FAIR ISAAC CORPORATION v. FEDERAL INSURANCE COMPANY ACE (2024)

ORDER

INTRODUCTION

Fair Isaac Corporation (FICO) sued Defendants Federal Insurance Company (Federal) and ACE American Insurance Company (ACE American) for breach of contract and copyright infringement. The jury found in FICO's favor and awarded it $3,725,000 damages. FICO moves for an award of attorneys’ fees under the Copyright Act. Because Defendants’ litigating positions were objectively reasonable and because no other considerations favor awarding fees under the Copyright Act, FICO's request for attorneys’ fees is denied.

FACTS 1

I. General Background

In June 2006, Federal ² entered into a license agreement with FICO for use of Blaze Advisor (Blaze), a rules management software on which FICO owns several copyright registrations. Joint Statement of the Case ¶ 41, Dkt. No. 1072. The initial license granted Federal the right to use Blaze in perpetuity in a single business application, for which Federal paid $173,350 plus annual support and maintenance fees.³ Trial Ex. J-001 at 1–11. The parties amended their agreement in August 2006 to expand Federal's license to use Blaze across its entire specialty lines division rather than in a single application, for which Federal paid $350,000, plus annual support and maintenance fees.⁴ Id. at 17. Finally, in December 2006, FICO and Federal amended the agreement a final time, granting Federal a perpetual enterprise-wide license to use Blaze. Federal paid $1,300,000, a fee which included monies previously paid for the earlier license agreements. Id. at 19.

On January 15, 2016, Federal's parent company, Chubb Corporation, merged with ACE INA Holdings, Inc., making Federal a subsidiary of ACE. Two weeks later, FICO notified Federal of its belief that by virtue of the merger, Federal was in breach of § 10.8 of the License Agreement. Federal disagreed. After the parties failed to resolve this dispute, FICO sent a notice of termination of the License Agreement, effective March 31, 2016. Soon thereafter, FICO sued Federal in this Court, alleging breach of contract and copyright infringement.⁵ FICO demanded a jury trial on all claims and remedies. Compl., Dkt. No. 1. Post-merger, Federal and ACE American shared a common parent entity. Trial Tr. at 1237:11–20, Dkt. No. 1183. On January 1, 2017, Federal's work and employees migrated to ACE American. See id. at 1231:5–15. In other words, the same employees performed the same work using the same applications—including Blaze—under a new corporate entity. Trial Tr. at 2428:19, Dkt. No. 1188(“I just got a paycheck from a different company.”); Trial Tr. at 1928:15–17 (“I was formerly an employee of Federal Insurance Company and then at some point became an employee of ACE American Insurance Company․ It just happened.”).

FICO brought the following counts in its Second Amended Complaint:

• Count 1 (Breach of Contract): In Count 1, FICO alleged that Federal breached §§ 3.1, 9.3, and 10.8 of the License Agreement.

• Section 3.1 prohibited the “Client” from, among other things, allowing third parties to use or access Blaze. According to FICO, Federal breached § 3.1 by: (1) using Blaze outside the United States; and (2) allowing third parties to use Blaze, including Federal affiliates and outside consultants.

• Section 9.3 required the Client to cease using Blaze upon the termination of the License Agreement. According to FICO, Federal breached § 9.3 by continuing to use Blaze after FICO properly terminated the License Agreement.

• Section 10.8 of the License Agreement provides:

No Assignment: Neither party shall, without the prior written consent of the other party, assign or transfer this Agreement, or any part thereof. In the event of a change of control of Client, or if Client is merged with, acquired by or acquires another entity, or undergoes a reorganization or otherwise acquires the right to process the business of another entity, each such event shall be deemed to be an assignment subject to this section, and Client shall make no expanded use of the Fair Isaac Products as a result of any such event unless and until Fair Isaac provides such written consent, which will not be unreasonably withheld. Any attempt to assign or transfer all or any part of this Agreement without first obtaining such written consent will be void and of no force or effect.

License Agreement § 10.8. FICO contended that Federal's failure to obtain FICO's consent after the ACE/Chubb merger violated § 10.8.

• Count 2 (Copyright Infringement): In Count 2, FICO alleged that Federal infringed its Blaze copyrights through unauthorized disclosures to third parties, including Federal affiliates and outside consultants.

• Count 3 (Copyright Infringement): In Count 3, FICO alleged that Federal infringed its Blaze copyrights by continuing to use Blaze after FICO properly terminated the License Agreement.

• Count 4 (Copyright Infringement): In Count 4, FICO alleged that ACE American infringed by using Blaze without a license after the merger.

For remedies, FICO sought actual damages and disgorgement of profits. See Sec. Am. Compl. at 12–13 (prayer for relief). In turn, Federal brought two counterclaims against FICO:

• Count 1 (Breach of Contract): In Count 1, Federal claimed that FICO's termination of the License Agreement breached the agreement. According to Federal, none of the circumstances allowing for termination enumerated in § 9.2 had occurred—in particular, Federal claimed that it had not breached the contract.

• Count 2 (Breach of the Implied Covenant of Good Faith and Fair Dealing): Federal also claimed that FICO breached the implied covenant of good faith and fair dealing by improperly withholding consent for Federal's continued use of Blaze after the merger.

II. Summary Judgment

After extensive discovery, the parties each moved for summary judgment in July 2019. Dkt. Nos. 396, 428. District Judge Wilhelmina Wright decided the parties’ cross-motions in a 61-page order. See Order, Dkt. No. 731 (SJ Order).⁶ That order addressed the merits of several theories and claims.

