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BMG Rights Management (US) LLC v. Cox Enterprises Inc.

United States District Court, E.D. Virginia, Alexandria Division

February 14, 2017

BMG RIGHTS MANAGEMENT U.S. LLC, and ROUND HILL MUSIC LP, Plaintiffs,
v.
COX COMMUNICATIONS, INC., and COXCOM, LLC, Defendants. Attorney Law Firm Years Experience Hourly Rate Claimed ViennaMetro: Range Hours Claimed Individual Lodestar Calculation

          MEMORANDUM OPINION

          Liam O'Grady United States District Judge.

         After an extended litigation battle and a two-week trial, a jury found Defendants Cox Communications, Inc. and Coxcom, LLC ("Cox") liable for willful contributory copyright infringement. The jury awarded Plaintiff BMG Rights Management ("BMG") $25 million in damages, and the Court denied both parties' post-trial motions for relief. (Dkt. No. 794). Now pending before the Court are the parties' motions for costs and attorney's fees. Specifically, BMG has filed for attorney's fees and costs against Cox, (Dkt. Nos. 819, 827) and Cox, in turn, has filed for fees and costs against Round Hill Music LP ("Round Hill") (Dkt. Nos. 822, 836). For the reasons that follow, BMG's motions are hereby GRANTED IN PART and DENIED IN PART. Cox's motions are hereby DENIED.

         I. BACKGROUND

         The facts of this case have been set forth in the Court's previous memorandum opinions, and will only be summarized briefly here. See Dkt. Nos. 703, 794. Defendant Cox provides high-speed internet services to customers nationwide. Plaintiffs BMG and Round Hill are the putative owners or administrators of approximately 1, 400 musical composition copyrights. Plaintiffs initially alleged that Cox's subscribers were using peer-to-peer ("P2P") file sharing to illegally upload and download copyrighted music files. The parties' dispute came to a head in October 2014, when BMG and Round Hill brought claims of contributory copyright infringement and vicarious copyright infringement against Cox.

         After a lengthy period of discovery, the parties filed cross-motions for summary judgment in September 2015. These motions raised two primary questions: (1) do plaintiffs own the copyrights at issue?; and (2) is Cox eligible for the DMCA safe-harbor defense under §512(i) of the DMCA? See 17 U.S.C. § 512(i). MSJ Mem. Op. at 9 (Dkt. No. 703). On the ownership issue, the Court ruled in favor of BMG, finding that it had conclusively established ownership of the asserted copyrights. With regard to Round Hill, however, the Court found that the company was hired "to provide services related to copyrights it did not own and that this employment did not result in any assignment of rights to Plaintiff." Id. at 23 (internal citations and quotations omitted). Accordingly, the Court dismissed Round Hill from the case because it did not have statutory standing to bring the infringement action.

         As for the DMCA issue, the Court found that Cox had not reasonably implemented a repeat infringer policy as required to receive the protections of the DMCA. Specifically, the evidence showed that Cox did not terminate access for repeat infringers under appropriate circumstances, and that, before 2012, the company had an informal policy of consistently reinstating infringing users. See Id. at 31-42. Cox continued these actions in spite of the fact that it "had knowledge that at least some of its account holders were intentionally and repeatedly infringing." Id. at 42. As such, the Court granted BMG's motion for summary judgment and denied Cox's corresponding motion for the protections of the DMCA safe-harbor.

         The case culminated a two-week jury trial in December 2015. On December 17, 2015, the jury found that Cox was liable for contributory infringement, but that it was not liable for vicarious infringement. See Dkt. No. 754. It awarded BMG $25 million in statutory damages. After this victory, BMG sought a permanent injunction to prevent Cox from future infringement. It also sought judgment as a matter of law on its vicarious infringement claim. Cox responded with its own motion for judgment as a matter of law, or alternatively, for a new trial. In a Memorandum Opinion dated August 8, 2016, the Court denied all of the parties' post-trial motions and entered a final judgment on the verdict. Post-Trial Mem. Op. at 2, Dkt. No. 794. Cox filed its notice of appeal on August 19, 2016.

