Attorneys Fees Revisited: Rule 68 and Section 505

Profession:Cowan Liebowitz & Latman PC
 
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By David Goldberg and Robert J. Bernstein

In a copyright action, where the defendant is unlikely to prevail on the merits, a cost-effective strategy may be found in the offer of judgment provision of the Federal Rules and the costs and attorneys' fees section of the Copyright Act. Before even answering or moving to dismiss, making an offer of judgment under Fed. R. Civ. Pro. Rule 68 can dramatically alter the outcome of a copyright litigation in defendant's favor. If the offer is accepted, the case is over quickly, for an amount of money the defendant deems tolerable.1 The more interesting result, however, occurs when the offer is rejected (as it is quite likely to be). Under the Rule, if a defendant offers to have judgment entered against it in a specified amount, and the plaintiff's eventual judgment after trial is less than that amount, the plaintiff is liable for all "costs incurred" by the defendant after the making of the offer.2

In most federal actions, such taxable "costs" are relatively minimal (transcripts, witness fees, etc.), so rejecting a Rule 68 offer is seldom a real threat to plaintiff's pocketbook. This is probably the reason why Rule 68 seems to have been used sparingly for much of its existence. Copyright cases, however, are different, because in a copyright case, the term costs under §505 can include attorneys' fees. In 1985, the United States Supreme Court held that "the term costs in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute or other authority."3

It may appear, therefore, that in a copyright case, a losing defendant could thus recover fees under the Rule, even though it is not the "prevailing party" as required by §505. Moreover, Rule 68 is mandatory ("if the judgment ... is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer"), while §505 is discretionary, often requiring a showing of "objective unreasonableness" on the part of the non-prevailing party. A defendant who immediately offers to settle the case for an appropriate amount can hardly be deemed objectively unreasonable. The plaintiff receiving a reasonable Rule 68 offer thus faces a real prospect of having its recovery reduced by the amount of defendant's attorneys' fees, as well as having to pay its own fees. A rational plaintiff might easily decide to settle under those circumstances, which is exactly the result Rule 68 was created to encourage.

The Rule...

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