Starting with FICO's claim that Federal breached § 3.1 of the License Agreement, FICO argued that § 3.1 prohibited the use of Blaze outside the United States of America. Judge Wright disagreed, denying FICO's motion and granting Federal's motion as to FICO's geographic-restriction theory, holding that the License Agreement unambiguously did not restrict Federal's use of Blaze to the United States. Although § 1 of the License Agreement defined “Territory” as the United States, Judge Wright reasoned that § 1 was a non-operative introductory section, akin to a recital. Even if § 1 was operative, she explained, the plain language of the agreement only defined Territory but did not apply the term elsewhere in the License Agreement or expressly restrict the license to the defined territory. SJ Order at 38–41.

Judge Wright then denied the parties’ motions for summary judgment with respect to FICO's two remaining § 3.1 breach theories. First, FICO argued that the phrase “Client and its Affiliates” unambiguously meant Chubb & Son (an unincorporated division of Federal). According to FICO, this meant the use of Blaze by Federal affiliates violated § 3.1. Federal countered that the term Client meant Federal, not an unincorporated division of Federal. Judge Wright denied FICO's motion, reasoning that the scope of the phrase was at best ambiguous.⁷ Second, FICO argued that Federal breached § 3.1 by permitting two third-party consultants to use and access Blaze. Based on contrary evidence presented by Federal, Judge Wright found that genuine issues of material fact required submitting this issue to a jury. SJ Order at 41–44.

Judge Wright also denied the parties’ cross-motions for summary judgment on Federal's alleged breach of § 10.8. FICO argued that Federal both continued and expanded its use of Blaze after the Federal/ACE merger without FICO's consent. Federal countered that it did not expand its use of Blaze as a result of the merger, and therefore FICO's consent was not required under § 10.8. Judge Wright found both parties’ interpretations of § 10.8 reasonable. SJ Order at 48. Even if Federal's interpretation of § 10.8 was correct, she concluded that fact questions about whether had Federal expanded its use of Blaze would need to be resolved by a jury. SJ Order at 45–50.

Judge Wright denied summary judgment as to several other claims which rose and fell with FICO's breach-of-contract theories. FICO moved for summary judgment on its claim that Federal breached § 9.3 by continuing to use Blaze after FICO terminated the License Agreement. But that argument was contingent upon a finding that Federal had breached another provision of the agreement. The same followed for Defendants’ motions for summary judgment on FICO's copyright claims. Count II alleged infringement based on the reproduction and distribution of Blaze to third parties. Whether Federal infringed FICO's copyright by impermissibly distributing Blaze turned in part on the resolution of FICO's § 3.1 arguments. Count III alleged infringement based on Federal's continued use of Blaze after FICO purportedly terminated the agreement. Like FICO's claim that Federal breached § 9.3, the outcome of Count III turned on Federal breaching a provision of the License Agreement, providing FICO with a valid basis on which to terminate Federal's license. Judge Wright denied Defendants’ motion as to Count IV—ACE American's infringing use of Blaze—consistent with its denial of summary judgment on Counts II and III. SJ Order at 49–54.⁸

Judge Wright deferred ruling on disputes regarding Defendants’ statute-of-limitations defense and the application of the predicate act doctrine, permitting the parties to file supplemental cross-motions for summary judgment. SJ Order at 51–53. The parties filed those supplemental motions in April 2020. Dkt. Nos. 743, 750. Judge Wright granted Federal's motion for summary judgment and denied FICO's motion as to Federal's statute-of-limitations defense because “FICO effectively has conceded that any allegedly infringing conduct that occurred before April 21, 2013, is time-barred and has presented no evidence to the contrary.” Order at 9, Dkt. No. 840 (Supp. SJ Order).⁹

As to the predicate act doctrine, FICO argued that Federal uploaded a copy of Blaze to a computer server for the purpose of permitting unauthorized use, permitted unauthorized persons in Canada to use Blaze remotely, and distributed Blaze to unauthorized persons in Canada and Europe. Id. at 9. Judge Wright granted Federal's motion on this issue, holding that the predicate act doctrine did not apply because “FICO has not presented evidence of an act of copyright infringement that Federal completed entirely in the United States.” Id. at 15.

III. Disgorgement and Bifurcation

Before trial, Federal moved to strike FICO's jury demand as to disgorgement of profits, contending that disgorgement is an equitable remedy for the Court to decide. Dkt. Nos. 329, 331. Based on the text of the Copyright Act and concluding that disgorgement in this case was not a proxy for damages, the Court granted Federal's motion. Order, Dkt. No. 588. This meant the jury would decide liability and actual damages, but the Court would determine disgorgement of profits. Id. Federal then moved to bifurcate the trial, requesting that the jury issues—liability and actual damages—be decided separately from the equitable issue of disgorgement. Mot. to Bifurcate, Dkt. No. 899. The Court denied Federal's motion, reasoning that the substantial overlap in evidence meant bifurcation would waste time and resources. Order, Dkt. No. 935. The Court also decided to employ the jury in an advisory capacity on FICO's disgorgement claim. Id. at 16–17.

IV. The 2023 Trial 10

The case proceeded to trial beginning on February 15, 2023.¹¹ Minute Entry, Feb. 15, 2023, Dkt. No. 1076. FICO presented its case in chief over eight days. Dkt. Nos. 1085, 1090, 1099, 1107, 1117, 1120, 1121, 1140 (minute entries). Defendants in turn presented their case in chief over four days. Dkt. Nos. 1140, 1147, 1152, 1163 (minute entries). During closing arguments, FICO requested more than $21 billion in disgorgement of profits and contended that based “on the standard FICO pricing,” $36,542,831 should be taken as the “start of negotiations” for actual damages on its copyright-infringement and breach-of-contract claims. Trial Tr. Vol. XIII at 2712:19–22, Dkt. No. 1189.