         All that remain before the Court are the parties' motions for attorney's fees and costs. The law firm of Steptoe & Johnson LLP and local counsel Hausfeld LLP represented both BMG and Round Hill in this action. Fenwick & West LLP and the Law Offices of Craig C. Reilly represented Cox. BMG has moved to recover on its bill of costs (Dkt. No. 819), and its motion for attorney's fees (Dkt. No. 827). In support of those motions, BMG submitted declarations from Michael J. Allan, Walter D. Kelley, N. Thomas Connally, III, Stephanie Roberts, and Jeremy D. Engle, as well as detailed billing records and an itemized bill of costs. Relying on its success in dismissing Round Hill as a plaintiff, Cox has also filed a bill of costs (Dkt. No. 822) and a motion for attorney's fees (Dkt. No. 836). In support, it has filed similar documentation, including declarations from Jedediah Wakefield, Craig C. Reilly, and Andrew P. Bridges.

         II. BMG'S MOTION FOR ATTORNEY'S FEES

         Despite the Supreme Court's admonition that applications for attorney's fees "should not result in a second major litigation, " the petitions in this case have generated hundreds of pages of filings and now present an array of legal questions for the court to consider in awarding fees and costs. Kirtsaengv. John Wiley & Sons, Inc., 136 S.Ct. 1979, 1988 (2016) (internal quotations and citations omitted). After setting forth the general legal standard for awarding fees under § 505, the Court will address the discrete legal questions raised by the parties' respective motions. Upon consideration of the parties' briefing and the relevant caselaw, the Court will GRANT BMG's motion for attorney's fees, but reduce the requested fee award by 20%. Relatedly, the Court will DENY BMG's motion as it relates to nontaxable litigation expenses. Next, it will GRANT BMG's bill of costs, but will exclude certain costs and reduce it by 10%. Finally, the Court will DENY Cox's motions for attorney's fees and costs in full because it is not a "prevailing party" under § 505.

         A. Legal Standard

         Section 505 of the Copyright Act of 1976 provides that "the court in its discretion may allow the recovery of full costs ... [and] a reasonable attorney's fee to the prevailing party as part of the costs ..." 17 U.S.C. § 505. Interpreting this statute, the Supreme Court has explained that prevailing plaintiffs and prevailing defendants are equally eligible to receive fee awards. Fogerty v. Fantasy, Inc., 510 U.S. 517, 527 (1994). That said, fees are not awarded as a matter of right, and courts "must make a... particularized, case-by-case assessment" when deciding whether they should be awarded. Kirtsaeng, 136 S.Ct. at 1985. The key principle underlying this assessment is whether awarding fees would further the essential goals of the Copyright Act by "enriching the general public through access to creative works." Fogerty, 510 U.S. at 527.

         The Fourth Circuit has provided the following factors for district courts to consider when deciding whether or not to award fees: (1) the motivation of the parties; (2) the objective reasonableness of the parties' legal and factual positions; (3) the need to advance considerations of compensation and deterrence; and (4) any other relevant factor. Rosciszewski v. Arete Associates, Inc., 1 F.3d 225, 234 (4th Cir. 1993); see also Kirtsaeng, 136 S.Ct. at 1985 (listing similar non-exclusive factors). Of these factors, "objective reasonableness" is often given more weight than other considerations; however, it is not the controlling factor, and courts should consider the circumstances of the case as a whole in making its decision. See Kirtsaeng, 136 S.Ct. at 1988. At the end of the day, the trial court maintains broad discretion in awarding fees. Id.

         Once a court has determined that a fee award is appropriate, it must then use the lodestar method to determine the amount to be awarded. See Gisbrecht v. Barnhart, 535 U.S. 789, 801 (2002) (stating that, in assessing fees, "the lodestar figure has, as its name suggests, become the guiding light"). Once calculated, there is "a strong presumption that the lodestar represents the reasonable fee." City of Burlington v. Dague, 505 U.S. 557, 562 (1992) (internal quotation marks omitted).

         The Fourth Circuit employs a three-step methodology in calculating the appropriate fee award. "First, the court must determine the lodestar figure by multiplying the number of reasonable hours expended times a reasonable rate." McAfee v. Boczar, 738 F.3d 81, 88 (4th Cir. 2013). In determining the reasonable number of hours and a reasonable rate, the court should consider the twelve-factors set out in Johnson v. Georgia Highway Express Inc.:

(1) The time and labor expended; (2) the novelty and difficulty of the questions raised; (3) the skill required to properly perform the legal services rendered; (4) the attorney's opportunity costs in pressing the instant litigation; (5) the customary fee for like work; (6) the attorney's expectations at the outset of the litigation; (7) the time limitations imposed by the client or circumstances; (8) the amount in controversy and the results obtained; (9) the experience, reputation, and ability of the attorney; (10) the undesirability of the case within the legal community in which the suit arose; (11) the nature and length of the professional relationship between attorney and client; and (12) attorneys' fees awards in similar cases.

