DENISE COTE, District Judge.
Having prevailed after more than four years of litigation on almost every claim brought by the plaintiff, defendants Atos Se, Worldline SA, and Atos IT Services Ltd. ("Atos") have moved for an award of attorneys' fees and costs in the amount of over $6 million. Plaintiff PaySys International, Inc. ("PaySys") recognizes that it has a contractual duty to pay some attorneys' fees, but opposes the request on the grounds that Atos's application is flawed and argues that it has no obligation to pay more than $138,969.57. For the following reasons, Atos is awarded a sum to be calculated using the rulings set forth below.
The parties are worldwide competitors in the business of providing credit card payment processing software to financial institutions. Their dispute arises out of a series of agreements connected to a license for a credit card payment processing software developed by PaySys named CardPac.
Also in 2001, the parties resolved all outstanding disputes between them, which principally concerned the defendants' alleged violations of the territorial restrictions in their agreements. The Territory was expanded in 2001, as part of the settlement agreement between the parties (the "CSA"), to include "the entire world other than North America . . . South America, Central America and the Caribbean Islands." The CSA, which is governed by New York law, contained a fee-shifting provision. It provides that "[i]n the event of litigation between the parties with respect to any claim that [Atos] had committed a territorial violation, the prevailing party shall be entitled to an award of its reasonable attorneys' fees."
In 2004, Atos acquired the company that had obtained the license from and executed the CSA with PaySys. The execution of the CSA in 2001 had ended the parties' interactions until the summer of 2013, when PaySys requested an audit. As of 2013, PaySys was under new management and engaged in a turn-around initiative following years of financial struggle. On July 31, 2014, PaySys explained its concerns that Atos had violated the CSA, including its concern that Atos had granted licenses to third parties who were remotely accessing the CardPac software from outside the Territory in violation of the CSA's territorial restrictions. In 2014, Atos voluntarily produced eight representative customer agreements to demonstrate that PaySys's territorial allegations were baseless. During its year-and-ahalf audit of Atos, PaySys did not uncover any evidence that Atos had violated the territorial restrictions in their agreement.
On December 23, 2014, PaySys sued Atos, alleging contract, U.S. copyright, and New York and Florida trade secrets claims. About five weeks earlier, PaySys had registered copyrights in eight CardPac-related works. In its complaint, PaySys asserted that it had lost hundreds of millions of dollars in profits due to unlicensed activities by Atos. It accused Atos of intentional and pervasive non-compliance with clear license restrictions, which included allowing others to use the PaySys software on terms that Atos never had any right to allow. The complaint explained that the parties' agreement contained,
On July 24, 2015, the Honorable Shira Scheindlin, to whom this case was then assigned, dismissed PaySys's domestic copyright claims for failure to state a claim.
Both jurisdictional and general fact discovery commenced.
On December 10, 2015, PaySys filed its final complaint, the second amended complaint ("SAC") with ten causes of action. It asserted claims for breach of contract; trade secrets misappropriation under New York and Florida law; copyright infringement under French, Thai, Belgian, and Chinese law; and conversion, unfair competition, and replevin under New York law. The SAC asserted that the defendants had violated a strict prohibition on assignment as well as the territorial restrictions in the CSA. It explained that the defendants had not conducted business in a manner "as to prohibit remote access to PaySys software or intellectual property . . . from terminals or workstations in the United States or other excluded territories." According to the SAC, the "omission of this restriction from authorizations and licenses is in each case a territory violation" under the CSA. Explaining its damages theory, the SAC asserted that "any violation of the Territory restrictions entitles PaySys to liquidated damages equal to `seventy-five percent (75%) of the revenue received by [the defendants] for the grant of rights constituting the territorial violation.'"
The SAC explained as well that the territorial violations breached not only the CSA but also the plaintiff's rights under various statutes and the common law. It stated that
Thus, virtually all of the claims in the SAC related to the assertion that Atos had breached the territorial restrictions in its licensing agreement with PaySys. Atos responded with seven counterclaims for declaratory judgment.