A. Motions for Judgment as a Matter of Law

At the close of FICO's case-in-chief, Defendants moved for judgment as a matter of law on three issues. See Dkt. Nos. 1128, 1135. First, Defendants argued the evidence at trial made it clear Federal was the Client under the terms of the License Agreement. Defs.’ Mem. in Supp. Mot. for J. at 6–14, Dkt. No. 1129. The Court agreed, finding that Federal, not the division Chubb & Son, was party to the agreement. Trial Tr. Vol. XII at 2519:10–12, Dkt. No. 1188. Second, Federal argued that it was entitled to judgment regarding third-party consultants’ use of Blaze, contending that FICO had failed to prove a material breach. Defs.’ Mem. in Supp. Mot. for J. at 14–18. The Court denied this aspect of Defendants’ motion, finding that (1) the jury could conclude based on the evidence at trial that the use of Blaze by third-party consultants to be a material breach despite the limited use; and (2) § “9.2(c) of the license agreement [could] reasonably be read to mean that FICO ․ [could] terminate the contract without a material breach.” Trial Tr. Vol. XII at 2520:22–2521:10. Third, Defendants moved for judgment under Federal Rule of Civil Procedure 52(c), arguing that FICO's disgorgement claim failed. Defs.’ Mem. in Supp. Mot. for J., Dkt. No. 1136. The Court denied the motion. Trial Tr. Vol. XII at 2521:15–22.

At the close of Defendants’ case-in-chief, FICO cross-moved for judgment on three issues. Dkt. Nos. 1144, 1148, 1153. First, FICO moved for judgment as matter of law on its claim that Federal breached § 3.1 based on third-party consultants’ use of Blaze. Pl.’s Mem. in Opp'n to Defs.’ Mot. for J. and Mem. in Supp. for Pl.’s Mot. for J. at 40–44, Dkt. No. 1144. The Court denied this motion, explaining there was “evidence from which a jury could reasonably decide that the use was known, consented to, harmless and not a breach.” Trial Tr. Vol. XII at 2520:8–12. Second, FICO moved for judgment as a matter of law on Federal's counterclaims, arguing that Federal failed to adequately demonstrate damages. Pl.’s Mot. for J., Dkt. No. 1153. The Court disagreed, reasoning that Federal submitted evidence regarding the costs to remove Blaze and the loss of a license it claimed in perpetuity. Trial Tr. Vol. XII at 2522:15–19. Finally, FICO moved for judgment as a matter of law on its copyright-infringement claim against ACE American. Pl.’s Mot. for J., Dkt. No. 1148. The Court denied the motion, finding that the testimony at trial would permit a reasonable jury to find either way, relying in part upon Judge Wright's analysis of § 10.8. Trial Tr. Vol. XII at 2522:4–12.

B. The Verdict

After nearly three weeks of trial testimony, the jury deliberated and returned the following verdict:

As to claims between FICO and Federal, the jury determined that Federal did not breach § 3.1; that it did breach § 10.8; that FICO properly terminated the License Agreement; and that Federal had infringed FICO's copyright by using Blaze after termination. The jury awarded FICO $4.3 million in actual damages for Federal's breach and infringement.

As to FICO's copyright infringement claim against ACE American, the jury determined ACE American had infringed FICO's copyright of Blaze and awarded FICO $35.7 million in actual damages.

As to disgorgement of profits under § 504(b) of the Copyright Act, the jury determined—in an advisory capacity—that FICO had not proven Defendants’ infringing use contributed to their revenues and therefore concluded that Defendants owed FICO $0 in disgorged profits. Redacted Jury Verdict, Mar. 10, 2023, Dkt. No. 1173.

V. Post-Trial Motions

Several post-trial matters required resolution. First, the parties submitted proposed findings of fact and conclusions of law regarding FICO's claim for disgorgement of profits. Dkt. Nos. 1275, 1277. This Court agreed with the jury's advisory verdict, concluding that FICO failed to meet its attribution burden, having presented insufficient evidence to establish a causal nexus between Defendants’ infringement and their revenues beyond a speculative level. Findings of Fact & Conclusions of Law, Dkt. No. 1282 (Disgorgement Findings & Conclusions).¹²

Second, Defendants moved for a new trial on damages, arguing that there was no legally sufficient basis for the jury's damages award and the Court improperly admitted certain evidence warranting a new trial. Defs.’ Mot. for New Trial, Dkt. No. 1226. The Court agreed, granting the motion for two reasons. First, it concluded that a witness's calculation applying FICO's application-based pricing model was admitted in error and affected the verdict. Remittitur Order at 38. Second, the Court found that nothing in the record established that any willing buyer would pay $40 million for a Blaze license to cover Defendants’ use. Remittitur Order at 62. Finding the highest reasonable license fee for the hypothetical license to be $6 million, the Court ordered a new trial unless FICO agreed to remittitur in the amount of $6 million. Id. at 63–65.¹³

Third, FICO moved for judgment as a matter of law on the second ground for breach, § 3.1. Dkt. No. 1240. The thrust of FICO's argument was that all the evidence of third-party use pointed in its favor. Order, Dkt. No. 1285 at 13. The Court disagreed, finding that the evidence about outside consultants was open to several reasonable interpretations, including that FICO had not met its evidentiary burden. Id. at 16–22. Moreover, the Court found that even if no reasonable jury could have found against FICO on the alleged breach of § 3.1, FICO failed to prove its damages flowing from the breach. Id. at 22–23. Accordingly, the Court denied FICO's motion for judgment as a matter of law.

