Monday, May 9, 2011

More, Yes More!, On Rule 68

For no good reason, I'm adding still more information for you on Federal Rule of Civil Procedure, Rule 68. Why? What, you've got something better to read? The New Yorker perhaps. Relax this will only take a minute. Besides, I mention it because it recently came up (again), and it's information worth sharing.

Rule 68 can be an excellent tool in copyright cases, especially where you believe your client may have engaged in an act that will lead to a finding of infringement.

In such a situation, where you believe a judgment is likely to be rendered against you anyway, making a Rule 68 Offer of Judgment is a terrific way to keep the otherside's costs and fees -- which you may be expected to pay under Section 505 of the Copyright Act -- from accruing.

Make the offer early, and you cap the fees/costs if you make a good bet on: (1) the ultimate damage award and (2) the otherside's costs and fees to date.

This is because Fed. R. Civ. P. 68 provides that “[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.” In copyright actions, the term “costs” includes a prevailing party’s attorney fees. See, 17 U.S.C. § 505 (“the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.”). Thus, a Rule 68 offer will cut off a prevailing plaintiff’s post-offer attorney fees if the judgment he or she receives is less than the defendant’s Rule 68 offer. See, Merek v. Chesney, 473 U.S. 1, 8-10 (1985) (holding that when underlying statute defines “costs” to include attorney’s fees, such fees are to be included as costs for purposes of cost shifting. The court thus concluded that plaintiffs “who reject an offer more favorable than what is thereafter recovered at trial will not recover attorney's fees for services performed after the offer is rejected.”); see also William F. Patry, Patry on Copyright § 22:217 (“Rule 68 [can] be used as a sword against plaintiff to deny plaintiff his attorney's fees postoffer.”).

So in a nutshell, it works like this: You think it's likely you'll get tagged with infringement, but you think damages are worth no more than -- let's keep it simple and say $10,000. You think the fees and costs to date are minimal. Let's say $10,000. You therefore make your Rule 68 Offer for a skosh over $20K, call it $23. If plaintiff is foolish enough to reject that offer, and fails to do better than this figure at trial (measuring damages plus costs and fees as of the date the Rule 68 Offer was made), plaintiff's recovery of fees and costs is capped as of that date.

It's a neat tactic if it works. But then again, what isn't?

Jonathan Pink is Chair of the Internet and New Media Team at Bryan Cave, LLP. He is an intellectual property and commercial litigator resident in the firm's Orange County and Los Angeles offices.