In April 2016, the case was reassigned to the Honorable Katherine Forrest. As of that date, the parties had not yet completed document discovery or scheduled depositions. Introducing Judge Forrest to the case in a letter of April 25, PaySys began its "Statement" of the case with the following sentence: "[t]his case concerns violation by Defendants of a soft-ware licensing agreement
In May, Atos shared citations with PaySys to support its position that the foreign copyright claims were barred by the license. Also in May, PaySys moved to compel Atos to produce its confidential source code for its software. In response, Atos sought to elicit information regarding the scope of the CardPac copyright registrations. On the eve of briefing over this issue in July, PaySys filed supplementary registrations for the CardPac software. Judge Forrest found that the PaySys supplementary registrations were invalid because they impermissibly attempted to expand the scope of the registered work, and might even reflect a deliberate attempt to impose costs on Atos.
On June 28, 2016, Judge Forrest denied PaySys's motion to obtain third-party discovery under the Hague Convention from sixteen non-party customers or resellers of Atos' payment processing software products. Judge Forrest noted that the motion appeared to be a "fishing expedition" and based on nothing more than "mere suspicion". The court added that "PaySys has not satisfied the Court that an opportunity to obtain a competitive advantage is not the true thrust behind this motion." PaySys was granted an opportunity to renew its request if it had "specific, concrete support for the contention than an actual violation of its rights" had occurred. PaySys never renewed the request.
On May 26, Atos filed its first of several summary judgment motions. On July 14, 2016, Judge Forrest granted Atos's motion for partial summary judgment, dismissing PaySys's claims for unfair competition, conversion, and replevin on statute of limitations grounds.
On December 5, 2016, Judge Forrest granted Atos's motion, filed on June 20, 2016, for summary judgment on the trade secrets misappropriation claims asserted under New York and Florida law as barred by the statute of limitations and for lacking sufficient particularity.
As for the statute of limitations bar, Judge Forrest described PaySys's argument as follows: that "each instance of third party licensing of CardPac constitutes a separate act of misappropriation," thereby extending the three-year limitations period.
On August 10, Atos filed a summary judgment motion addressed to the foreign copyright claims. On December 8, Judge Forrest granted Atos's motion, dismissing PaySys's infringement claims under French, Thai, Belgian and Chinese law.
Judge Forrest first considered whether the copyright claim was premised on the works PaySys registered with the Copyright Office on the eve of the litigation or a supplementary registration it filed on July 28, 2016.
On December 14, Atos notified PaySys of its intent to move for an award of attorneys' fees and other applicable sanctions for PaySys's pursuit of meritless claims. On January 13, 2017, Judge Forrest denied PaySys's motions for reconsideration of the dismissal of its foreign copyright claims and for permission to file a third amended complaint.
On June 6, 2016, Judge Forrest had required Atos to produce its source code for certain Atos products for comparison with PaySys' code. PaySys asserts that its expert conducted a comparison in April 2017 and learned that at least one of the Atos products at issue did not include PaySys's original code. On April 3, 2017, Judge Forrest rejected PaySys's request to obtain the source code for additional Atos products. Judge Forrest found that "the lack of clarity in plaintiff's argument" was a "tactical choice." It appeared to the court that PaySys was "seeking to tether now dismissed trade secret and copyright claims to its surviving contract claim." She noted that using the CardPac code within the allowed Territory would not exceed the scope of the license.
On April 6, 2017, PaySys moved to voluntarily dismiss its sole remaining claim, which was a claim for breach of contract. Its motion came as the parties were filing dueling summary judgment motions on the contract claim. PaySys confirmed to Judge Forrest on April 17, that it would grant Atos "an unqualified covenant not to sue with an unrestricted, perpetual, assignable global license" to CardPac and its derivatives.
As noted above, the CSA contained a fee-shifting provision that allowed the prevailing party to receive an award of attorneys' fees with respect to any claim that the territorial provision of their agreement had been violated. The motion for a voluntary dismissal of the contract claim was an attempt to avoid an adverse ruling on the merits of that claim, which would have rendered Atos the prevailing party entitled to an award of fees.
On September 25, 2018, this case was reassigned to this Court. On October 8, PaySys's motion to withdraw its motion for voluntary dismissal was granted. The parties thereafter renewed their motions for summary judgment on the sole remaining claim in the SAC.
On November 20, summary judgment was granted to Atos on PaySys's territorial violation claim.
There was a second component to PaySys's breach of contract claim. It alleged that Atos sold three licenses for APS software during the statute of limitations period without notifying PaySys of those sales and paying PaySys the contractually required fees. The Court awarded PaySys summary judgment in the amount of $250,000 on this claim.