In response to remittitur, FICO moved to amend or modify judgment under Rule 59(e), arguing that $17,262,000 reflected the maximum amount of FICO's actual damages as supported by the evidence at trial. Pl.’s Mot. to Amend or Modify J., Dkt. No. 1296. The Court denied FICO's motion, Order, Dkt. No. 1330, unpersuaded by FICO's theory that the remittitur amount should include maintenance and support fees, Hr'g Tr. at 50:1–54:24, Dkt. No. 1335. In turn, FICO rejected remittitur, deciding instead to proceed with a new trial on damages. Pl.’s Notice of Resp. to Remittitur, Dkt. No. 1338. FICO likewise rejected Defendants’ $6.3 million offer of judgment under Rule 68. Janus Decl., Ex. A, Dkt. No. 1568.

VI. The 2024 Trial 14

The case proceeded to trial for a second time in June 2024. See Minute Entry, June 10, 2024, Dkt. No. 1473. The sole issue at this second trial was the fair market value of a license to use Blaze covering Defendants’ use of the software after March 31, 2016. See Final Jury Instrs. at 8, Dkt. No. 1517. After seven days of trial, the jury deliberated and returned a verdict of $3,725,000. Redacted Jury Verdict, June 18, 2024, Dkt. No. 1486.

ANALYSIS

I. Attorneys’ Fees

FICO requests more than $8 million in attorneys’ fees under the Copyright Act. Pl.’s Mem. in Supp. Mot. for Att'ys Fees, Dkt. No. 1510 (Pl.’s Fees Mem.). Section 505 of the Copyright Act provides that a court “may ․ award a reasonable attorney's fee to the prevailing party.” 17 U.S.C. § 505. When exercising this discretion, district courts may not award attorneys’ fees under § 505 “as a matter of course.” Fogerty v. Fantasy, Inc., 510 U.S. 517, 533, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994). Rather, courts “must make a more particularized, case-by-case assessment.” Kirtsaeng v. John Wiley & Sons, Inc., 579 U.S. 197, 202, 136 S.Ct. 1979, 195 L.Ed.2d 368 (2016) (citing Fogerty, 510 U.S. at 533, 114 S.Ct. 1023). Factors to consider when conducting this particularized assessment include “whether the lawsuit was frivolous or unreasonable, the losing litigant's motivations, the need in a particular case to compensate or deter, and the purposes of the Copyright Act.” Killer Joe Nevada, LLC v. Does 1-20, 807 F.3d 908, 911 (8th Cir. 2015) (quoting Action Tapes, Inc. v. Mattson, 462 F.3d 1010, 1014 (8th Cir. 2006)). When weighing these factors, courts must give substantial weight to the objective reasonableness of the losing party's litigating position. Kirtsaeng, 579 U.S. at 204–09, 136 S.Ct. 1979. Nonetheless, “objective reasonableness can be only an important factor in assessing fee applications—not the controlling one.” Id. at 208, 136 S.Ct. 1979. “[C]ourts must view all the circumstances of a case on their own terms, in light of the Copyright Act's essential goals.” Id. at 209, 136 S.Ct. 1979. Because Defendants do not contest FICO's prevailing-party status, the only question presented is whether to award FICO attorneys’ fees under the Copyright Act in light of the applicable guidance.

A. Objective Reasonableness

The Court's analysis starts with the factor that must be given substantial weight, the objective reasonableness of Defendants’ litigation position. When evaluating this factor, “courts consider whether the losing party had serious or colorable arguments in support of its position.” Live Face on Web, LLC v. Renters Warehouse, LLC, No. 17-cv-2127, 2019 WL 1097493, at *3 (D. Minn. Mar. 8, 2019). A handful of examples are instructive. In Designworks Homes, Inc. v. Thomson Sailors Homes, L.L.C., a copyright plaintiff sued a group of architects and other builders, claiming that they copied the plaintiff's home designs. 9 F.4th 961, 963 (8th Cir. 2021). The Eighth Circuit Court of Appeals affirmed a district court's award of attorney fees to the prevailing defendants, noting that the copyright plaintiff failed to address “significant objective differences” between the home designs and produced “nothing more than speculative evidence” to oppose summary judgment. Id. at 964. Meanwhile, the Seventh Circuit found a copyright plaintiff's litigating position unreasonable when that plaintiff sued someone “in her personal capacity despite knowing that her only involvement was” in her capacity as an employee. Live Face on Web, LLC v. Cremation Soc'y of Ill., Inc., 77 F.4th 630, 635 (7th Cir. 2023). Finally, a court in this District found that a copyright plaintiff's “insistence on maintaining its claims ․ despite clear guidance from this court and the court of appeals that those claims were without legal basis was unreasonable.” MPAY Inc. v. Erie Custom Computer Applications, Inc., No. 19-cv-704, 2022 WL 17829712, at *8 (D. Minn. Dec. 21, 2022).

On the other hand, a losing party's litigating position is ordinarily reasonable when that party survives summary judgment or judgment as a matter of law at the close of evidence. See MPAY, 2022 WL 17829712, at *7; Rottlund Co. v. Pinnacle Corp., No. 01-cv-1980, 2005 WL 2105549, at *2 (D. Minn. Aug. 31, 2005) (noting the relevance of surviving dispositive motions for determining reasonableness); Griner v. King, No. 21-cv-4024, 2023 WL 2163994, at *8 (N.D. Iowa Feb. 22, 2023) (finding the defendants’ litigating position objectively reasonable based in part on denial of the plaintiff's motion for a directed verdict). Even “weak” or “thin” arguments are not objectively unreasonable when they have a modicum of support. Nat'l Presto Indus., Inc. v. U.S. Merchants Fin. Grp., Inc., No. 18-cv-3321, 2023 WL 7986605, at *13–14 (D. Minn. Nov. 17, 2023) (finding “weak” claim reasonable where plaintiff pointed to some evidence in the record); Ferman v. Jenlis, Inc., No. 4:16-cv-00074, 2016 WL 7187888, at *1–2 (S.D. Iowa Dec. 5, 2016) (finding a “thin” claim objectively reasonable despite being dismissed on a Rule 12(b)(6) motion).