488 F.2d 714, 717-19 (5th Cir.1974).[1]

         After the lodestar figure is calculated, "the court must subtract fees for hours spent on unsuccessful claims unrelated to successful ones." McAfee, 738 F.3d at 88. Finally, the court "award[s] some percentage of the remaining amount, depending on the degree of success enjoyed by the plaintiff." Id. This three-step process determines the final amount of fees to which the prevailing party is entitled.

         B. BMG is Entitled to Fees

         BMG seeks a total of $10, 479, 335.08 in attorney's fees. As an initial matter, the parties do not dispute that BMG is a "prevailing party" under § 505. The Supreme Court has defined a prevailing party as "a party in whose favor a judgement is rendered, regardless of the amount of damages awarded ..." Buckhannon Bd. and Care Home, Inc. v. West Virginia Dept. of Health and Human Resources, 532 U.S. 598, 603 (2001). Although it did not succeed on all of its claims, BMG was awarded a $25 million jury verdict and Cox was found liable for willful contributory infringement. This favorable verdict plainly satisfies the "prevailing party" standard.

         Beyond this initial concession, Cox relies on Kirtsaeng to argue that, because its positions were objectively reasonable and served to clarify an important and novel area of the law, its litigation ultimately advanced the interests of the Copyright Act. Therefore, when weighed with the other Rosciszewski factors, Cox asserts that BMG should not be entitled to any attorney's fees. The Court disagrees for two reasons. First, although Cox appropriately defended its novel legal position in the abstract, it also made specific arguments that were objectively unreasonable as a matter of fact and of law. Second, the remaining Rosciszewski factors all cut against Cox. Together, these considerations dictate the conclusion that BMG is entitled to fees.

         1. Objective Reasonableness

         The Court acknowledges the importance of Cox's overall defense in light of the complex legal issues at play in this case. It further recognizes that neither party embodied a perfect model of civility or reasonableness in this case, particularly in the discovery phase of the litigation.[2] That recognition, however, does not extend to Cox's positions with regard to its DMCA defense, which lacked a basis in fact and was therefore objectively unreasonable.

         The objective reasonableness of a party's position is an important factor in deciding whether to award fees. See Kirtsaeng, 136 S.Ct. at 1988. In a hard-fought litigation battle such as this one, discovery disputes and fierce briefing are to be expected, and they should not be held too harshly against either party. Nonetheless, there are a few instances in which Cox's advocacy crossed the line of objective reasonableness. In particular, both Cox's attempts to obscure its practice of reinstating infringing customers, and its subsequent assertions of a deeply flawed DMCA defense evince a meritless litigation position that Cox vigorously defended.

         BMG highlights a number of Cox's alleged discovery abuses in its briefing. Of these, four serve as useful examples of Cox's attempts to obstruct BMG from obtaining facts regarding its actual DMCA-related abuse practices. First, Cox provided an unqualified 30(b)(6) witness who did not have knowledge of the company's abuse practices, despite the fact that those practices were a principal subject of BMG's inquiry. See Allan Decl. ¶ 43, Ex. 4 at 45:18-46:20. Second, Cox's Senior Lead Abuse Manager, Joseph Sikes, revealed a selective recollection of the term "soft termination." See Allan Decl. ¶ 40, Ex. 2 at 191:20-192:3, 192:15-193:10. Specifically, almost immediately after stating that he was "not familiar with that term", Mr. Sikes was presented with evidence showing that he had personally used the term in instant-message conversations. Id. Only after being confronted with that evidence did Mr. Sikes explain what a "soft termination" meant. Id. Third, Cox significantly delayed the production of documents relating to its abuse policy. See Allan Decl. ¶¶ 21-26. Finally, Cox submitted a declaration from Mr. Roseblatt who bluntly attempted to categorize Cox's soft terminations and customer reinstatements as "occasional variations" in spite of the overwhelming evidence to the contrary. Roseblatt Decl. ¶ 118 (Dkt. No. 390).

