defendants - Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

948 F.3d 261

ENERGY INTELLIGENCE GROUP, INCORPORATED; Energy Intelligence Group (UK) Limited, Plaintiffs - Appellants Cross-Appellees

v.KAYNE ANDERSON CAPITAL ADVISORS, L.P.; K.A. Fund Advisors, L.L.C., Defendants - Appellees Cross-Appellants

Energy Intelligence Group, Incorporated; Energy Intelligence Group (UK) Limited, Plaintiffs - Appellants

v.Kayne Anderson Capital Advisors, L.P.; K.A. Fund Advisors, L.L.C., Defendants - Appellees

No. 18-20350

cons w/18-20615

United States Court of Appeals, Fifth Circuit.

FILED January 15, 2020

Robert L. Powley, Stephen Matthew Ankrom, Powley & Gibson, P.C., New York, NY, George R. Gibson, Nathan Sommers Jacobs, David M. Gunn, Beck Redden, L.L.P., Houston, TX, for Plaintiff - Appellants Cross-Appellees.

Jason E. Mueller, Galyn Dwight Gafford, Sheppard Mullin Richter & Hampton, L.L.P., Roy W. Hardin, W. Scott Hastings, Esq., Locke Lord, L.L.P., Dallas, TX, Edward Louis Friedman, Esq., Baker & Hostetler, L.L.P., Houston, TX, for Defendant - Appellees Cross-Appellants.

Andrew Grimm, Attorney, Digital Justice Foundation, Omaha, NE, for Amicus Curiae DIGITAL JUSTICE FOUNDATION.

Maria Amelia Calaf, Wittliff Cutter, P.L.L.C., Austin, TX, for Amici Curiae for SOFTWARE PUBLISHERS ASSOCIATION, ASSOCIATION OF AMERICAN PUBLISHERS, INCORPORATED.

Before KING, HIGGINSON, and DUNCAN, Circuit Judges.

STEPHEN A. HIGGINSON, Circuit Judge:

Plaintiffs Energy Intelligence Group, Inc. and Energy Intelligence Group (UK) Limited ("EIG") collectively publish information and news relevant to the global energy industry. One of EIG's publications is Oil Daily , a daily newsletter that provides news and analysis about the North American petroleum industry.

Defendants Kayne Anderson Capital Advisors, LP and Kayne Anderson Fund Advisors, LLC ("KA") collectively are a boutique investment firm. Energy securities make up a substantial part of KA's business. In 2004, KA began purchasing an annual Oil Daily subscription for KA partner James Baker. Between 2004 and 2014, Baker routinely shared his Oil Daily access with fellow KA employees and other third parties in violation of his subscription agreements and copyright law. KA attempted to keep EIG from discovering these activities, including by saving and sending Oil Daily as a file named "123."

In July 2014, EIG filed suit alleging numerous instances of copyright infringement and violations of the Digital Millennium Copyright Act ("DMCA"). As relevant to this appeal, KA's defense rested on two theories: (1) EIG learned of KA's infringement in 2007 but did nothing to investigate or dissuade KA; and (2) EIG knew that many of its subscribers improperly distributed its newsletters but consciously declined to crack down on such sharing because litigating copyright claims against large clients was more profitable. The district court rejected KA's equitable estoppel and unclean hands defenses at summary judgment but allowed KA to proceed with a mitigation defense. The district court held that "a reasonable fact-finder could infer ... that the subsequent alleged infringement could have been avoided."

In March 2017, EIG confirmed to KA that it would seek statutory damages on all claims. EIG then filed a pretrial memorandum arguing that KA could not invoke mitigation as a complete defense—in other words, regardless of whether EIG could reasonably have avoided or prevented KA's acts, EIG should receive damages within the mandated ranges for each infringed work and each DMCA violation.¹ On December 6, 2017, during trial, the district court orally overruled EIG's argument. In May 2017, KA moved for referral to the Copyright Office, alleging that EIG's copyright registrations were based on inaccurate applications. In July 2017, the district court denied KA's referral motion after finding no inaccuracies in EIG's applications.

At trial in December 2017, KA persuaded the jury that EIG could reasonably have avoided almost all the copyright and DMCA violations at issue. EIG took nothing for those violations and received $15,000 in statutory damages for 39 infringed works, which amounted to approximately half a million dollars. Based on the Copyright Act's and DMCA's fee-shifting provisions, as well as KA's Rule 68 motion, the district court awarded EIG $2.6 million in attorney's fees and $21,000 in costs.² Both parties timely filed notices of appeal and their appeals were consolidated.

