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Federal Rule of Civil Procedure 68 – Offer of Judgment:  A Useful Tool for Defendants Accused of Copyright Infringement

Federal Rule of Civil Procedure 68—a seemingly straightforward rule—provides a powerful, yet underutilized tool for any defendant, but particularly a defendant accused of infringing a copyright.
April 19, 2017

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By: Kyle Gottuso

Federal Rule of Civil Procedure 68—a seemingly straightforward rule—provides a powerful, yet underutilized tool for any defendant, but particularly a defendant accused of infringing a copyright. Rule 68, titled Offer of Judgment, states, in pertinent part, that a party “defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued.” Rule 68(a). The opposing party has 14 days to determine whether it wishes to accept the proposed offer. Rule 68(b). An accepted Offer of Judgment ends the case on the terms specified in the Offer. Things get interesting, however, when such an Offer is rejected.

The incentive to make and accept an Offer of Judgment—and what makes the Rule so effective—comes in part (d) of Rule 68, which states, “[i]f the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.” Rule 68(d) (emphasis added). In other words, if the offeree rejects the Offer of Judgment and then receives less than the offer at trial, the offeree must pay all post-offer costs (including the offeror’s costs).

A quick example highlights the impact of Rule 68 in a non-copyright context:

Defendant (the “Offeror”) in a patent infringement lawsuit makes an offer of judgment to Plaintiff (the “Offeree”) of $100,000, including all costs, on August 1, 2016. Offeree rejects the offer and the case proceeds to trial on December 1, 2016. At trial, the Offeree is awarded $90,000 in damages and it is determined that the Offeree had accrued $9,000 in costs as of August 1, 2016 (the date the Rule 68 Offer was made) and $10,000 in costs from August 2 to December 1, 2016. It is also determined that the Offeror had accrued $11,000 in costs from August 2 to December 1, 2016. The ultimate recovery of Offeree for purposes of Rule 68 is calculated by adding the damages awarded and the costs that had accrued as of the date of the offer, which equals $99,000 ($90,000 in damages + $9,000 in “costs then accrued” as of the date of the Offer). Under Rule 68, however, because the Offeree received less than the $100,000 Offer, the Offeree must pay its own post-offer costs of $10,000 and the Offeror’s post-offer costs of $11,000.

Because of Rule 68’s cost-shifting provision, a plaintiff may feel pressure to accept a Rule 68 offer, especially one made early in the case. Even if the Rule 68 Offer is not accepted, the defendant has provided itself a mechanism to seek its costs from the plaintiff in the event the plaintiff ultimately prevails at trial but receives less than the Offer.

While being responsible for traditional post-offer litigation costs (e.g., deposition costs, filing fees, transcripts, etc.) presents some risk to a plaintiff, this risk is amplified in the context of copyright litigation where the Copyright Act defines “costs” to include attorney fees:

In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States on an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney’s fees to the prevailing party as part of those costs.

15 U.S.C. § 505 (emphasis added). The effect of § 505 is that Rule 68(d)’s cost shifting provision now includes the shifting of attorney fees. See Marek v. Chesny, 473 U.S. 1, 9 (1985) (“[W]here the underlying statute defines ‘costs’ to include attorney’s fees, we are satisfied such fees are to be included as costs for purposes of Rule 68,” specifically noting the Copyright Act as such a statute). Thus, because prevailing copyright plaintiffs are often awarded their reasonable attorney fees, Rule 68 can act as a shutoff valve that stops the accrual of post-offer fees that a losing defendant would normally have to pay.

Again, an example demonstrates the impact of Rule 68, but this time in a copyright case:

Defendant (“Offeror”) in a copyright infringement lawsuit makes an offer of judgment to Plaintiff (“Offeree”) of $150,000, including all costs, on August 1, 2016. Offeree rejects the offer and the case proceeds to trial on December 1, 2016. At trial, Offeree is awarded $90,000 in damages and it is determined that Offeree had accrued $9,000 in costs and $50,000 in attorney fees as of August 1, 2016, and $10,000 in costs and $100,000 in attorney fees from August 2 to December 1, 2016. Offeror also accrued $10,000 in post-offer costs. The ultimate recovery of Offeree for purposes of Rule 68 is $149,000 ($90,000 in damages + $9,000 in pre-offer costs + $50,000 in pre-offer fees). Because Offeree received less than the $150,000 Offer, Offeree must pay its own post-offer costs, its own post-offer fees, and the Offeror’s post-offer costs. And, more importantly, as a result of the rejected Offer, the Offeror does not have to pay any of the Offeree’s $100,000 of fees accrued after August 1, 2016.

Based on the above example, it is clear that the ability to stop the accrual of post-offer fees with an early Offer of Judgment can provide a huge strategic benefit for a defendant in a copyright case.

The following question is then raised after reading Rule 68 and the Copyright Act: If an Offeree that receives less than the Offer of Judgment must pay both parties’ “costs,” and the Copyright Act defines attorney fees as “costs,” does the prevailing copyright Plaintiff/Offeree have to pay the losing Defendant’s/Offeror’s post-offer attorney fees? The answer to this question is . . . maybe. While such a conclusion may logically flow from a reading of Rule 68(d) in the context of § 505 of the Copyright Act, this question has created a split amongst the Circuit Courts.

For instance, the First, Seventh, Eighth, and Ninth Circuits have held that a prevailing Plaintiff/Offeree does not, in most circumstances, have to pay the Defendant’s/Offeror’s attorney fees in the above situation, while the Eleventh Circuit has held the opposite. See O’Brien v. City of Greers Ferry, 873 F.2d 1115, 1120 (8th Cir. 1989) (holding that a non-prevailing defendant’s post-offer attorney fees are generally not awardable ); see also Champion Produce, Inc. v. Ruby Robinson Co., Inc., 342 F.3d 1016, 1030-31 (9th Cir. 2003) (“Today we join the First and Seventh Circuits in holding that Rule 68 ‘costs’ do not include a non-prevailing defendant’s post-offer attorneys’ fees when the underlying statute awards attorneys’ fees to a prevailing party.”); Jordan v. Time, Inc., 111 F.3d 102, 105 (11th Cir. 1997) (awarding non-prevailing defendant its post-offer attorney fees).

Regardless of whether a defendant/offeror will receive its attorney fees after a rejected Rule 68 Offer, such an Offer is a powerful litigation tool that can reshape the parties’ expectations in a copyright infringement lawsuit. Being able to stop the plaintiff’s accrual of attorney fees provides strong incentive for the plaintiff to settle the litigation instead of continuing in an effort to be awarded its fees under § 505. This is particularly true if the Offer of Judgment is made early in the case before the plaintiff has accrued significant attorney fees. If nothing else, a Rule 68 Offer provides protection to a defendant from having to pay the plaintiff’s post-offer attorney fees and costs in a copyright litigation.

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