In total, this litigation included two Rule 12 motions and four Rule 56 motions. Atos also successfully opposed a motion for letters rogatory, a Rule 56(d) motion, and motions for reconsideration and for leave to file a third amended complaint. Atos engaged three expert witnesses over the course of the litigation. One provided an expert opinion regarding PaySys's claimed damages, the second provided an expert opinion on source code, and the third, described as a "technical and industry expert," construed the contractual term concerning "remote access" to the licensed products from terminals outside the Territory. He also explained that simple credit card authorization transactions do not involve remotely accessing the software at issue in this dispute, which is a card management system and not a consumer-facing system.
Atos has now moved for an award of attorneys' fees and costs pursuant to the parties' contract; the Copyright Act, 17 U.S.C. 505; the Florida Uniform Trade Secrets Act ("FUTSA"), Fla. Stat. § 688.005; 28 U.S.C. § 1927; and the Court's inherent authority.
The parties' agreement containing the fee-shifting provision is governed by New York law. When applying New York law, a court "should not infer a party's intention to provide counsel fees as damages for a breach of contract unless the intention to do so is unmistakably clear from the language of the contract."
If a contract provides for attorneys' fees, a court must then examine "the reasonableness of the award, generally gauged by the amount involved in the litigation."
"[A] general contract provision for the shifting of attorneys' fees does not authorize an award of fees for time spent in seeking the fees themselves."
The CSA provides that "[i]n the event of litigation between the parties with respect to any claim that [Atos] had committed a territorial violation, the prevailing party shall be entitled to an award of its reasonable attorney's fees." The parties do not dispute that this is an enforceable fee-shifting provision under New York law. Its language is sufficiently clear to support an award of fees to the prevailing party. There is also no dispute either that PaySys pleaded and pursued in this lawsuit a claim that Atos had committed a territorial violation, or that Atos is the prevailing party with respect to that claim.
Atos may receive reimbursement for time spent by its counsel on work during this litigation that was in defense of any claim that Atos had committed a "territorial violation". The CSA's fee-shifting provision requires an award of fees for "any claim" that Atos committed a "territorial violation", and therefore, the award of fees shall not be limited to time associated exclusively with PaySys's breach of contract claim addressed to territorial violations. If PaySys's recovery on any of its claims was premised in whole or in part on an alleged territorial violation, Atos is entitled to recovery for all of the time it spent defending against that claim.
Because PaySys had issued a license to Atos, all of PaySys's claims required a demonstration that Atos had breached the terms of the parties' licensing agreement. Unless PaySys could establish a breach, its claims for copyright infringement, illegal use of its trade secrets, and the common law claims all failed. And, as detailed in this Opinion, territorial violations were at the core of PaySys's allegations that Atos was violating the parties' agreement.
Moreover, the claims in this case were so interwoven that it would be virtually impossible to apportion the work conducted by Atos's attorneys. As such, no attempt will be made at apportionment so long as the linkage between counsel's work and a claimed territorial violation is sufficiently established. After all, the resolution of an application for an award of attorneys' fees "should not result in a second major litigation."
The parties hotly contest the amount of fees that Atos may recover pursuant to the CSA. Atos asserts that it should be awarded $5,636,706 pursuant to the CSA's fee shifting provision. It argues that the provision entitles it to recover all of its attorneys' fees except for those associated with jurisdictional discovery and unsuccessfully defending against PaySys's APS breach of contract theory because the remainder of the litigation is inextricably linked to the assertion that Atos had breached the territorial restrictions in the CSA.
PaySys asserts that Atos is only entitled to an award of fees for a narrowly circumscribed portion of the litigation addressed to a single branch of its breach of contract claim. It calculates this amount as just under $139,000. That assertion is clearly wrong.
The award of fees on the contract theory of recovery will be divided into two components: before and after PaySys filed the SAC. The first period runs from the filing on the lawsuit on December 23, 2014, until the filing of the SAC on December 10, 2015. The second period runs from the filing of the SAC until summary judgment was granted on PaySys's remote access territorial violation claim on November 20, 2018.
Atos is awarded 80% of the attorneys' fees it is seeking that were incurred during the second period. This is a conservative but fair measure of the extent to which PaySys is contractually responsible for the Atos attorneys' fees arising from the litigation of the territorial violation theory during this phase of the litigation. PaySys's litigation over the territorial restrictions pervaded its claims. Proof of a territorial violation was the gateway to establishing its entitlement to recovery on each of its other theories of liability.
