Imposition of Costs in IP Disputes: US Supreme Court Provides Valuable Guidance

One of the most significant American decisions in the sphere of copyright law in recent times was delivered by Justice Breyer in 2013 in the case of Kirtsaeng versus John Wiley and Sons. As Shamnad Sir noted on this blog, the American Supreme Court held that the first sale doctrine, which states that the purchaser of a copyrighted work is free to sell/distribute the work in any way he deems fit, applies internationally and has no geographical limitations. On this basis, the Court ruled in favour of Kirtsaeng, affixing the imprimatur of legality to his practice of purchasing his textbooks from his home country, Thailand, and selling them to students in the U.S., where he was studying at the time.
Swaraj’s terrific analysis of the wider ramifications of this case can be found here.
Far from providing a quietus to litigation, Kirtsaeng’s victory spawned a fresh legal battle over his entitlement to claim attorney’s fees from the publisher, John Wiley and Sons. The Supreme Court’s decision on this point, delivered by Justice Kagan for a unanimous court, can be found here.

In this post, I plan to briefly analyze the principles delineated by the Court and examine their underlying rationale. Thereafter, I will examine the legal position prevalent in India as regards the imposition of costs in civil disputes. Finally, I will set forth some principles which ought to inform a court’s decision as regards the imposition of costs.

Holding of U.S. Supreme Court:

At issue in this case was Section 505 of the US Copyright Act which empowers the district court to award reasonable attorney’s fee to the winning party, without providing any guidance as to the factors that should guide the court’s discretion.
Both parties here were in agreement about the broad proposition that the district court’s discretion cannot be uncanalized and that it was necessary for the Supreme Court to offer some guidance as to the amount of importance that should be attached to each factor.
While Wiley argued that the objective reasonableness of the arguments made by the losing party should deserve special consideration, Kirtsaeng argued that the key determinant should be whether or not the case meaningfully resolved an issue of far-reaching significance and had enormous precedential value.

Grounding its analysis in the goals animating the copyright system, the court held that the approach which most meaningfully advances the fundamental goal of enriching the general public by providing access to creative works should be preferred.
Siding with the approach proposed by Wiley, the court held that objective reasonableness of the arguments advanced by the losing party should be the key criterion governing the decision to award attorney’s fees. If a party knows that its position is objectively reasonable, the court held, the party is more likely to institute the lawsuit or defend it to the best of its ability, even if the stakes involved are low. At the same time, this approach also serves as a powerful disincentive to the raising of objectively unreasonable claims in that it is likely to make parties re-consider their decision to litigate if they know that their arguments are objectively unreasonable.
The court was quick to point out, however, that objective unreasonableness should be a substantial factor but not the dispositive one. Other relevant factors, such as litigation misconduct, litigious tendencies of the losing party, etc., should also be factored into the analysis.

Position in India:

What of India?

As this article
notes, the Civil Procedure Code envisages 4 types of costs in civil litigation: general costs (Sec. 35); costs for raising false or vexatious claims (Sec. 35-a); costs for causing delay (Sec. 35-b) and miscellaneous costs (Order 20-a).
As regards the imposition of general costs, the same has been left to the discretion of the court which has to be exercised in such a way as to balance competing interests. However, as the Supreme Court noted in the case of Jugraj Singh versus Jaswant Singh, the rule is that normally costs should follow the event and the winning party should not be required to bear its own costs.
For a party to be able to claim costs when the other party puts forth false or vexatious claims, the former must raise an objection against the claim in question and the claim must thereafter be disallowed. There is a maximum ceiling of Rs. 3,000 on the imposition of costs in this category.

In a Supreme Court judgment delivered by Justice Dalveer Bhandari that Shan covered for this blog here, the court offered two general principles as regards the imposition of costs, albeit in a general and not IP-specific context.

First, courts should not hesitate from imposing heavy costs on unscrupulous parties which advance frivolous arguments. This, the court held, would disincentivize parties from conducting a cost-benefit analysis in deciding whether to unduly prolong the suit or extract a settlement by tiring the other party.

Second, if a party obtains an ex-parte order on the basis of false pleas and forged documents, courts must impose costs on such litigants.

Similarly, in the case of Ashok Kumar Gupta versus Ram Kumar Mittal, Justice Raveendran, speaking for a division bench of the Supreme Court noted: “The present system of levying meagre costs in civil matters (or no costs in some matters), no doubt, is wholly unsatisfactory and does not act as a deterrent to vexatious or luxury litigation borne out of ego or greed, or resorted to as a `buying-time’ tactic.”
In its 240th report, the Law Commission of India opined that the costs regime under the CPC should be restructured in such a way as to allow for the payment of realistic costs in order to meaningfully curb frivolous litigation.

Principles that ought to inform the court’s discretion:

It is submitted that the following three principles ought to inform the court’s discretion while deciding if costs should be awarded to the winning party in IP disputes.

First, since the IP system has, at bottom, been designed to foster the creation and widespread dissemination of products of the intellect, the imposition of costs on the losing party should not chill innovation and bona fide use. More specifically, the court should never lose sight of the fact that the quantum of costs that it imposes will have a direct bearing on the decision of parties to litigate IP disputes. Therefore, in light of the fact that most parties are risk averse and the imposition of costs would disincentivize litigation, courts should ensure that they do not inadvertently prevent parties from making arguments that are perfectly valid and legitimate by erecting financial barriers.

Second, while deciding whether exemplary costs should be imposed in a given case, it would be fruitful to remember U.S. Chief Justice John Roberts’ direction to American trial courts delivered in Halo Electronics versus Pulse Electronics that such costs “are not to be meted out in a typical infringement case, but are instead designed as a punitive or vindictive sanction for egregious infringement behavior.”

Finally, the standards governing the imposition of costs should be identical for losing plaintiffs and defendants. Therefore, a plaintiff whose suit is founded on false claims should be no less liable to pay costs than a defendant who raises frivolous defences to rationalize his conduct.

If these principles are duly followed, the Law Commission’s direction as regards the need to institutionalize robust rules of the game in order to avoid frivolous and meritless litigation would stand fully realized.


Rahul Bajaj

Rahul Bajaj is a fourth year law student at the University of Nagpur. His interest in intellectual property law began taking a concrete shape when he pursued Professor William Fisher's online course on copyright law in the second year of law school. Since then, Rahul has worked on a diverse array of IP matters during his internships. He is particularly interested in studying the role of intellectual property law in facilitating access to education.

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