The issue presented in EIG's appeal is one of first impression: whether failure to mitigate is a complete defense to liability for statutory damages under the Copyright Act and the DMCA. The parties agree that EIG's failure to mitigate is a relevant factor in deciding what statutory damages ought to be imposed, but they disagree over whether failure to mitigate can preclude liability altogether. EIG says it cannot and urges the court to instate an award of $25,752,500 ($15,000 for each of 1,646 works infringed plus $2,500 for each of 425 DMCA violations) in EIG's favor. KA counters that mitigation is a complete defense to liability and that the district court's award of $585,000 in statutory damages was appropriate.

Two other issues are raised in KA's appeal. First, KA contends that the district court erred in denying its § 411 motion for referral to the Copyright Register. Second, KA argues that it should have received post-offer attorney's fees under Rule 68.

We hold that failure to mitigate is not a complete defense to copyright or DMCA claims for statutory damages; the district court properly denied KA's referral motion; and the district court properly denied KA's post-offer attorney's fees under Rule 68. Remand is necessary to determine copyright damages because we cannot determine whether the jury intended to award EIG $15,000 per infringed work. Remand is also necessary to re-calculate appropriate awards, attorney's fees, and costs. If total damages ultimately amount to more than $5 million (KA's Rule 68 offer), KA may no longer be eligible to recover post-offer costs.

We AFFIRM the district court's denial of KA's § 411(b) referral motion. We VACATE the judgment in full and instate an award of $1,062,500 for EIG's DMCA claims. We REMAND as to copyright damages, attorney's fees, and costs, with the clarification that non-prevailing copyright and DMCA defendants may not recover post-offer attorney's fees under Rule 68.

I.

A. Pre-Suit Factual Background

Baker started working for KA in 2004 and began subscribing to Oil Daily shortly thereafter. At the time, approximately four other professionals worked in Baker's office. Baker initially accessed Oil Daily by logging in to EIG's website with a username and password, which he shared with his co-workers so that they could also access the publication.

Oil Daily was always marked with copyright notices and warnings compliant with the notice requirements of 17 U.S.C. § 401. Each newsletter contained a copyright notice on the front cover and masthead.

In January 2007, KA employee Ron Logan had trouble accessing Baker's EIG account. On January 3, 2007, Baker's assistant Diana Lerma emailed EIG representative Deborah Brown for assistance, forwarding a KA internal email stating, "Ron ... was not able to access your [Baker's] oil daily." Brown noticed the reference to "Ron" accessing Baker's account. She testified in her deposition that this "would send up a red flag that more than the authorized user was accessing it" and recalled that she "probably escalated the issue" to her supervisors at EIG.

Just a few hours later that day, EIG employee Peter Buttrick called Lerma to discuss KA's subscription. After the call, Buttrick indicated by email to Mark Hoff, EIG's Vice President of Sales, that he had just spoken with Lerma "[o]n the copyright issue – I discussed the severity of the issue and advised her to schedule a call with her boss, Jim Baker[,] ... and I as soon as possible to discuss options." On KA's side, Lerma emailed Baker:

One hiccup: they want to know how many users we have. They said that we need to confirm that you'd be the only [sic ] accessing the information; otherwise we would be "sharing" and that is against their policy. Each additional user is $1554 annually. They have recently found multiple users on one account and then gone back to charge that company for the excess. So they want to give us a heads up to avoid this happening to us. What do you propose? Say 3 users so that you can continue your access and then add myself and Ron? Or just you and I and just tell the others not to go online to avoid tracking anything back to us via the email addresses.

Baker instructed Lerma to "[h]ave them [EIG] email the document to me on a daily basis. No web-based access. Please forward the document to the rest of the group." Thereafter, Baker began receiving Oil Daily as an emailed PDF, which his assistants regularly forwarded to other KA employees.

KA upgraded its subscription in 2013 to allow five authorized users and continued subscribing to Oil Daily through 2014. However, the number of KA employees accessing Oil Daily far exceeded five. By 2014, 20 people in the office regularly received the newsletter.

Besides sharing Oil Daily internally within KA, Baker's assistants also sometimes forwarded Oil Daily to third party non-subscribers. For example, KA employee Jennifer Rodgers regularly emailed copies of Oil Daily to a company called Crestwood Midstream Partners. In doing so, she named each file "123," seemingly at both Lerma's instruction and Crestwood's request to avoid detection by EIG.³ By contrast, when EIG emails Oil Daily as a PDF to its subscribers, the PDF is named in the format "DE" followed by the date in YYMMDD format. At trial, EIG identified 425 instances where KA had sent Oil Daily files named "123" to other entities.

On February 5, 2014, in response to a request for information by EIG, KA employee Ana Pope ingenuously informed EIG Account Manager Derrick Dent,

The Oil Daily is sent to one person in the office, Jim Baker. He usually gets it the

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