It was in the SAC, in a section devoted to the "Territorial Violations" arising from Atos's customer agreements, that PaySys most fulsomely asserted in a pleading that Atos had violated the territorial restrictions in the CSA. In that section of the SAC, PaySys also explicitly acknowledged that this asserted breach of the CSA had resulted as well in infringements of PaySys's copyright, theft of its trade secrets, and the conversion of its property. The SAC asserted copyright infringements in four different jurisdictions. In her December 8, 2016 Opinion, Judge Forrest explained that PaySys's foreign copyright claims were premised, at least in part, on its assertion that Atos breached the territorial restrictions in its licenses with third parties.
The areas of litigation that were sufficiently linked to the alleged territorial violations therefore include: litigation over that specific provision of the parties' agreement, efforts to obtain third-party discovery through the Hague Convention of Atos's licensees, requests to examine Atos source code, pursuit of the copyright and trade secret claims, and litigation over the state law claims. It includes not only the discovery expenses related to these claims but also the motion practice generated by them, including the litigation over the supplementary copyright registrations. It also includes litigation over the request to voluntarily dismiss the territorial violation claim and the appeal to the Court of Appeals of Judge Forrest's conditional grant of that application. All of that is litigation related to the breach of the territorial restrictions in the CSA.
There is very little of the litigation in this second period that can be segregated from PaySys's claims for damages premised on the asserted violation of the territorial restrictions. It appears that the only portions of the litigation that may be properly segregated are the following breach of contract claims: the claim that Atos sold three APS licenses during the statute of limitations period without notifying PaySys of those sales and paying the required fees, improper sublicensing, and improper assignment.
As for the first period — the period before the filing of the SAC — Atos is awarded 60% of the fees that it is seeking that were incurred during this period.
The Atos attorneys' fees calculations reflect reasonable rates and hours.
Section 505 of the Copyright Act provides that a district court "may . . . award a reasonable attorney's fee to the prevailing party." 17 U.S.C. § 505. Awards of attorneys' fees under Section 505 "should encourage the types of lawsuits that promote" the Copyright Act's goals of "encouraging and rewarding authors' creations while also enabling others to build on that work."
The Second Circuit, in the related context of Rule 11, Fed. R. Civ. P., has defined "objective unreasonableness" for legal theories as "whether the argument is frivolous, i.e. the legal position has no chance of success, and there is no reasonable argument to extend, modify, or reverse the law as it stands."
While the Copyright Act provides for recovery of certain costs in addition to attorneys' fees, it does not provide for recovery of expert witness fees. "[T]he Copyright Act does not explicitly authorize the award of litigation expenses beyond the six categories specified in [28 U.S.C.] §§ 1821 and 1920. And §§ 1821 and 1920 in turn do not authorize an award for expenses such as expert witness fees, e-discovery expenses, and jury consultant fees."
Atos is entitled to attorneys' fees under the Copyright Act for litigation associated with its U.S. and foreign copyright claims. As Judge Forrest recognized in her December 8, 2016 Opinion dismissing PaySys's foreign copyright claims, the foreign copyright claims were based on PaySys's domestic copyright registrations.
PaySys's pursuit of its copyright claims was objectively unreasonable and not motivated by any legitimate effort to protect a copyright in the CardPac software. An award will also act to deter wrongful use of the copyright law.
PaySys had given Atos's predecessor a license for the CardPac product in 1988. Over a decade later, it resolved all outstanding disputes regarding that license and entered the CSA. For years, until it was under new management and attempting to recover from its financial difficulties, PaySys had not suggested that Atos was in breach of their agreement or infringing any copyright owned by PaySys. To succeed on a copyright claim against Atos, PaySys had to show both that Atos had breached its agreement with Atos, something it had no good reason to believe had occurred, and then that products that Atos had licensed within the period covered by the statute of limitations were derived from CardPac software programs in which PaySys owned a valid copyright. Furthermore, because PaySys had never registered its CardPac software, PaySys had to do so before it brought suit. PaySys did so just five weeks before filing this lawsuit.
PaySys's U.S. copyright claims were quickly dismissed, as it had no basis to claim that there had been any domestic infringement. Then, understanding that Atos was about to move for summary judgment on its foreign copyright claims, PaySys expanded the scope of its copyrights through supplemental registrations. Judge Forrest properly rejected this eleventhhour effort to expand the scope of copyright, and dismissed the foreign copyright claims. This unusual history does not describe a good faith effort to enforce copyright claims in line with the goals of the Copyright Act. To the contrary, PaySys appears to have used the copyright claims to impose litigation costs on Atos, even after the U.S. copyright claim had been dismissed.
