Lotus v. Borland

• Court: Court of Appeals for the First Circuit
• Decided: May 18, 1998
• Docket: 97-1399
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 97-1399



                  LOTUS DEVELOPMENT CORPORATION,



                       Plaintiff, Appellee,



                                v.



                   BORLAND INTERNATIONAL, INC.,



                      Defendant, Appellant,



No. 97-1857



                 LOTUS DEVELOPMENT CORPORATION,

                                

                      Plaintiff, Appellee,

                                

                              v. 

                                

                  BORLAND INTERNATIONAL, INC.,

                                

                     Defendant, Appellant.


APPEALS FROM THE UNITED STATES DISTRICT COURT

                                

               FOR THE DISTRICT OF MASSACHUSETTS

                                

        [Hon. Douglas P. Woodlock, U.S. District Judge]


Before

                                

                      Stahl, Circuit Judge,

                Campbell, Senior Circuit Judge,

                   and Lynch, Circuit Judge.


Gary L. Reback, with whom Michael Barclay, Colleen Bal, Wilson

Sonsini Goodrich & Rosati, Peter E. Gelhaar, Katherine L. Parks,

Donnelly, Conroy & Gelhaar, LLP, Steven Brower, and Ginsburg,

Stephan, Oringher & Richman, were on brief for appellant.

     Henry B. Gutman with whom Simpson Thacher & Bartlett, Kerry L.

Konrad, and Lori E. Lesser were on brief for appellee.


May 15, 1998


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.  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.  See516 U.S. 233 (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.   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

(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.  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.  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

(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.

 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 Fogertystandard 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 merits, is legally incorrect

because there is no way to ascertain the position of the Justices

on the merits of the litigation.   

 The relevance of this objection to our present analysis

is not obvious to us.  At points, the court did refer to the split

on the Supreme Court as some evidence that Lotus's claims had merit

and thus were objectively reasonable.  To the extent that Borland

challenges this finding, its challenge is unpersuasive.  The fact

remains that Lotus filed this action only after prevailing on a

virtually identical claim that was never appealed against a

different software company.  See Lotus Dev. Corp. v. Paperback

Software Int'l, 740 F. Supp. 37 (D. Mass. 1990) (Keeton, U.S.D.J.). 

Although we ultimately held to the contrary, we cannot say that

Lotus's initial decision to rely on Paperback was objectively

unreasonable.  Regardless of the meaning of the Supreme Court's

narrow affirmance, the district court's conclusion that Lotus's

chief claim was objectively reasonable is certainly a permissible

one. 

 Borland also contends that the district court's

application of the various Lieb factors was clearly erroneous.  SeeLieb, 788 F.2d at 156.  The court found that neither party had an

improper motivation in litigating the case, reasoning that both

parties had important economic interests in the litigation and that

there were "no clear signs for judicial determination."  The court

also held that the need to advance considerations of compensation

and deterrence did not militate in favor of a fee award.  The court

found no "oppression by one party over the other in the ability to

use their financial wherewithal to affect the litigation" and

concluded that when "the parties are litigating a matter of some

importance to the copyright laws, there is no need for deterrence." 

 Borland now contends that the district court erred by

ignoring Lotus's alleged anti-competitive purposes in bringing the

litigation, relying impermissibly on Borland's refusal to settle the

case, and discounting the importance of encouraging copyright

defendants to assert meritorious defenses.  Borland notes that it

advanced the interests of copyright law by litigating this case all

the way through the Supreme Court against an unusually wealthy

plaintiff.  It also contends that the "vindication" of its own

copyright in Quattro Pro increased the availability of copyrighted

works.  Borland concludes that "if ever there were a situation where

the assertion of meritorious defenses should be encouraged, it is

a case involving issues of first impression."   

 None of these contentions provides a basis for overriding

the denial of fees and costs.  Both sides proffered evidence on the

issue of whether Lotus had intended to use this litigation to

bankrupt Borland and thus maintain its dominant position in the

spreadsheet market.  We cannot say, on the record before us, that

the presence of an impermissible motive on Lotus's part is so clear

that a contrary conclusion could not reasonably be reached.  After

all, copyright law often delineates the boundaries of economic

competition.  See, e.g., Feist Publications, Inc. v. Rural Tel.

