Lotus Development Corp. v. Borland Intern., Inc.

• Decision Date: 09 January 1998
• Docket Number: Nos. 97-1399,97-1857,s. 97-1399
• Citation: 140 F.3d 70
• Parties: 1998 Copr.L.Dec. P 27,778, 46 U.S.P.Q.2d 1774 LOTUS DEVELOPMENT CORPORATION, Plaintiff, Appellee, v. BORLAND INTERNATIONAL, INC., Defendant, Appellant, LOTUS DEVELOPMENT CORPORATION, Plaintiff, Appellee, v. BORLAND INTERNATIONAL, INC., Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 70

140 F.3d 70

1998 Copr.L.Dec. P 27,778, 46 U.S.P.Q.2d 1774

LOTUS DEVELOPMENT CORPORATION, Plaintiff, Appellee, v. BORLAND INTERNATIONAL, INC., Defendant, Appellant, LOTUS DEVELOPMENT CORPORATION, Plaintiff, Appellee, v. BORLAND INTERNATIONAL, INC., Defendant, Appellant.

Nos. 97-1399, 97-1857.

United States Court of Appeals First Circuit.

Heard Jan. 9, 1998.

Decided May 15, 1998.

Gary L. Reback, with whom Michael Barclay, Colleen Bal, Wilson Sonsini Goodrich & Rosati, Palo Alto, CA, Peter E. Gelhaar, Katherine L. Parks, Donnelly, Conroy & Gelhaar, LLP, Boston, MA, Steven Brower, and Ginsburg, Stephan, Oringher & Richman, Costa Mesa, CA, were on brief, for appellant.

Henry B. Gutman with whom Simpson Thacher & Bartlett, Kerry L. Konrad, and Lori E. Lesser, New York City, were on brief, for appellee.

Before STAHL, Circuit Judge, CAMPBELL, Senior Circuit Judge, and LYNCH, Circuit Judge.

STAHL, Circuit Judge.

Defendant-appellant Borland International, Inc. ("Borland") appeals from the district court's order denying its motion for attorney's fees and costs incurred during extended litigation concerning its alleged infringement of plaintiff-appellee Lotus Development Corporation's ("Lotus") copyright in a computer program, Lotus 1-2-3. Borland, the prevailing party in this copyright infringement action, now claims that the district court abused its discretion in declining to award fees. We affirm.

I. Background

Lotus 1-2-3 is a spreadsheet computer program that enables users to perform various functions and calculations. In 1987, Borland released spreadsheet programs Quattro and Quattro Pro, which competed with Lotus 1-2-3 and contained virtually identical copies of the 1-2-3 menu command hierarchy. The inclusion of this so-called "menu tree" from Lotus 1-2-3 prompted the instant litigation in 1990, the substance of which is set forth in our prior opinion. See Lotus Dev. Corp. v. Borland Int'l, Inc., 49 F.3d 807, 810-811 (1st Cir.1995). Here we recite only the facts pertinent to the present appeal.

The hard-fought litigation below resulted in four separate district court opinions (Keeton, U.S.D.J.), culminating in the district court's conclusion that the 1-2-3 menu tree contained copyrightable expression and that Borland had thus infringed Lotus's copyrights in Lotus 1-2-3. ¹ On March 9, 1995, we reversed, holding as a matter of first impression that the 1-2-3 menu command hierarchy was an uncopyrightable "method of operation" under 17 U.S.C. § 102(b). See 49 F.3d at 813-18. Subsequently, the Supreme Court granted Lotus's petition for certiorari but deadlocked on the merits, resulting in an affirmance by an equally divided Court. See 516 U.S. 233, 116 S.Ct. 804, 133 L.Ed.2d 610 (1996).

After the Supreme Court proceedings, Borland filed a motion for attorney's fees and "full costs" as the prevailing party pursuant to 17 U.S.C. § 505. Borland claimed that, as a result of Lotus's suit, it had incurred over $11 million in attorney's fees, $7.5 million in expert fees, and $1.6 million in other costs. It sought reimbursement for all of these expenses. Following oral argument, the district court (Woodlock, U.S.D.J.) denied Borland's motion. ² As we explicate below, the district court reasoned, in essence, that Lotus and Borland had litigated a novel and unsettled question of copyright law in order to protect their own economic interests, and thus under Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994)(interpreting 17 U.S.C. § 505), an award of fees was not warranted. Borland now appeals this ruling.

II. Discussion

Pursuant to 17 U.S.C. § 505, the district "court in its discretion may allow the recovery of full costs by or against any party.... The court may also award a reasonable attorney's fee to the prevailing party as part of the costs." We will disturb a ruling under section 505 only if the record persuades us that the trial court "indulged a serious lapse in judgment." Texaco P.R., Inc. v. Department of Consumer Affairs, 60 F.3d 867, 875 (1st Cir.1995).

