Alexandria Division
v. Civil Action No. 95-1107-A

David Masselli
Virginia Bar No. 25869
William C. Lane
Virginia Bar No. 26118
3426 North Washington Boulevard
Suite 202
Arlington, VA 22201
(703) 741-0975
Dated: November 27, 1996 TABLE OF CONTENTS

A. RTC Did Not Comply With the Statutory Requirements for an Attorneys' Fee Award. 6
B. RTC Is Not the Prevailing Party. 7

A. The Motives of the Parties Weigh Against a Fee Award. 12
1. RTC's Motives Are Inconsistent With The Purpose of the Copyright Act. 12
2. Lerma's Motives Are Consistent With His Status As a Nonwillful Infringer and Do Not Merit The Award Of Fees 15
B. Lerma's Position Was Objectively Reasonable 18
C. Considerations of Compensation and Deterrence Favor Mr. Lerma. 22
D. Additional Considerations 23
1. RTC's Unlawful Search and Seizure, and the Way It Conducted this Litigation. 24
2. The Case Presented Novel Questions, Which Mr. Lerma Litigated in Good Faith. 25

A. Plaintiff's Proposed Legal Fees are Disproportionate to the Issues in the Case 26
B. The Proposed Award is Not Justified Under Barber 26
C. An Analysis of the Bills Submitted by RTC Shows That They Are Not Reasonable 27

EXHIBIT A: Church of Scientology v. Scott. No. 94-55920 (April 11, 1996) 1996 U.S. App. LEXIS 8954.
EXHIBIT B: Ninth Declaration of Arnaldo P. Lerma
EXHIBIT C: Major reported Fee Awards. 3 Nimmer, Copyright,  14.10, fns. 19-21.
EXHIBIT D: Review of Billings
Applied Innovations v. Regents of University of Minnesota,876 F.2d 626 (8th Cir. 1989) 25
Barber v. Kimbrell's, Inc., 577 F.2d 216 (4th Cir. 1978) 26
Basic Books, Inc. v. Kinko's Graphics Copy, 758 F. Supp. 1522 (S.D.N.Y. 1991) 30
Blair v. Shenandoah Women's Center, Inc., 757 F.2d 1435 (4th Cir. 1985) 13
Bourne Co. v. MPL Communications, Inc.,678 F. Supp. 70 (S.D.N.Y. 1988) 25
Branch v. Olgilvy & Mather, 772 F. Supp. 1359 (S.D.N.Y. 1991) 9
Cable/Home Communciations Corp. v. Network Products, Inc., 902 F.2d 829 (11th Cir. 1990) 26
Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 114 S. Ct. 1164, 127 L.Ed.2d 500 (1994) 14, 18, 19
Church of Scientology v. Scott. No. 94-55920 (April 11, 1996) 1996 U.S. App. LEXIS 8954. 1
Cohen v. Virginia Electric & Power Co., 788 F.2d 247 (4th Cir. 1986) 13
Diamond Star Building Corp. v. Sussex County Builders, Inc., 30 F.3d 503 (4th Cir. 1994) 12
Encyclopedia Britannica Ed. Corp. v. Crooks, 542 F. SUPP. 1156 (W.D.N.Y. 1982) 25
Farrar v. Hobby, 506 U.S. 103, 113 S.Ct. 556, 121 L.Ed.2d 494 (1994) 10
Florentine Art Studio, Inc. v. Vedet K. Corp, 891 F. Supp. 532 (C.D.Cal. 1995) 8
Fogerty v. Fantasy, 510 U.S. 517, 114 S.Ct. 1023 (1994) 1, 10, 11, 13
Fox Film Corp. v. Doyal, 286 U.S. 123, 52 S.Ct. 546, 76 L.Ed. 1010 (1932) 15
Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985) 14
Hensley v. Eckerhart, 461 U. S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983) 8
In Design v. K-Mart Apparel Corp., 13 F.2d 559 (2d Cir. 1994 15
Knitwaves, Inc. v. Lollytogs, Ltd. (INC.), 71 F.2d 996 (2nd Cir. 1995) 15
Lansberg v. Scrabble Crossword Game Players, Inc. 212 U.S.P.Q. 159 (C.D.Cal. 1980) 26
Lieb v. Topstone Industries, Inc., 785 F.2d 151 (3rd Cir. 1986) 10, 23
Marshall v. Barlow's Inc., 436 U.S. 307, 98 S.Ct. 1816, 56 L.Ed.2d 305 (1978) 24
National Conference of Bar Examiners v. Multistate Legal Studies, Inc. 692 F.2d 478 (7th Cir. 1982), cert denied, 464 U.S. 814 (1983) 6
Paramount Pictures Corp. v. Doe, 821 F. Supp. 82 (E.D.N.Y. 1993) 24
Payton v. New York, 445 U.S. 573, 100 S.Ct. 1371, 63 L.Ed.2d 639 (1980) 24
Religious Technology Center v. Lerma, 908 F. SUPP. 1362 (E.D.Va. 1995) 5, 12
Religious Technology Center v. Scott, 660 F. Supp. 515 (C.D. Cal. 1987) 6