FICO contends that Defendants’ litigating positions regarding § 10.8 of the License Agreement were not objectively reasonable. Pl.’s Fee Mem. at 13–16. Although seemingly conceding that Federal's § 10.8 argument was not unreasonable in theory, FICO argues that it became unreasonable when Federal failed to put forth evidence to support its argument at trial. As for ACE American, FICO contends that ACE American was an infringer the moment it started using Blaze based on the plain language of the License Agreement. Id. at 14–16.

These arguments miss the mark. To start, FICO narrowly focuses on § 10.8, ignoring that many of Defendants’ litigating positions throughout this case have not only been reasonable but proven correct. Judge Wright granted Defendants’ motion for summary judgment on FICO's geographical-restriction theory, finding that the License Agreement was not limited to the United States. SJ Order at 38–41. Then she granted Defendants’ supplemental motion for summary judgment, both as to Defendants’ statute-of-limitations defense and the predicate act doctrine. Supp. SJ Order at 5–15. During the first trial, this Court granted Defendants’ motion for judgment as a matter of law on the law as to the definition of Client under the License Agreement. Trial Tr. Vol. XII at 2519:10–12. Then the jury found Defendants did not breach § 3.1 of the agreement by allegedly providing outside consultants access to Blaze. Redacted Jury Verdict, Mar. 10, 2023. Defendants also defeated Plaintiffs’ claim for disgorgement of profits. See Disgorgement Findings & Conclusions. Moreover, much of this case has been about the measure of FICO's actual damages, not just liability; Defendants’ vigorous damages arguments have likewise been more than reasonable. Just by way of example, this Court granted Defendants’ motion for a new trial after the first jury awarded FICO $40 million. See Remittitur Order.

But even focusing narrowly on § 10.8, Federal's litigation position was objectively reasonable. After all, Judge Wright expressly held that Federal's interpretation of the provision was reasonable when denying summary judgment. See SJ Order at 48 (“Federal's interpretation of Section 10.8 is reasonable.”).¹⁵ As she explained, “[u]nder Federal's interpretation of Section 10.8, any continued use of Blaze Advisor following an actual assignment of the License Agreement requires written consent; but after a deemed assignment, only expanded use of Blaze Advisor requires written.” Id. To support their position, Defendants offered substantial evidence at trial that their usage of Blaze, on a per application basis, did not expand. See, e.g., Trial Tr. Vol. XI at 1148:5–20, Dkt. No. 1182; Trial Tr. Vol. IX at 1761:19–1762:10, Dkt. No. 1185; Trial Tr. Vol. IV 692:14–19 (“We never expanded to any new applications of software [after the merger].”). That Federal's theory did not win the day at trial does not negate the reasonableness of its litigating position.

ACE American's § 10.8 argument, although perhaps thin, likewise passes muster. ACE American's argument expanded on Federal's interpretation of § 10.8, arguing that “under Section 10.8, the acquisition triggered a deemed assignment of rights under the License Agreement to ACE Limited, and then to Chubb Limited. This deemed assignment permitted the jury to find that ACE Limited became the ‘Client’ under the License Agreement and gained the right to use Blaze without FICO's prior consent, a right that encompassed Chubb Limited's Affiliate, ACE American—as long as it did not expand use.” Defs.’ Mem. in Opp'n to Pl.’s Mot. for Att'ys Fees, Dkt. No. 1555; see also Letter in Opp'n to Pl.’s Mot. for J. at 3, Dkt. No. 1160 (“[T]he jury could conclude there has been a deemed assignment—meaning a transfer of rights from Federal to the acquiring entity that took over control of Federal.”). When taking the ambiguity of § 10.8 in conjunction with Defendants’ evidence that the use of Blaze on a per-application remained the same post-merger, Defendants’ deemed-assignment argument was colorable, not objectively unreasonable or frivolous. See Trial Tr. Vol. XII at 2522:6–8 (“[T]he testimony at trial would permit a reasonable jury to find either way on the issue of ACE American's alleged infringement.”). Nor was there anything improper with ACE American focusing its energy at trial on other issues, such as disputing the measure of actual damages.

In short, Defendants’ litigating positions throughout this case have been objectively reasonable, often proven correct. Therefore, the objective-reasonableness factor weighs heavily against granting fees.

B. Willful Infringement

FICO argues that Defendants’ willful infringement supports awarding attorneys’ fees. Pl.’s Fees Mem. at 17–20. Although willfulness is not a prerequisite to awarding attorneys’ fees under the Copyright Act, Mary Ellen Enterprises v. Camex, Inc., 68 F.3d 1065, 1072 (8th Cir. 1995), it is a factor courts have considered, see Beastie Boys v. Monster Energy Co., 112 F. Supp. 3d 31, 43 (S.D.N.Y. 2015) (“As courts in this Circuit have repeatedly held, a defendant's willful infringement supports an award of attorneys’ fees to a prevailing plaintiff.”); cf. Hoffmann Bros. Heating & Air Conditioning, LLC v. Hoffmann Air Conditioning & Heating, LLC, No. 4:19-CV-00200, 2024 WL 149231, at *4 (E.D. Mo. Jan. 12, 2024) (noting willfulness as a factor that may guide the court's discretion); Nat'l Presto Indus., 2023 WL 7986605, at *14. Of course, “[a] finding of willful infringement alone cannot compel an award of fees, as such an interpretation contravenes the discretion vested in the district court by the Copyright Act.” Nat'l Presto Indus., 2023 WL 7986605, at *14.

