Universal Instruments Corporation v. Micro System Engineering, Inc. et al

Filing 460

SUMMARY ORDER - That Universal's 436 motion to stay is DENIED AS MOOT. That defendants' 440 and 441 motions for attorneys' fees are DENIED. Signed by Senior Judge Gary L. Sharpe on 5/1/2020. (jel, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
________________________________
UNIVERSAL INSTRUMENTS
CORPORATION,
Plaintiff,

3:13-cv-831
(GLS/DEP)

v.
MICRO SYSTEM
ENGINEERING, INC. et al.,
Defendants.
________________________________
SUMMARY ORDER
Plaintiff Universal Instruments Corporation commenced this action
against defendants Micro System Engineering, Inc. (MSEI) and Missouri
Tooling & Automation (MTA) alleging copyright infringement and New York
state law claims for the wrongful use of its source code. 1 (See generally 3d
Am. Compl., Dkt. No. 103.) After lengthy discovery and motion practice,
the case proceeded to a jury trial on the surviving claims: breach of
contract, misappropriation of trade secrets, and copyright infringement
claims against MSEI; and unjust enrichment, unfair competition,
misappropriation of trade secrets, and copyright infringement claims
1

The court presumes a basic familiarity with the underlying facts and procedural
history of this action, which is set forth in the court's Summary Order dated August 8, 2017.
(Dkt. No. 396.)

against MTA. (Dkt. No. 228 at 37.)
Defendants ultimately prevailed when the court granted their motions
for judgment as a matter of law pursuant to Rule 50 of the Federal Rules of
Civil Procedure. (Dkt. No. 396 at 9; Dkt. No. 409 at 47-50.) The court then
awarded defendants’ attorneys’ fees in the amount of $3,008,990.92
pursuant to Section 505 of the Copyright Act. 2 (Dkt. Nos. 421, 426.)
Universal appealed the court’s Rule 50 order (hereinafter “the Merits
Appeal”), (Dkt. No. 413), which was affirmed by the Second Circuit, see
Universal Instruments Corp. v. Micro Sys. Eng’g, Inc., 924 F.3d 32, 51 (2d
Cir. 2019) (hereinafter “the Merits Appeal Decision”), as well as the court’s
award of attorneys’ fees, (Dkt. No. 428), which was vacated and remanded,
see Universal Instruments Corp. v. Micro Sys. Eng’g, Inc., 799 F. App’x 43,
48 (2d Cir. 2020) (hereinafter “the Fees Appeal Decision”).
In between the Merits Appeal Decision and the Fees Appeal
Decision, defendants moved for attorneys’ fees expended in defending the
Merits Appeal, (Dkt. No. 441), which is currently pending. And, as a result
of the Fees Appeal Decision, also pending is defendants’ initial motion for

2

See 17 U.S.C. § 505.

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attorneys’ fees.3 (Dkt. No. 410.) For the reasons that follow, defendants’
motions are denied.
The Copyright Act grants courts discretion to “allow the recovery of
full costs by or against any party other than the United States” and to
“award a reasonable attorney’s fee to the prevailing party as part of the
costs.” 17 U.S.C. § 505. There is no precise formula for making fee
determinations under Section 505; instead, the court must rely on its
equitable discretion. See Fogerty v. Fantasy, Inc., 510 U.S. 517, 534
(1994). In deciding whether an award of attorneys’ fees is appropriate, a
court should consider “(1) the frivolousness of the non-prevailing party’s
claims or defenses; (2) the party’s motivation; (3) whether the claims or
defenses were objectively unreasonable; and (4) compensation and
deterrence.” 16 Casa Duse, LLC v. Merkin, 791 F.3d 247, 264 (2d Cir.
2015) (citation omitted). The third factor, objective unreasonableness, is
“an important factor in assessing fee applications” and should be given
“substantial weight.” Kirtsaeng v. John Wiley & Sons, Inc., 136 S. Ct. 1979,
1986-89 (2016).
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Also pending is Universal’s motion to stay execution of the court’s initial award of
attorneys’ fees, (Dkt. Nos. 421, 426), “until the Second Circuit’s disposition of Universal’s
appeal from those judgments,” (Dkt. No. 436). In light of the Fees Appeal Decision, this motion
is denied as moot.