Religious Technology Center, Inc. v. Lerma, 908 F. Supp. 1353 (E.D. Va. 1995) 5, 12
Rosciezewski v. Arete Assoc., Int., 1 F.3d, 225 (4th Cir. 1993) 2, 11, 22, 23
Screenlife Establishment v. Tower Video, Inc., 868 F. Supp. 47 (S.D.N.Y 1994) 8
Sheppard v. Riverview Nursing Center, 88 F.3d. 1332 (4th Cir. 1996) 10
Soldal v. Cook County, Ill., 506 U.S. 56, 113 S.Ct. 538, 121 L.Ed.2d 450 (1992) 24
Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984) 15
Superior Form Builders, Inc. v Chase, 74 F.3d 488 (4th Cir. 1996) 11, 12
Texas State Teachers Ass'n v. Garland independent School District, 489 U.S. 782, 109 S.Ct. 1486, 103 L.Ed. 2nd 866 (1989). 8
Time Warner Entertainment, Co v. Does Nos. 1-2, 876 F. Supp. 407 (E.D.N.Y. 1994) 24
Triangle Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171 (5th Cir. 1980) 19
Video Views Inc. v. Studio 21, LTD, 925 F.2d 1010 (7th Cir. 1991) 9
Walt Disney Co. v. Powell, 897 F.2d 565 (D.C. Cir. 1990) 20
Warner Brothers Inc. v. Dae Rim Trading , Inc., 877 F.2d 1120 (2nd Cir. 1989) 8
Warner Brothers, Inc. v. Dae Rim Trading, Inc., 677 F. Supp. 740 (S.D.N.Y. 1988) aff'd 877 F.2d 1120 (2nd Cir. 1989) 24
17 U.S.C. 107 13, 18, 19
17 U.S.C. 408(c)(1) 6
17 U.S.C. 412 6
17 U.S.C. 505. 1
28 U.S.C. 1927 13
37 C.F.R. 202.20(c) 6
37 C.F.R. 202.20(d) 6
37 C.F.R. 202.3(b)(3)(B) 21, 22
37 CFR 202.20(b)(4) 6
3 Nimmer, Copyright ,  14.10, fns 19-21 (1996 ed.) 26, 27
3 Nimmer, Copyright,  14.04[E], (1996 ed.) 20
Patterson, Free Speech, Copyright and Fair Use, 40 Vand. L. Rev. 1 (1987) 19
On October 4, 1996, this Court issued a Memorandum Opinion finding that the defendant, Arnaldo Lerma, had nonwillfully infringed five works to which the plaintiff, Religious Technology Center, Inc. ("RTC"), claimed copyright. All of these infringements occurred in the course of two "uploads" of a single, publicly filed court document and one lengthy "download" from an Internet newsgroup. The Court assessed the minimum statutory penalty for these violations.
This is the most recent episode in a long and intensely litigated struggle in which RTC has repeatedly sought to suppress discussion -- principally on the Internet -- of the so-called "Advanced Technology," authored by L. Ron Hubbard, founder of the Church of Scientology. In this action, the plaintiff's initial seizure was vacated; it lost numerous discovery fights; its motion for a preliminary injunction was denied; and its trade secret claims against defendants Lerma and the Post were rejected. From this wreckage, RTC now emerges to seek attorneys' fees pursuant to 17 U.S.C. 505. It requests an award of $483,059.24, which if awarded would be the largest fee award in the history of copyright litigation. Its clear goal is to bankrupt Lerma and FACTNet, so it can prevail when their resources are exhausted.
This Court has broad discretion in determining whether or not to award attorneys' fees. Fogerty v. Fantasy, 510 U.S. 517, 114 S.Ct. 1023, 1032 (1994). Utilizing the four-factor test of Rosciezewski v. Arete Assoc., Int., 1 F.3d, 225, 234 (4th Cir. 1993), RTC's request should be rejected. This case involved the application of complex copyright principles to a new and evolving technology. Mr. Lerma uploaded the so-called "Fishman Affidavit" after consulting a lawyer and in the honestly mistaken belief that, as a public court document, it was not covered by the copyright law. First Declaration of Arnaldo Lerma ("Lerma I"), 40. His downloads are innocent infringements. Finally, the attorneys' fees claimed by RTC are so duplicative and excessive as to be outside the range of a good faith request.