         Eventually, these factual issues came to a head in the legal dispute over Cox's DMCA defense at the summary judgement phase. Although Cox's DMCA defense cannot be categorized as frivolous or in bad faith, the Court found that "[t]he record conclusively establishes that before the fall of 2012, Cox did not implement its repeat infringer policy. Instead, Cox publicly purported to comply with its policy, while privately disparaging and intentionally circumventing the DMCA's requirements." Mem. Op. at 31 (Dkt. No. 703). The evidence supporting this conclusion was overwhelming, and it included "smoking gun" email conversations. See generally Id. at 31-42 (detailing the evidence of Cox's informal policies to reinstate infringing users). The most memorable of these contained Cox's own abuse manager stating: "F ... the dmca!!!" See BMG's Mem. in Supp. Fees at 5 (quoting PX-1392.0001). Therefore, although Cox's defensive arguments may have been reasonable as an abstract legal theory, when viewed in light of the actual facts of the case, they evince an objectively unreasonable litigation position that was nonetheless vigorously defended.

         2. The Parties' Motivation

         The parties' motivation is determined by a variety of factors, including the nature of the infringement and any bad faith by the defendant. Rosciszewski, 1 F.3d at 234. Along those lines, courts have noted that willful infringement "is an important factor favoring an award of fees." Historical Research v. Cabral, 80 F.3d 377, 379 (9th Cir. 1996). In part, this is because "defendants must not be able to sneer in the face of copyright owners and copyright laws", and willful acts suggest that deterrence is necessary to prevent further violations. Cable/Home Comm'n Corp. v. Network Prods., Inc., 902 F.2d 829, 851 (11th Cir. 1990) (internal quotations omitted). As such, courts frequently award fees where willfulness was an element of liability. Id; see also Superior Form Builders, Inc. v. Dan Chase Taxidermy Supply Co., 74 F.3d 488, 498 (4th Cir. 1996). Indeed, Cox can only cite to one case in which the jury found willful infringement but the court did not award fees. See Lowry 's Reports, Inc. v. Legg Mason, Inc., 302 F.Supp.2d 455, 463-64 (D. Md. 2004).[3]

         Cox's willfulness cannot seriously be contested. As the Court has previously noted, the jury was appropriately instructed that BMG needed to establish "by a preponderance of the evidence that Cox had knowledge that its subscribers' actions constituted infringement of BMG's copyrights, acted with reckless disregard for the infringement of BMG's copyrights, or was willfully blind to the infringement of BMG's copyrights." Post-Trial Mem. Op. at 32 (Dkt. No. 794). As detailed in the post-trial Memorandum Opinion, the jury had ample evidence to support its finding of willfulness, and it did so unequivocally in its verdict. See Id. In other words, the jury found that Cox knew, or should have known, that its behavior was wrong and continued in spite of that awareness. Therefore, its motivations can be seriously questioned, and fees are appropriate in order to deter future violations.

         3. Deterrence and Compensation

         Deterrence considerations blend into each of the Rosciszewski factors. Put into more direct terms, however, the jury found that Cox engaged in a willful and large-scale practice of contributory infringement and, as a result, Cox should be incentivized to change its behavior. Quantum Sys. Integrators, Inc. v. SprintNextel Corp., No. CIV.A. 1:07-CV-491, 2009 WL 3423848, at *3 (E.D. Va. Oct. 16, 2009) ("[A]warding attorney's fees and costs in copyright infringement actions likely will have a deterrent effect on present and future infringers."). As a practical matter, this change in behavior could take the form of a more robust and effective DMCA program, or perhaps a different response to infringement notices from companies like Rightscorp. However Cox decides to address its users' repeat infringement, it is clear that the company should be given a proper financial incentive to change its policies and procedures. For a company as large and as profitable as Cox, responsibility for attorney's fees will help to initiate that change and deter future violations.

         As for compensation, Cox argues that the jury verdict is sufficient compensation and that any attorney's fees would "amount to a double recovery." Cox Opp'n at 18. This argument misses the mark. Indeed, Cox's position is foreclosed by the language of the Copyright Act itself, which allows prevailing parties to recover both fees and costs. 18 U.S.C. § 505. The statute contemplates three separate inquiries: (1) liability; (2) fees; and (3) costs. In this case, the jury did not know how much it cost to litigate this case and it was not instructed to consider attorney's fees in its verdict. As such, finding that the verdict fully remunerated BMG would undermine the separate fees and costs inquiries, which were designed to compensate parties for their enforcement of infringement laws, and which are a basis for recovery apart from the statutory penalties available under the Copyright Act.