Servs., 499 U.S. 340, 349 (1990) (holding that the plaintiff's

telephone directory lacked originality and thus copyright law did

not bar defendant from copying the information to create a competing

product).  Arguably, there is nothing inherently improper about

bringing a claim that is well-founded in law and fact against one's

competitors, even when legal action, if successful, will inflict

severe economic consequences upon them. 

 As for the district court's consideration of the parties'

settlement negotiations, the court did note in its discussion of the

motivation factor that "more careful evaluators of the expense of

litigation might have chosen not to spend" the money to litigate the

case.  This statement does give us some concern.  Copyright

defendants with strong legal or factual defenses should not be

deterred from litigation by the possibility that their refusal to

settle an invalid claim will be held against them after they

prevail.  Such reasoning would conflict with Fogerty's direction

that the award of fees should encourage copyright defendants to

assert meritorious defenses.  See 510 U.S. at 527.  We are

confident, however, that the court's casual observation regarding

the costs of litigation was not material to its ultimate

determination.  Rather, the court relied squarely on the parties'

clear economic interests in pursuing the litigation, about which

there is little to dispute.

 Turning to the need to encourage meritorious defenses, a

copyright defendant's success on the merits in a case of first

impression may militate in favor of a fee award, but we are

unwilling to hold that a successful defense in an important case

necessarily mandates an award of attorney's fees.  When close

infringement cases are litigated, copyright law benefits from the

resulting clarification of the doctrine's boundaries.  But because

novel cases require a plaintiff to sue in the first place, the need

to encourage meritorious defenses is a factor that a district court

may balance against the potentially chilling effect of imposing a

large fee award on a plaintiff, who, in a particular case, may have

advanced a reasonable, albeit unsuccessful, claim.  Fogerty made

clear that courts are to evaluate cases on an individualized basis,

with the primary responsibility resting on the shoulders of the

district judge.  Regardless of whether we would have approached the

matter similarly, we are unable to say that the district court's

analysis strikes us as an abuse of that discretion. 

 Borland's final contentions--that the district court

erred by ignoring Borland's "vindication" of its own copyrighted

computer program and Lotus's unusual wealth--are unpersuasive.   As

a basis for awarding fees, we see no meaningful distinction between

Borland's vindication of its own copyrighted work and its assertion

of a meritorious defense.  The latter necessarily implies the

former.  In addition, the district court supportably found that both

parties were financially able to litigate this important case. 

Lotus's unusual wealth in no way alters this conclusion. 

 As an alternative to its argument for all its fees and

costs, Borland claims that the district court erred by not awarding

Borland fees and costs attributable to those portions of the case

in which Lotus's conduct was objectively unreasonable. 

Specifically, Borland claims it was objectively unreasonable for

Lotus (1) to litigate the "functional constraints" issue, seeBorland II, 799 F. Supp. at 221; Borland III, 831 F. Supp. at 207;

(2) to add the "Key Reader" claim in the midst of the case, seeBorland IV, 831 F. Supp. at 230-31; and (3) to prosecute a trial on

damages during the pendency of Borland's successful appeal.   

 The district court denied Borland's motion for "full

costs" covering the entire litigation, but did not explicitly rule

Borland's alternative request for "partial" fees and costs.   The

issue of awarding partial fees was, however, argued at some length

during the hearing on Borland's motion, which indicates that the

district court considered Borland's arguments.  Although the

district court's silence is troubling, we think it implicit that his

decision that no fees are warranted for the entirety of the case

necessarily encompasses Borland's request for fees resulting from

individual parts of the litigation.  In addition, there is no

suggestion in the district court's opinion that it was under the

legally erroneous impression that an award of partial fees was not

allowable under section 505.   

 This case is close, particularly in the lack of analysis

on Borland's partial fee request.  If the district court had

decided to award at least some fees, it is difficult to see how that

decision would have been an abuse of discretion either.  But the

decision to award fees is not a decision committed to the appellate

court in the first instance.  We are thus limited to saying only

that the district court did not abuse its discretion in its

decision. 

 Affirmed.  No costs to either party.