District Judge Carter Awards Both Sides Fees Under the California Penal Code, the Communications Act, and the Digital Millennium Copyright Act.
This next one is an interesting illustration of how each side can prevail and be awarded fees/costs under state and federal statutes, yet how one side can still be the “net” victor—if one discounts the multi-millions in fees paid to each side’s attorneys which were not recouped from the opponent. Strap on your sleigh bells for the ride—and here we go!
Plaintiffs Echostar Satellite and DirecTV, the largest U.S. television providers, sued defendant NDS Group, which provided DirecTV’s security through the use of encryption technology and related “SmartCards.” It sued under various legal theories for allegations that NDS commissioned a hacking of plaintiffs’ anti-piracy cards such that the hacking ended up on the Internet, resulting in a wave of piracy forcing Echostar to replace 9 million compromised “SmartCards” at a cost of over $94.6 million. Plaintiffs submitted these claims to the jury: violations of the Digital Millennium Copyright Act (DMCA), the Communications Act (“Comm. Act”), California Penal Code sections 593(d) and 593e(b) (“Penal Code”), and the Racketeer Influenced and Corrupt Organizations Act (RICO), as well as an equitable claim under California Business & Professions Code section 17200 (“UCL”). NDS countered with a trade secret claim under California’s Uniform Trade Secrets Act (“UTSA”).
Two titans like this ran up a lot of fees and costs, as we shall see. Following a four-week jury trial, the jury found: (1) NDS was not responsible for the Internet posting; (2) NDS had not acted with oppression, fraud, or malice, or engaged in a conspiracy; (3) NDS did violate three of the six counts involving the Comm. Act and Penal Code due to NDS’s unauthorized interception of Echostar’s signal, awarding Echostar total damages of $1,591.38 (yes, a little shy of sixteen hundred dollars), breaking down as a $45.69 award under the Comm. Act, $45.69 under one of the Penal Code sections, $500 minimum statutory damages under the Penal Code, and $1,000 minimum statutory damages under the Comm. Act; and (4) Echostar did not violate the UTSA under NDS’s counterclaim. Based on the jury’s finding on the three claims, Judge Carter did rule that NDS’s conduct constituted unlawful conduct under the UCL, entitling Echostar to some restitution and an injunction against any further “piracy.”
So, what did the ultimate battle devolve to? You guessed it (we bet)—attorney’s fees!
Echostar sought attorney’s fees of $15,945,095.81, plus costs and other expenses. Conversely, NDS requested an award of attorney’s fees totaling $23,914,983.74. Between the two sides (excluding hard costs and expenses), there was a total of almost $40 million spent and at issue in the fee proceedings.
District Judge David O. Carter, in Echostar Satellite Corp., et al. v. NDS Group PLC, et al., Case No. SACV 03-950 DOC (JTLx) (C.D.Cal.), issued a December 4, 2008 opinion (Doc. No. 1191) in which plaintiffs ended up the “net” winner on the dueling fee petitions, but hardly the result that either side desired by far.
Judge Carter did start out by setting the outer boundaries—the “American Rule” on attorney’s fees and its exceptions: absent a contract, an applicable statute, a finding that the losing party acted in bad faith, or other exceptional circumstances, each side bears its own attorney’s fees in federal court litigation. (Chang v. Chen, 95 F.3d 27, 28 (9th Cir. 1996).) (BLOG OBSERVATION—For an explanation of the differences between the American and British Rules on attorney’s fees, see our recent December 2, 2008 post on Java Oil, Ltd. v. Sullivan.) Because the litigation spanned a decade in length and involved deposing 81 witnesses (many abroad), exceptional circumstances were present—and statutes did allow an award of fees—so as to lead to the conclusion that both parties achieved substantial successes warranting the imposition of attorney’s fees. This type of reasoning may be a bane to litigants wanting an unqualified win, but this type of “grand slam” result was not to be the result in this case.