For the most part, for the reasons explained above, an award of fees under the Copyright Act would be largely duplicative of the fees awarded under the parties' contractual fee-shifting provision.
The FUTSA provides: "If a claim of misappropriation is made in bad faith . . . the court may award reasonable attorney's fees to the prevailing party." Fla. Stat. Ann. § 688.005. Whether attorneys' fees should be awarded under this statute rests within the sound discretion of the court.
PaySys's inability to articulate with any particularity the trade secrets on which its claim under the FUTSA was premised supports a finding that the claim was made in bad faith. But, because any fees awarded for litigating this claim would be duplicative of those awarded under the contractual fee-shifting provision, this request for fees need not be further addressed.
Section 1927 provides that
28 U.S.C. § 1927. "To impose sanctions under § 1927, a court must find clear evidence that (1) the offending party's claims were entirely without color, and (2) the claims were brought in bad faith — that is, motivated by improper purposes such as harassment or delay."
Federal courts also possess inherent authority to "fashion an appropriate sanction for conduct which abuses the judicial process," which includes "instructing a party that has acted in bad faith to reimburse legal fees and costs incurred by the other side."
Pursuant to Section 1927 and the Court's inherent authority Atos seeks recovery of its expert expenses and any fees and costs not already awarded through this Opinion. Atos has made a strong showing that many of the claims PaySys pursued in this litigation were brought without PaySys having any reasonable basis to believe that it would prevail on them. It has explained not only how these claims lacked merit but also how PaySys's chosen litigation strategy was a bad faith attempt to extract a settlement through punishing legal costs.
PaySys's territorial violations claim — which in turn, as discussed above, formed the platform from which it pursued most of its other claims — was brought despite PaySys's complete lack of evidence of any such violations. Atos's cooperation in a year-and-a-half audit and production of a sample of sublicensing agreements prior to the filing of the lawsuit indicated that Atos was in compliance with the parties' agreement.
Throughout the litigation, PaySys doggedly pursued baseless claims and multiplied the time the parties and the court spent on this litigation. For example, PaySys sought third-party discovery pursuant to the Hague Convention of Atos's customers. Judge Forrest characterized this as a fishing expedition. While the court rebuffed that effort, such discovery risked interfering with Atos's business relationships and served no legitimate purpose.
As already explained, PaySys also burdened Atos and the court with unnecessary litigation connected to the copyright/contract claims. In one such example, after extensive discovery of Atos's products and agreements, PaySys filed supplemental copyright registrations to bolster its weak claims for copyright infringement. Nor could PaySys define the trade secrets on which it premised its trade secret claims.
This course of conduct reflects that the litigation was undertaken not because PaySys believed it had viable claims for relief, but rather to gain a competitive advantage and to use litigation as a profit center. PaySys had no reason — other than a last-ditch effort to profit from an outdated product and impose burdens on a successful competitor — to resort to litigation.
A final example of PaySys's vexatious use of litigation was its motion to voluntarily withdraw its only remaining claim — the contract claim — as the parties were briefing their summary judgment motions on that claim. PaySys made that motion to avoid its contractually imposed duty to pay attorneys' fees to a prevailing party. The appeal to the Second Circuit merely delayed the inevitable award of fees through needless and costly litigation. While the Court of Appeals determined that Judge Forrest should have allowed PaySys to withdraw it motion rather than accept the obligation to pay fees, that determination about important procedural rights, does not alter the fundamental point. PaySys feared the inevitable and sought to avoid it.
The bar for imposition of sanctions pursuant to Section 1927 or a court's inherent powers is high. This is as it should be. In light of the awards already made, and considering the complete history of this litigation, Atos is awarded 50% of its expert expenses and costs, or $258,873.00.
Atos's March 11, 2019 motion for attorneys' fees is granted in part and PaySys's April 1, 2019 motion to strike is denied. Atos is entitled to 60% of the attorneys' fees it seeks for the period of December 23, 2014 to December 10, 2015, 80% of the attorneys' fees it seeks for the period of December 10, 2015 through November 20, 2018, and 25% of its attorneys' fees for the 2017 and present fee applications. Atos is also entitled to 50% of the expert expenses and costs it seeks, or $258,873.00.