In Yellow Pages Photos, Inc. v. Ziplocal, LP, 2017 WL 343520 (11th Cir. Jan. 24, 2017), the Eleventh Circuit reversed a district court’s decision to use a mathematical formula to award costs and fees in proportion to the degree of success in litigation of the underlying claims. Yellow Pages Photos, Inc. (“YPPI”) and Ziplocal entered into an agreement to purchase a license to use photographic content that included a provision entitling the prevailing party in a legal action to enforce the agreement to collect fees and costs. Subsequently, Ziplocal entered into an agreement with Yellow Pages Group, LLC (“YPG”) to update and sell Ziplocal’s phonebooks that included YPPI’s licensed photographs.
Upon discovering Ziplocal had provided YPG copies of the licensed photographs without permission, YPPI brought suit against Ziplocal for breach of contract, and against both Ziplocal and YPG for copyright infringement. After a lengthy and contentious trial, the jury found that Ziplocal breached its contract but that no damages flowed from the breach. The jury also found that YPPI’s copyright was infringed and awarded $123,000 in statutory damages against YPG, $1.00 of actual damages against Ziplocal, and an additional $100,000 in actual damages against Ziplocal for contributory infringement. These findings were all subsequently upheld on appeal.
After trial, YPPI moved to recover $1,422,661.75 in attorneys’ fees and $269,484.96 in nontaxable costs under both Section 505 of the Copyright Act and the original licensing agreement. The district court granted YPPI’s motion for costs and fees under the license agreement but dramatically reduced the amounts requested and declined to award attorneys’ fees under Section 505. In reducing YPPI’s request, the district court found that there should be a 35% reduction in attorneys’ fees based on the block billing practices of YPPI’s attorneys, the contentiousness of the litigation, and the district court’s “apparent belief that hours spent pursuing YPPI’s copyright claims were not recoverable pursuant to the licensing agreement providing the basis for the fee award.” This 35% reduction set the lodestar amount at $924,730.14.
The district court then reduced this number by an additional 92.5% to reflect YPPI’s “relative degree of success in the litigation.” YPPI recovered $100,001 against Ziplocal, which was “approximately 10% of the lowest amount Plaintiff sought . . . and approximately 5% of the top range [of damages sought].” The district court split this different and reduced the lodestar amount by 92.5%.
The Eleventh Circuit applied an abuse of discretion standard to the district court’s award of costs and fees, and held that the district court erred in refusing to count hours spent pursuing YPPI’s copyright claims against Ziplocal and in reducing the lodestar amount after completing its initial calculation. The Eleventh Circuit cited Supreme Court precedent that the lodestar should only be altered “in those rare circumstances in which [it] does not adequately take into account a factor that may properly be considered in determining a reasonable fee.” Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 554 (2010). The Court further noted that the Supreme Court “frowns” on a strictly mathematical approach to calculating attorneys’ fees based on a ratio of total claims to successfully litigated claims.
The Eleventh Circuit also determined the district court erred in refusing to count hours expended in pursuit of YPPI’s copyright claims because those claims “[u]ndoubtedly . . . arose directly out of [YPPI’s] contract with Ziplocal.” The Court reasoned that YPPI did, in fact, prevail on its copyright claims against Ziplocal, because it was awarded both nominal damages and an additional $100,000 in actual damages for contributory infringement. Accordingly, the Court concluded YPPI was entitled to fees for hours reasonably expended on all of YPPI’s claims.
The Court noted that the license agreement explicitly entitled the winning party to recover “its attorney’s fees and costs” without limiting any recovery to reasonable fees or a reasonable amount. By allowing a more than 90% reduction in the fees, the district court “denied YPPI the benefit of its bargain and effectively rendered the contractual fees provision meaningless.”
Accordingly, the Eleventh Circuit held that the district court’s refusal to include hours related to YPPI’s copyright claims in the original lodestar calculation and its reduction of fees using a strict mathematical formula based on the results of trial was abuse of discretion, reversed the fee order, and remanded to the district court.
This decision provides an important reminder to both licensees and licensors about the importance of the specific language used in fees provisions—careful drafting can significantly impact your potential recovery or potential exposure. It also provides a powerful fee recovery avenue for copyright owners pursuing copyright infringement claims arising out of a breach of contract that is in addition to those available under the Copyright Act.
Posted by Margaret Flatt and Walter Freitag.