Attorney’s fees in favor of the prevailing party are mandatory under both the Penal Code (Pen. Code, sec. 593e(d)) and the Comm. Act (47 U.S.C. sec. 605(e)(3)(B)(iii)), the claims won by Echostar. Because no “prevailing party” definition exists under the Penal Code section, that determination is based on who won “on a practical level.” (Donner Mgt. Co. v. Schaffer, 142 Cal.App.4th 1296, 1310 (2006).) Even though only winning on half of the claims and obtaining small damages, Echostar still prevailed on a practical level—after all, NDS was adjudged liable after a protracted jury trial and did with a court injunction under the UCL.
Similarly, the district court was granted discretion under the DMCA to award reasonable attorney’s fees to the prevailing party (17 U.S.C. sec. 1203(b)(5)), which says plaintiffs and defendants are to be treated equally in such a determination. The factors to be weighed in determining the DMCA prevailing party are set forth in Fogerty v. Fantasy, Inc., 510 U.S. 517, 54-535; The Traditional Cat Ass’n, Inc. v. Gilbreath, 340 F.2d 829, 833 (9th Cir. 2003), which are degree of success obtained, frivolousness, motivation, objective unreasonableness, and the need to advance compensatory and deterrence policies. Echostar’s RICO claim was intertwined with the DMCA claim, such that the fees on this separate claim had to be considered along with the DMCA fees. (No fees were found allowable under the UCL or Lanham Act based on a lack of fee authorization or the simple fact that the Lanham Act claim was not pursued in bad faith.)
You may be seeing where Judge Carter is going. If not, the district court essentially found that both sides partially prevailed under the foregoing statutes—Penal Code, Comm. Act, DMCA, and RICO—such that each should be awarded fees under the lodestar methodology, subject to adjustments under the factors set forth in Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 69-70 (9th Cir. 1975). [The Kerr factors are: (1) time and labor required; (2) novelty and difficulty of issues; (3) skill required to perform the legal services properly; (4) preclusion of other attorney employment; (5) customary fee; (6) whether the fee is fixed or contingency; (7) time limitations imposed by client or the circumstances; (8) amount involved and results obtained; (9) experience, reputation, and ability of attorneys; (10) “undesirability” of the case; (11) nature and length of the professional relationship with the client; and (12) awards in similar cases.]
That brings us to the “drum roll” in the case—the fee awards made by Judge Carter.
Because both sides partially prevailed, Judge Carter “cut the cake” this way: (1) Echostar did not prevail on its Internet posting claims such that any unsuccessful claims shoul
d be excluded (he used a “crude” mathematical formula finding that ½ the amount of fees should be awarded based on Echostar winning 3 out of 6 claims); (2) NDS’s requested fees had to be reduced initially by ½ because it only prevailed on the DMCA and RICO claims; (3) NDS’s fees should be decreased ¼ because its billings seemed excessive given that the quality of work was equipoised with that of Echostar (where the fees were $8 million less); and (4) Echostar was entitled to a large award—an increased $5 million—for ultimately convincing a jury that some claims deserved compensation.
The “bottom line” was that Echostar was to receive fees of $12,972,547.91 plus full costs of suit, whereas NDS recovered fees of $8,968,118.90 and no costs. As reported in an article on the DSS website entitled “Dish Network Awarded $8.3 Million in Attorney Fees,” there must have been substantial costs of almost $4.3 million because the “offsetting” difference in the fee awards was a little over $4 million in favor of the Echostar plaintiffs (apparently now affiliated with Dish Network).
This decision illustrates the width breadth of discretion vested in judges to apply equitable factors when fashioning fee awards where “prevailing party” statutes allow such an exercise of discretion by the trial courts.
Incidentally, some individual former NDS employees and another individual outside defendant sued by plaintiffs sought to recoup fees after they were successful in winning motions to dismiss. The former employees sought fees of $261,475.38 under the DMCA, the Lanham Act, and the California Penal Code, while the outside individual sought to recover fees of over $74,000. Both requests were denied, with Judge Carter principally finding that (1) there was no evidence these defendants actually paid any fees (with the award of fees to NDS being sufficient), (2) the complaints were dismissed for technical reasons such that these would not be considered victories on a “practical level,” and (3) the DMCA claims were neither unreasonable nor frivolous. (See Echostar Satellite Corp., supra, Doc. Nos. 1192 & 1193.) Again, the equities predominated in these companion fee rulings.