3

On February 7, 2018, the court, applying these factors, granted
defendants’ motion for attorneys’ fees, finding that “Universal ha[d] litigated
this case in an unreasonable manner that exacerbated the issues to be
resolved and the expenses incurred by all parties[,]” by, for example,
“shift[ing] its theory of liability to such an extent that [it] actually advanced
theories which contradicted their own pleadings[,]” and by requesting
“staggering damage demands.” (Dkt. No. 421 at 4-5.) The court also
considered Universal’s “lack of understanding about basic legal concepts”
and “lack of any reasonable attempt to resolve this litigation short of trial.”
(Id. at 5.) In sum, the court found that “[e]ven if [Universal’s]
unreasonableness d[id] not rise to the level of frivolousness,” and although
“there [was] no specific evidence that Universal acted in bad faith, its
contradictory and meritless theories unnecessarily increased the time and
resources expended on this litigation.” (Id. at 5.)
On appeal, the Second Circuit vacated and remanded this decision,
concluding in its findings that (1) “section 8.2 of the relevant contract . . .
arguably prohibits . . . MSEI and its suppliers from modifying Universal’s
pre-existing intellectual property,” and that (2) Universal did not shift its
theory of liability, which “undercut[] the [court’s] conclusion that no
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reasonable lawyer would have filed a claim in the first instance.” See
Universal Instruments Corp., 799 F. App’x at 46-47 (internal quotation
marks and citation omitted). The Second Circuit found no error in the
court’s consideration of Universal’s “lack of understanding about basic legal
concepts” and “lack of any reasonable attempt to resolve this litigation
short of trial.” Id. at 47 (citation omitted).
Defendants argue that the court should reaffirm its initial attorneys’
fee award, because, among other things, the court’s findings that Universal
had a “lack of understanding about basic legal concepts” and a “lack of any
reasonable attempt to resolve this litigation short of trial” are sufficient to
maintain a fee award. (Dkt. No. 453 at 8.) Further, defendants argue that
the Fees Appeal Decision does not necessarily preclude a finding that
Universal’s conduct throughout the litigation satisfies the objective
unreasonableness factor. (Id.) The court disagrees, and finds that, in light
of the Fees Appeal Decision, the relevant factors weigh in Universal’s
favor.
To begin, the court previously found, whether implicitly or explicitly,
that Universal’s claim was not frivolous and that there was no evidence of
an improper or bad faith motive in bringing its claim. (Dkt. No. 421 at 5.)
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Thus, at the outset, those two factors weigh in favor of Universal.
Next, “objective unreasonableness,” a substantial factor in the
analysis, has been defined as a “legal position [that] has no chance of
success, and [where] there is no reasonable argument to extend, modify,
or reverse the law as it stands.” We Shall Overcome Found. v. Richmond
Org., Inc., 330 F. Supp. 3d 960, 968-69 (S.D.N.Y. 2018) (citation omitted).
Although the court previously found that Universal’s claim was
objectively unreasonable, the Second Circuit reversed two key grounds on
which the court’s finding was based. See Universal Instruments Corp., 799
F. App’x at 46-47. Specifically, the Second Circuit found that
(1) Universal’s claim “arguably” had merit, evidenced by the fact that it
“caused [the Second Circuit] in its written opinion to clarify ‘an important
limitation’ to the affirmative defense raised [by defendants]”; and
(2) Universal did not shift its theories of liability, and instead “consistently
argued that MSEI and MTA’s use and modification of the source code
exceeded the scope of use permitted by [the relevant contract].” Id.
(citations omitted). Thus, notwithstanding defendants’ argument to the
contrary, (Dkt. No. 453 at 9-10), and in consideration of the foregoing, the
court interprets the Fees Appeal Decision as effectively precluding a finding
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of objective unreasonableness. Accordingly, this factor also weighs in
Universal’s favor.
Finally, in light of the analysis above, the Second Circuit’s affirmance
of the court’s consideration of Universal’s “lack of understanding of basic
legal concepts” and “lack of any reasonable attempt to resolve this litigation
short of trial,” in determining the “the need in particular circumstances to
advance considerations of compensation and deterrence,” see Universal
Instruments Corp., 799 F. App’x at 47 (citations omitted), is of no
consequence. That is because—as alluded to above—these facts alone
are insufficient to establish objective unreasonableness, and without a
finding of frivolousness, improper motive, or objective unreasonableness,
there is no behavior for the court to deter. See Creazioni Artistiche
Musicali, S.r.l. v. Carlin Am., Inc., No. 14-CV-9270, 2017 WL 3393850,
at *5 (S.D.N.Y. Aug. 4, 2017) (“Plaintiff’s conduct in this litigation was not
objectively unreasonable, frivolous, or driven by an improper motive, and
thus does not warrant the deterrent effect of fees.”). Thus, the
“compensation and deterrence” factor necessarily weighs in favor of
Universal as well.
Accordingly, in light of the Fees Appeal Decision, and having found
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that all four factors weigh in Universal’s favor, defendants’ initial motion for
attorneys’ fees, (Dkt. No. 410), is denied. And, consequently, defendants’
motion for attorneys’ fees expended in defending the Merits Appeal, (Dkt.
No. 441), which is based on the same arguments advanced in defendants’
initial request for attorneys’ fees, (Dkt. No. 442 at 7 (“Defendants are thus
entitled to their attorneys’ fees spent defending Universal’s appeal for the
same reasons defendants were entitled to fees for the prior
proceedings.”)), is also denied.
Accordingly, it is hereby
ORDERED that Universal’s motion to stay (Dkt. No. 436) is DENIED
AS MOOT; and it is further
ORDERED that defendants’ motions for attorneys’ fees (Dkt.
Nos. 410, 441)4 are DENIED; and it is further
ORDERED that the Clerk provide a copy of this Summary Order to
the parties.
IT IS SO ORDERED.
May 1, 2020
Albany, New York
4

This Summary Order does not affect the court’s previous award of $38,247.89 in
costs to defendants. (Dkt. No. 421 at 9.)

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