As an initial matter, it seems improper to decide willfulness at this late juncture. Ordinarily, a jury decides whether a defendant willfully infringed, then a court applies that jury's verdict when deciding whether to award fees under the Copyright Act. Beastie Boys, 112 F. Supp. 3d at 43 (“The jury found that Monster's infringement was willful.”); Nat'l Presto Indus., 2023 WL 7986605, at *8, 14 (same); Griner, 2023 WL 2163994, at *9 (pointing to a jury's finding that the defendant's infringement was innocent). Unlike those cases, the issue of willfulness was not submitted to the jury here. See Redacted Jury Verdict, Mar. 10, 2023. Although neither party has addressed this concern, it seems dubious to make a specific finding of willfulness at this late juncture as part of resolving FICO's motion for attorneys’ fees. Absent a jury verdict or finding of fact on this issue, the better approach is to treat this factor as neutral.

Even assuming the Court is required to determine whether Defendants willfully infringed FICO's Blaze copyrights at this time, the Court would not find in FICO's favor. “A copyright holder seeking to establish willful infringement must show that the infringer had knowledge that its conduct constituted infringement or that it recklessly disregarded that possibility.” Adventure Creative Grp., Inc. v. CVSL, Inc., 412 F. Supp. 3d 1065, 1073 (D. Minn. 2019) (citing RCA/Ariola Int'l, Inc. v. Thomas & Grayston Co., 845 F.2d 773, 779 (8th Cir. 1988)). It is not enough for a copyright plaintiff to show “mere purposeful performance of an action without knowledge of whether it is an infringement.” RCA/Ariola, 845 F.2d at 779. Accordingly, “one who has been notified that his conduct constitutes copyright infringement, but who reasonably and in good faith believes the contrary, is not ‘willful’ for these purposes.” Id. (quoting 3 M. Nimmer and D. Nimmer, Nimmer on Copyright § 14.04[B][3] (1987)).

Although there is no question that FICO notified Defendants that, in FICO's view, their continued use of Blaze infringed on its copyrights, Defendants raised several good-faith arguments regarding the continuing validity of Federal's perpetual enterprise-wide license. See Supra, Part I.A. After all, Federal reasonably disputed the validity of FICO's termination of the License Agreement. Id. Likewise, ACE American raised a colorable deemed-assignment argument based on the ambiguous § 10.8. Id. Based on Defendants’ arguments and the trial record, the Court is not persuaded that FICO proved Defendants knew their continued use of Blaze infringed upon FICO's copyrights or proved that Defendants recklessly disregarded the possibility.¹⁶

C. Motivation

Another factor to consider is whether the losing party's motivation in filing or contesting the action was questionable. For example, courts have found this factor favors granting attorneys’ fees when a party prevails against so-called “copyright trolls” who file a “multiplicity of suits” seeking “to extract nuisance settlements.” Cremation Soc'y of Ill., 77 F.4th at 634. FICO has not offered evidence or arguments to demonstrate that Defendants’ motivations in contesting the action were improper. Absent such evidence, and because in the Court's view of the record Defendants contested FICO's suit in good faith, this factor favors Defendants. Rottlund Co., 2005 WL 2105549, at *2 (“Defendants’ scant evidence of improper motivation does not support a fee award.”); Nat'l Presto Indus., 2023 WL 7986605, at *14 (“[The movant] has not established that [the losing party] acted in bad faith or with an improper motive.”); Malibu Media, LLC v. Mullins, No. 18-cv-06447, 2021 WL 122715, at *5 (N.D. Ill. Jan. 13, 2021) (“At bottom, the motivation factor leans in favor of Malibu because the record does not support a finding otherwise.”).

D. Compensation and Deterrence

FICO raises three arguments for why compensation and deterrence support granting it attorneys’ fees under the Copyright Act. Pl.’s Fees Motion at 20–22.

First, FICO argues that a fee is appropriate to deter Defendants and others from engaging in deliberate infringement. FICO goes on to argue that $3.725 million “is an insignificant sum to Federal and ACE American—certainly not enough to deter infringement.” Pl.’s Fees Mem. at 21. According to FICO, “deterrence, by its very nature, must consider the size and means of the infringer in order to appropriately assess whether fees are necessary to deter in light of the damages award.” Id. at 21 n.4.

This line of attack is not persuasive. To start, the Court has already rejected FICO's contention that Defendants’ willfully infringed.¹⁷ Supra, Part I.B. Nor does the record reveal some otherwise improper conduct that need be deterred. Compare Nat'l Presto Indus., 2023 WL 7986605, at *14 (“Presto has not established that U.S. Merchants acted in bad faith or with an improper motive such that the deterrence of future bad conduct is necessary.”), Hoffmann Bros., 2024 WL 149231, at *4 (finding that the Copyright Act would not be served by applying its fee-shifting provision liberally so as to deter litigants with reasonable claims), with Designworks Homes, Inc. v. Horak, No. 2:18-cv-04093, 2024 WL 4763202, at *5–6 (W.D. Mo. Sept. 30, 2024) (finding that a copyright plaintiff's overbroad “litigation strategy gives rise to circumstances suggesting a need for deterrence”). Therefore, deterrence considerations do not favor granting FICO's motion.