         In this case, the jury awarded $25 million in damages for infringement. Separately, BMG incurred more than $10 million in attorney's fees. Therefore, without an attorney's fees award, the cost of litigating this case would erode approximately 40% of the verdict. See Chi-Boy Music v. Charlie Club, Inc., 930 F.2d 1224, 1230 (7th Cir. 1991) ("[Appellant] maintains that an award of fees would be punitive because the plaintiffs already have been made more than whole by the court's award of damages. We find no merit in this argument."); see also Final Order, Oracle USA v. Rimini Street, No. 2-10-cv-106 (D. Nev. Sept. 21, 2016) (awarding approximately $28 million in fees in addition to a verdict of approximately $50 million). As such, the Court finds that a fees award is necessary to properly compensate BMG for its litigation expenses.

         4. Other Factors

         Each of the factors above strongly suggest that awarding fees here would "further the policies of the Copyright Act." Fogerty, 510 U.S. at 527. Moreover, "[i]n determining the need for compensation, the Court may analyze the relative size of the parties as well as the ability of a party to be assessed with fees to pay the assessment." Quantum Sys. Integrators, Inc. v. Sprint Nextel Corp., No. CIV.A. 1:07-CV-491, 2009 WL 3423848, at *3 (E.D. Va. Oct. 16, 2009). Cox is a massive company with $18 billion in annual revenue.[4] It fought this lawsuit with vigor every step of the way, and it spared no expense in doing so. In fighting back, BMG took huge risk and ultimately expended more than $10 million in attorney's fees.

         In the end, BMG was successful in asserting its copyrights. Nonetheless, the prospect of bringing suit against Cox and incurring millions of dollars in attorney's fees will likely deter other potential plaintiffs from seeking to enforce their rights. In order to continue to promote the vindication of individuals' copyrights, therefore, BMG (and others like it) should be rewarded for facing up against willful infringers with deep pockets.

         B. Lodestar

         Having determined that BMG is eligible for fees, the Court's analysis turns to the lodestar calculation. The legal disputes over the reasonableness of the hourly rates and the hours spent on the case will be addressed first, followed by a table detailing the rates and hours calculated for each individual attorney and paralegal.

         1. Hourly Rate

         In general, the fee applicant has the duty to "submit evidence supporting the hours worked and rates claimed. Where the documentation of hours is inadequate, the district court may reduce the award accordingly." Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). "In addition to the attorney's own affidavits, the fees applicant must produce satisfactory 'specific evidence of the prevailing market rates in the relevant community' for the type of work for which he seeks an award." Plyler v. Evatt, 902 F.2d 273, 277 (4th Cir. 1990) (quoting Spell v. McDaniel, 824 F.2d 1380, 1402 (4th Cir. 1987)). Specific evidence in this context will often take the form of "affidavits of other local lawyers who are familiar both with the skills of the fee applicants and more generally with the type of work in the relevant community." Robinson v. Equifax Information Servs., LLC, 560 F.3d 235, 245 (4th Cir. 2009); see also Blum v. Stetson, 465 U.S. 886, 895 n.l 1 (stating that the fee applicant has the burden "to produce satisfactory evidence ... that the requested rates are in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation."). "The relevant market for determining the prevailing rate is ordinarily the community in which the court where the action is prosecuted sits." Rum Creek Coal Sales, Inc v. Caperton, 31 F.3d 169, 175 (4th Cir. 1994).

         BMG draws support for the reasonableness of its claimed rates from three main sources. First, it cites the affidavits from three separate attorneys that explain the detailed and complex nature of the attorneys' work on this case. These affidavits also show that the rates are customary for this kind of litigation, and that, where they exceeded the customary amount, they have been reduced to comport with the customary rates of attorneys in the Alexandria area. Second, BMG points to affidavits from Craig Reilly (Cox's local counsel) in previous cases supporting the reasonableness of similar rates in analogous cases. Third, BMG cites to the matrix set forth in Vienna Metro (and the cases adopting that matrix) to show that courts have previously accepted analogous rates. Fees Opinion, Vienna Metro LLC v. Pulte Home Corp., No. 1:10-cv-502, Dkt. 263 (E.D. Va. Aug. 24, 2011) (hereinafter "Vienna Metro").

         The Vienna Metro matrix is reproduced below.

2011 Range of Hourly Rates in Northern Virginia

Paralegal

1-3 [years of experience]

4-7 [years of experience]

8-10 [years of experience]

11-19 [years of experience]

20[years of experience]

$130-350

$250-435

$350-600

$465-640

$520-770

$505-820


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