IP Law Daily, COPYRIGHT—E.D. Va.: BMG wins nearly $8.5M in fees and costs in suit against Cox, (Feb 15, 2017)

By Thomas Long, J.D.

Music publisher BMG Rights Management was entitled to an award of attorney fees of over $8.3 million and additional costs of over $140,000, which it incurred in successfully pursuing copyright infringement claims against Internet service provider Cox Communications, the federal district court in Alexandria, Virginia, has decided. Cox’s arguments in its defense were objectively unreasonable, and a fee award would serve a deterrent purpose, as well as ensuring that BMG was adequately compensated. The court reduced the requested fee award by 20 percent, due to improper billing entries and a reduced degree of success, and it held that BMG could not recover nontaxable litigation expenses. Cox was not entitled to an award of fees incurred in its defense against a co-plaintiff record company that was dismissed from the case due to lack of copyright ownership; in the court’s view, Cox was not the prevailing party for purposes of the fee-shifting provision of 17 U.S.C. §505 with respect to that party’s claims (BMG Rights Management (US) LLC v. Cox Communications, Inc., February 14, 2017, O’Grady, L.).

Cox was found liable for engaging in willful contributory copyright infringement, based on direct infringement committed by subscribers who illegally downloaded 1,397 copyrighted songs. BMG was awarded $25 million in statutory damages. Before trial, the court had determined that Cox was not entitled to safe harbor protection under the Digital Millennium Copyright Act (DMCA) because it did not implement a repeat infringer policy. The court also decided that co-plaintiff Round Hill Music LP did not hold sufficient copyrights in any of the songs at issue because it had been hired to provide services related to copyrights that it did not own. Round Hill was dismissed from the case for lack of standing. BMG moved for an award of fees against Cox; Cox moved for an award of fees against Round Hill.

BMG’s eligibility for fees. The parties did not dispute that BMG was a prevailing party for purposes of Section 505. Cox argued that a fee award was not warranted because its litigation positions were objectively reasonable and served to clarify an important and novel area of the law. The court disagreed, stating that Cox made specific arguments in favor of its legal positions that were objectively unreasonable. Moreover, all the other factors in the analysis went against Cox.

The court noted that Cox’s DMCA safe harbor defense lacked a basis in fact. Cox unreasonably attempted to obscure its practice of reinstating infringing customers. Cox also engaged in discovery abuses that hindered BMG’s ability to obtain facts regarding Cox’s DMCA-related practices. When the facts eventually came to light, it was apparent that Cox had no basis to pursue and "vigorously defend" its litigation position.

Cox’s willfulness could not be seriously contested, the court said. There was ample evidence that Cox acted in reckless disregard to BMG’s copyrights, or with willful blindness. Therefore, fees were appropriate to deter future infringements. The jury verdict was not sufficient compensation for BMG; the jury had not been instructed to consider attorney fees. Although the jury awarded $25 million in damages, BMG incurred more than $10 million in attorney fees. Without a fee award, the cost of litigating the case would erode approximately 40 percent of the verdict. Finally, the court reasoned that BMG should be rewarded for taking a "huge risk" asserting its rights against Cox, a defendant with deep pockets. The factors all weighed in favor of granting BMG’s motion for fees.

Calculation of award. With respect to the calculation of the proper lodestar amount, the parties disputed the reasonableness of the hourly rates and the hours spent on the case. The case was complex, hard-fought, and presented novel issues of law, the court noted. The case required sophisticated counsel, justifying an increased range of fee rates. Accordingly, the court decided that the rates claimed by BMG were reasonable. The court also stated that the hours claimed by BMG’s attorneys were "largely reasonable," but it found that the hours expended were duplicative in many instances. BMG did not demonstrate that the work could not have been performed by fewer attorneys than the 13 it employed; therefore, a reduction in the total fee was warranted. In addition, some of the billing entries were too vague for the court to assess their reasonableness. Therefore, the court assessed a 10 percent reduction on the total fees claimed. The court assessed an additional 10 percent reduction due to BMG’s reduced degree of success in the litigation—specifically, for its failure to secure a judgment of vicarious liability and its failure to obtain a permanent injunction. Applying the hourly rates to the billed hours, and assessing the 20 percent reduction, the court arrived at a total fee amount of $8,383,468.06.

BMG’s expenses and costs. BMG sought $2.9 million in nontaxable expenses, such as travel costs, expert witness fees, and legal research costs. These fees were not recoverable under Section 505, the court said. BMG was, however, awarded costs for clerk fees, trial and deposition transcripts, and costs related to trial exhibits. The amount awarded was reduced by 10 percent, due to BMG’s reduced success in the case, for a final award of $146,790.96.

Cox’s eligibility for fees. Cox argued that it was a prevailing party under Section 505 with respect to the claims brought by Round Hill, based on Round Hill’s dismissal for lack of standing. Section 505 contemplated a single prevailing party, the court said; that is, only one side of a cause of action could prevail. In this case, BMG was the winner of the lawsuit. BMG and Round Hill were represented by the same counsel and brought the same claims against Cox in a unified complaint. The allegations of infringement involved an intertwined set of facts. The dismissal of Round Hill was without prejudice and, in the court’s view, was "something far less than triumphant." The preclusive effect of the decision would likely be contested and limited in any future proceeding. Another Round Hill affiliate—the one with legal ownership of the copyrights—could still bring the exact same case against Cox, the court noted. In fact, if Round Hill effected a proper transfer of full copyright ownership to itself, it could likely bring another suit on the same facts. Therefore, Cox was not eligible for fees.

The case is No. 1:14-cv-1611(LO/JFA).

Attorneys: Jeremy David Engle (Steptoe & Johnson LLP) and Walter Dekalb Kelley, Jr. (Hausfeld LLP) for BMG Rights Management [US] LLC and Round Hill Music LP. Craig Crandall Reilly (Law Office of Craig C. Reilly) for Cox Communications, Inc. and CoxCom, LLC

Companies: BMG Rights Management [US] LLC; Round Hill Music LP; Cox Communications, Inc.; CoxCom, Inc. d/b/a Cox Communications of Northern Virginia

Cases: Copyright TechnologyInternet VirginiaNews