Defendant Lerma is a former practitioner of Scientology. He left the Church in 1977. Until two years ago, except for a 1991 effort by the Church to "recover" him, he had no further contact with either the Church or its many critics. Lerma I, 4. An electronics and computer technician, Mr. Lerma was active in transmitting and receiving information on the Internet. Through it, he came into contact with a newsgroup, Alt.Religion.Scientology ("ARS"), that is home to unfettered, often vitriolic debate between opponents and supporters of the Church of Scientology. Lerma I, 29-32.
Mr. Lerma, whose widely-publicized declaration that "the Internet is the Liberty Tree of the 90's" has made him a hero among many users of the Internet, felt that he could employ his particular talents to further the debate on ARS. He had the tools and the skills to "scan" printed documents, reduce them to computer format, and upload them onto the Net where they could be referenced by anyone with a modem, and he did so for a large number of non-copyrighted, publicly available documents. As his role became more widely known, documents of every sort came pouring into his home. Lerma I, 34. During a two year period, he made hundreds of postings to the Internet, including sixty posting of affidavits, declarations, depositions and court records concerning Scientology. D. Tr. Ex. 272 During this period, Mr. Lerma often consulted Kemp Harshman, a First Amendment lawyer, about his posting activities to make sure his postings were lawful. Ex. B, 4.
Lerma received copies of an affidavit filed in 1993, by Steven Fishman in Church of Scientology, International v. Steve Fishman et al., Case No. 91-6426 HLH(Tx) (Central District of California). Attached to the affidavit were a number of Scientology documents, including short portions of two documents entitled "OT II" and "OT III." Lerma asked Harshman about posting the Fishman Affidavit and was told that the posting would be lawful. Ex. B, 5. Lerma then scanned the document and uploaded it to ARS on July 31, 1995. When he found no sign that the document had been received by ARS, he sent it again the next day. The documents actually appeared on ARS on August 1 and 2. Lerma I, 42-43.
Lerma received a letter sent on August 4, 1995 by one of RTC's lawyers, telling him he had violated its copyright. The letter demanded that he stop uploading documents, and remove the documents from the Internet (an impossible request), and from his computer system. He uploaded no more copyrighted documents and removed the Fishman Affidavit from his system. Lerma I, Attachment 1C. From the moment of first contact, therefore, Mr. Lerma promptly complied with all of RTC's requests.
On August 11, 1995, RTC filed suit against Mr. Lerma for copyright and trade secret violations (D 1) and applied for an ex parte Writ of Seizure. (D 4) RTC employees and agents entered Mr. Lerma's home along with U.S. Marshals, searched it, and seized his computer system and many floppy disks. This shut down Mr. Lerma's home-based electronics business. A later analysis of Lerma's computer found that the Fishman Affidavit had been removed from the computer, but portions of other copyrighted documents were found in twelve files on Mr. Lerma's computer and in scattered floppy disks. Most of these documents were "downloads," which had been posted to the Internet by another party, and then downloaded from an Internet newsgroup. None of the documents at issue in the summary judgment motion were found on any normal document or data file on Mr. Lerma's hard drive.
The August 11, 1995 seizure hearing (D 241) and order (D 8) plunged this Court and the litigants into a whirlwind of activity. The clearly excessive and lawless seizure, with its potential impact on the explosively growing Internet, provoked a long article in the Washington Post, highly critical of the Church of Scientology. The Post soon found itself named in an Amended Complaint, filed on August 22, 1995. (D 14).
At that point, RTC embarked on a lengthy losing streak. It lost its Motion for a Preliminary Injunction. It Motion to Reconsider was rejected. The Court ordered RTC's computer expert to cease searches of Mr. Lerma's computer. (D 28) It then vacated the Writ of Seizure. (D 64) RTC's motion for a stay to appeal to the Fourth Circuit was also denied.
RTC lost decisively on trade secret issues, on November 9, 1995 to the Post, (D 214 ) and on December 1, 1995 to Mr. Lerma.(D 251) The December 1, 1995 ruling narrowed the case to a copyright contest between RTC and Mr. Lerma. After argument on January 19, 1996, the Court found Mr. Lerma had infringed five works. (D 293) A Memorandum Opinion issued on October 4, 1996. (D 312)
While it is not possible to exactly quantify "wins" and "losses" by tallying motions granted and denied, RTC was far from successful in this litigation. The proceedings revolved around trade secret issues, an issue on which RTC lost. It also lost the majority of the discovery battles, the cost of which it vastly increased by meritless motions for reconsideration and Rule 72 objections. RTC sought millions in statutory damages and received a pittance.
A. RTC Did Not Comply With the Statutory Requirements for an Attorneys' Fee Award.
As explained in its Motion for Summary Judgment (at 24-26), RTC registered the Works with the Copyright Office by the deposit of "masked" copies, unavailable to public inspection, pursuant to an extraordinary exemption granted under the purported authority of 37 C.F.R. 202.20(d). The legality of that registration is highly questionable. The only reported cases addressing in which it has been used all appear to involve the Church of Scientology. See, e.g., Religious Technology Center v. Scott, 660 F. Supp. 515 (C.D. Cal. 1987).