In Fogerty, the Supreme Court rejected the "dual standard" for the award of fees, then in effect in many circuits, which allowed prevailing plaintiffs to recover attorney's fees almost automatically under section 505, but which required prevailing defendants to demonstrate that the plaintiff's claims were frivolous or brought in bad faith. See 510 U.S. at 534, 114 S.Ct. at 1033. Finding no basis for the disparate treatment of plaintiffs and defendants in the text of section 505, the Fogerty Court held that district courts should exercise their equitable discretion to award fees in an even-handed manner, and with the goal of vindicating the overriding purpose of the Copyright Act: to encourage the production of original literary, artistic, and musical expression for the public good. See id. at 524, 534, 114 S.Ct. at 1028, 1033. Rather than formulate a specific standard for district courts to apply, the Court identified a list of nonexclusive factors that district courts may consider, such as "frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in some cases to advance considerations of compensation and deterrence." Id. at 534 n. 19, 114 S.Ct. at 1033 n. 19 (citing Lieb v. Topstone Indus., Inc. 788 F.2d 151, 156 (3d Cir.1986)). Notably, the Fogerty Court eschewed arguments that courts should employ the so-called "British rule," which mandates the award of attorney's fees to prevailing parties. See id. at 534, 114 S.Ct. at 1033.

In denying Borland's fee application, the district court reasoned, in part, as follows:

Fogerty opened the possibility of the shifting of attorney's fees, but it did not embrace a regime of the automatic award of attorney's fees. Rather it recognized that there is to be undertaken an exercise of equitable discretion for which there is no precise formula.

. . . . .

What we dealt with here is a case dealing with what I call the open-textured dimensions of the copyright law in which the interstices were quite broad and in which judges attempted to knit a fabric that maintained the integrity of copyright law itself.... [T]here was merit on both sides, and [the court of appeals was] dealing with an area that was ... moving copyright law into a relatively uncharted area that would benefit from further directions from Congress and in which both parties had an important economic interest.

I find that the claims made by Lotus were meritorious. I also find that this is a case in which the various judges ... had different views....

. . . . .

And so, while I find that this was not frivolous, [and that] the claims were objectively reasonable ... that we deal with a quite unique set of circumstances as to which the larger directions of Fogerty are not to make an award of attorney's fees....

The district court then considered whether an award was warranted in light of the other factors mentioned in Fogerty: motivation, compensation, and deterrence. Finding that these factors did not militate in favor of an award, the court denied fees.

Borland mounts both legal and factual challenges to the district court's decision. We turn first to Borland's claims of legal error. Borland asserts that the court applied the Fogerty standard incorrectly because it placed two factors, the non-frivolous nature of the plaintiff's claims and their objective reasonableness, above all other considerations. Borland contends that when corporate giants litigate important copyright questions of first impression, the resulting lack of frivolousness and objective unreasonableness will invariably preclude a prevailing defendant from obtaining attorney's fees. This reasoning, Borland concludes, is no different from the "dual standard" rejected in Fogerty, and thus, under Fogerty and Edwards v. Red Farm Studio Co., 109 F.3d 80 (1st Cir.1997), the district court's analysis is legally erroneous.

Although we agree with Borland that defendants are no longer required as a matter of law to demonstrate culpable behavior on the plaintiff's part, see Fantasy v. Fogerty, 94 F.3d 553, 558 (9th Cir.1996), we disagree with Borland's characterization of the district court's reasoning. Had the district court taken such a hard line, Borland would have a strong argument. In Edwards, we reversed the denial of attorney's fees to a prevailing defendant because the district court had required a showing of bad faith or frivolousness. See 109 F.3d at 82. The district court here, however, committed no such error. Rather, it is evident that the court recognized that under Fogerty a showing of culpability is not a prerequisite for awarding fees: after concluding that Lotus's claims were neither frivolous nor objectively unreasonable, the court went on to consider the remaining Lieb factors. The district court merely reasoned, in part, that when a plaintiff prosecutes an action in good faith, in an unsettled area of law, and with a reasonable likelihood of success, against a party with similar financial resources, the prevailing party's case for attorney's fees is weaker, whether it be a plaintiff or a defendant. This view has a long history in copyright law, see, e.g., McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 322 (9th Cir.1987); Official Aviation Guide Co. v. American Aviation Assocs., 162 F.2d 541, 542 (7th Cir.1947), and in no way conflicts with Fogerty 's command to treat prevailing plaintiffs and defendants even-handedly. As a result, we see no basis for concluding that the district court applied an incorrect legal standard.

Borland next contends that the district court committed legal error by relying on the Supreme Court's affirmance by an equally divided court to buttress its conclusion that Borland narrowly prevailed on the merits. Borland argues that the inference made by the court, that four Justices of the Supreme Court were ready to reverse our opinion on the...