Even if Defendants’ conduct merited deterrence, Defendants’ size would not be relevant. Despite claiming that courts “must consider the size and means of the infringer in order to appropriately assess [deterrence],” Pl.’s Fees Mem. at 21 n.4, FICO cites to no case that has done so, see id. Nor has the Court's research identified a case that considered an infringer's wealth when deciding whether a copyright plaintiff's damages award adequately deterred infringement. To the contrary, wealth is a “factor that should typically not enter into the fee calculus.” 5 M. Nimmer & D. Nimmer, Nimmer on Copyright § 14.10[D][5][a][v] (2024).

Second, FICO argues that the “amount awarded in the second trial is also less than what Defendants would have paid had they negotiated an agreement instead of infringed.” Pl.’s Fees Mem. at 21. Because such an arrangement would have included the payment of maintenance and support, FICO claims, “Defendants received a better deal by infringing because they were not required to pay what other customers with valid contracts would have paid.” Id.

The basic problem with this argument is that FICO never provided any maintenance, support, or other services to Defendants after terminating the License Agreement. Indeed, the Court excluded evidence regarding development license fees and maintenance and support fees as irrelevant because those fees were not part of Defendants’ infringing use. Hr'g Tr. at 31:15–21, Dkt. No. 1453. Moreover, there is more than enough evidence in the record to conclude Defendants would not have been willing to pay $3.725 million for their post-merger use of Blaze. Simply put, Defendants did not receive “a better deal” by infringing. Therefore, FICO has been adequately compensated by the jury's verdict. Nor is there some need to grant attorneys’ fees to deter licensees from seeking a “better deal” by infringing.¹⁸

Third and finally, FICO argues that “[a]n award of fees is also appropriate to compensate FICO” because “[t]he $3.725 million award is disproportionately low as compared to the extensive effort required of FICO to enforce and vindicate its rights.” Pl.’s Fees Mem. at 22. Some courts have reasoned that a small award for damages, without fees, may leave a copyright plaintiff with a pyrrhic victory. As Judge Posner explained, “[n]o one can prosecute a copyright suit for $3,000.” Gonzales v. Transfer Techs., Inc., 301 F.3d 608, 610 (7th Cir. 2002); see also Glacier Films (USA), Inc. v. Turchin, 896 F.3d 1033, 1039 (9th Cir. 2018) (finding that “willful infringements involving small amounts of money” supports shifting fees under the Copyright Act). The basic problem here is that FICO received an award of $3.725 million, not an award of $750, Glacier Films (USA), 896 F.3d at 1039, or $3,000, Gonzales, 301 F.3d at 610.¹⁹ While no one can prosecute a copyright claim for $3,000, the same is not true for $3.725 million.

At least one court has entertained a similar argument when a copyright plaintiff received a much larger award, out of concern for a prevailing copyright plaintiff receiving a net positive recovery. In Beastie Boys v. Monster Energy Co., the court considered that “the Beastie Boys paid their counsel more in fees (approximately $2.4 million) than was awarded by the jury in total ($1.7 million) or on the Copyright Act claims alone ($1.2 million).” 112 F. Supp. 3d at 44. But the court acknowledged that, “[t]o be sure, in assessing whether the Copyright Act's compensation goal is implicated here, the Court must determine the minimum amount reasonably necessary to effectively litigate these claims, not the amount actually spent in this case.” Id. Notably, that case involved willful infringement and a losing party whose unreasonable litigation conduct was directly responsible for some of the plaintiff's fees. Id. at 40–43. By contrast, here, there is at least a fair argument that this case could have been prosecuted for less than $3.725 million. Moreover, if anything, the large amount of fees FICO incurred is at least partially a product of its aggressive litigation strategy, not Defendants’ improper litigation conduct. Although zealous advocacy is well within FICO's rights, it is not a factor that supports shifting fees under the Copyright Act.²⁰ Perhaps in some cases it will be readily apparent that a multi-million-dollar award is clearly insufficient to compensate a copyright plaintiff, but this is not such a case. Therefore, compensation considerations do not favor granting FICO's motion.

E. Purposes of the Act

FICO also contends that awarding it attorneys’ fees promotes the goals of the Copyright Act. Pl.’s Fees Mem. at 12–13. The goal of the Copyright Act is to “enrich[ ] the general public through access to creative works.” Fogerty, 510 U.S. at 527, 114 S.Ct. 1023. As the Supreme Court has explained, “[t]he limited scope of the copyright holder's statutory monopoly ․ reflects a balance of competing claims upon the public interest: Creative work is to be encouraged and rewarded, but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and the other arts.” Id. (quoting Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 45 L.Ed.2d 84 (1975)). “The statute achieves that end by striking a balance between two subsidiary aims: encouraging and rewarding authors’ creations while also enabling others to build on that work.” Kirtsaeng, 579 U.S. at 204, 136 S.Ct. 1979. “[F]ee awards under § 505 should encourage the types of lawsuits that promote those purposes.” Id.

Although the parties analyze the purposes of the Copyright Act as a distinct factor, the factors already discussed are animated by the purposes of the Copyright Act. For example, as the Supreme Court explained in the context of objective reasonableness:

The copyright holder with no reasonable infringement claim has good reason not to bring suit in the first instance (knowing he cannot force a settlement and will have to proceed to judgment); and the infringer with no reasonable defense has every reason to give in quickly, before each side's litigation costs mount. All of those results promote the Copyright Act's purposes, by enhancing the probability that both creators and users (i.e., potential plaintiffs and defendants) will enjoy the substantive rights the statute provides.

Kirtsaeng, 579 U.S. at 205, 136 S.Ct. 1979. Similar purposes of the Copyright Act underpin adequately compensating copyright plaintiffs, deterring willful infringement, and so on. Although FICO pursued this claim to protect its intellectual property and its investment in Blaze, Defendants reasonably contested the scope of their rights under the License Agreement, the proper measure of damages, and FICO's disgorgement claim. Having concluded that Defendants’ litigating positions were reasonable, rejected a finding of willful infringement, concluded that Defendants litigated this case in good faith, and rejected the need for additional compensation or deterrence, that FICO ultimately prevailed on its copyright-infringement claim to protect its valid Blaze copyrights, without more, does not move the needle on granting attorneys’ fees under § 505.

ORDER

For the reasons set forth above, IT IS HEREBY ORDERED:

1. FICO's Motion for Attorneys’ Fees (Dkt. No. 1508) is DENIED.

FOOTNOTES

2.   Though the License Agreement recited that it was between “Chubb & Son, an unincorporated division of Federal” and FICO, Federal was the corporate entity able to enter into—and bind the defendant to—the contract. See Trial Tr. Vol. XII at 2519:10–12, Dkt. No. 1188; See Order at 41–44, Dkt. No. 731.

3.   Although FICO alleged that Chubb & Son, the unincorporated division, was the “Client” under the License Agreement, this Court rejected that argument at the close of FICO's case in chief during the first trial. See Trial Tr. Vol. XII at 2519:10–12, Dkt. No. 1188. All citations to the trial transcript and trial exhibits in this Order refer to the first trial held in 2023.

4.   The License Agreement required Federal to pay for an initial year of “support and maintenance services.” Hinderaker Decl., Ex. 5 at 14–15, Dkt. No. 401-3 (License Agreement). After that first year, the support and maintenance service would automatically renew unless Federal sent FICO a written notice of its intent not to renew. Id. at 15.

5.   FICO's original complaint named Chubb & Son, Inc., as the defendant, which was amended in February 2017 to substitute Federal, the entity contractually bound by the License Agreement. See Am. Compl., Dkt. No. 36. Because ACE American, having absorbed Federal's operations, began using Blaze, FICO added ACE American as a defendant in September 2018. See Sec. Am. Compl., Dkt. No. 132.

6.   The parties also filed several motions to exclude expert testimony, the details of which need not be recounted here. See SJ Order at 3–33.

7.   Judge Wright characterized FICO's interpretation as absurd, explaining that “FICO is suing Federal for breaching the License Agreement, yet argues that Federal is not a party to the License Agreement. FICO cannot have it both ways.” SJ Order at 43 at n.14; see also id. at 44 (noting that FICO's interpretation would render the entire December 2006 amendment superfluous). Nonetheless, she declined to enter summary judgment in favor of Federal because “Federal did not affirmatively move for summary judgment as to this issue.” Id. at 44 n.15.

8.   Judge Wright rejected Defendants’ damages-related arguments, finding that FICO's evidence of actual damages and disgorgement of profits was sufficient to proceed to trial. SJ Order at 54–57. She likewise rejected Defendants’ argument that a limitation of liability clause, § 5.6, limited FICO's damages. Id. at 58.

9.   Judge Wright granted FICO's motion regarding Federal's statute-of-limitations defense to the extent applicable to FICO's breach-of-contract claim because Federal conceded the issue. Supp. SJ Order at 5.

11.   In July 2022, the parties consented to proceed before the Magistrate Judge. Dkt. No. 882.

12.   In response, FICO moved to certify two questions for interlocutory appeal: (1) whether the Court properly struck FICO's jury demand; and (2) whether the Court applied the correct legal burden for FICO to demonstrate its entitlement to disgorgement of profits. Dkt. Nos. 1324, 1326. The Court denied FICO's motion. Order, Dkt. No. 1345.

13.   Having granted Defendants’ motion for a new trial—pending a decision on remittitur—the Court denied FICO's motions for pre- and post-judgment interest and attorneys’ fees as no longer ripe. Dkt. Nos. 1286, 1287.

15.   Defendants contend that earlier decisions denying FICO's motions for summary judgment and for judgment as a matter of law “foreclose[ ]” or “preclude[ ]” the Court from finding their § 10.8 arguments objectively unreasonable here. That argument goes too far. Although no doubt those earlier decisions are highly relevant, see, e.g., MPAY, 2022 WL 17829712, at *7, that does not make them controlling on this question.

16.   To be clear, even if the Court found that Defendants willfully infringed FICO's Blaze copyrights by continuing to use Blaze post-merger, the Court would nonetheless deny FICO's motion for attorneys’ fees when weighed against the remaining factors. Cf. Nat'l Presto Indus., 2023 WL 7986605, at *14 (declining to award attorneys’ fees despite jury finding of willful infringement).

17.   Moreover, the concept of deterrence is baked into why a finding of willful infringement favors awarding fees. See Nature's Enterprises, Inc. v. Pearson, No. 08-cv-8549, 2010 WL 447377, at *9 (S.D.N.Y. Feb. 9, 2010) (explaining that a finding of willful infringement favors awarding fees because deterring willful infringement is a purpose of the Copyright Act).

18.   At bottom, FICO's argument is premised on either (1) the jury awarding insufficient damages; or (2) the Court incorrectly excluding evidence regarding maintenance and support at the second trial. Such a line of attack is unconvincing.

19.   FICO will also receive more than $100,000 in taxable costs as the prevailing party. See Order, Dkt. No. 1593.

20.   There are also practical concerns with adopting the rationale as set forth by FICO. Finding that a disparity between recovery and fees supports granting attorneys’ fees under the Copyright Act—even with high-value claims—risks creating a perverse incentive for copyright plaintiffs to expend more resources on copyright litigation. By contrast, the rationale is much sounder in small-value cases or when a copyright infringer's litigation conduct needlessly increases a copyright plaintiff's litigation costs.

DAVID T. SCHULTZ, United States Magistrate Judge