Even if this form of registration is lawful and suffices for bringing suit under the law, it does not suffice for obtaining an award of attorneys' fees. Under 17 U.S.C. 412, public registration prior to the date of the alleged infringement is a prerequisite to certain remedies under the copyright act:
In any action under this title . . . no award of statutory damages or of attorney's fees, as provided by sections 504 and 505, shall be made for --
(1) any infringement of copyright in an unpublished work commenced before the effective date of its registration . . . .
This provision originated in the 1976 amendments, which for the first time brought common law copyrights in unpublished works within the scope of the Act. According to the House Report accompanying the legislation.
The need for section 412 arises from two basic changes the bill will make in the present law. . . .
(2) The great body of unpublished works now protected at common law would automatically be brought under copyright and given statutory protection. The remedies for infringement presently available at common law should continue to apply to these works under the statute, but they should not be given special statutory remedies unless the owner has, by registration, made a public record of his copyright claim.

House Report No. 94-176. (Emphasis added)
Congress intended to balance the new rights given authors of unpublished works with a countervailing duty to place the public on notice as to exactly what was being copyrighted. The mechanism it chose was the traditional path of a public filing of the copyrighted document. The filing is expressly to be made before the date of any alleged infringement if the owner expects to recover statutory damages and attorneys' fees. The timing clearly indicates that the filing is to serve as a public notice. A masked filing cannot serve as a public notice or advise potential infringers of the fact of registration. It cannot establish to a certainty that the document being sued on is, in fact, the document that was registered. Whatever its right to bring suit, therefore, RTC has no right to attorneys' fees under the statute.
B. RTC Is Not the Prevailing Party.
A "prevailing party" is one "who succeeds on a significant issue in the litigation that achieves some of the benefits the party sought in bringing suit" Hensley v. Eckerhart, 461 U. S. 424, 433, 103 S.Ct. 1933, 1939, 76 L.Ed.2d 40 (1983). However, the significance of the issue must be judged in light of the overall success in the case. Success or failure is based on the case as a whole. Success on a claim that is "purely technical or de minimis does not qualify him as a prevailing party'." Warner Brothers Inc. v. Dae Rim Trading , Inc., 877 F.2d 1120, 1126 (2nd Cir. 1989) citing Texas State Teachers Ass'n v. Garland independent School District 489 U.S. 782, 109 S.Ct. 1486, 1492, 103 L.Ed. 2nd 866 (1989).
RTC began by seeking $100,000 per violation. Its summary judgment motion claimed 33 infringements. Thus it was seeking millions from Mr. Lerma. The legal resources mobilized by the plaintiff were consistent with this view of the case, and with its history of attempting to steamroll opponents with extensive litigation. More importantly, RTC, itself, defined the aim of litigation as stopping the "publication and exposure of these material." By that measure, they lost. Even the court finding against Mr. Lerma admit of the possibility that less extensive quotations would be allowable as fair use.
The mere fact that, after claiming numerous violations of both copyright and trade secret laws, RTC was able to prevail against Mr. Lerma on five non-willful copyright violations does not mean that it is the prevailing party. A party found guilty of copyright infringement can be the prevailing party, if it successfully defends against significant claims litigated in the action. Florentine Art Studio, Inc. v. Vedet K. Corp, 891 F. Supp. 532, 541 (C.D.Cal. 1995); Screenlife Establishment v. Tower Video, Inc., 868 F. Supp. 47 (S.D.N.Y 1994). Moreover, there is no rule that there must be a prevailing party in every copyright suit. In Video Views Inc. v. Studio 21, LTD, 925 F.2d 1010, 1022 (7th Cir. 1991), the Seventh Circuit held "that neither Video Views, who prevailed on but two of its seven infringement claims, nor Studio 21, who wound up on the wrong end of a $10,000 judgment, can be deemed the "prevailing" party." Taking only the copyright claims in this case into consideration, in which the Court found five violations but the defendant defeated the claim of willfulness (Mem. Op., at 31), the Court should find that RTC was not the prevailing party.
Equally important, RTC's prevailing party status should be determined in light of all the issues in this case. No reported case seems to have addressed whether a party's loss on a closely related, non-copyright, intellectual property issues should be weighed when determining which party prevailed in a copyright action. But it is difficult to see why these closely interrelated causes of action cannot be considered together. Certainly this case would have been litigated in vastly different mode by all parties had copyright been the only issue. Having raised the trade secret issue, seen it dominate the litigation, and lost on it, RTC should not now be able to claim that it plays no role in the calculus by which a prevailing party is determined.
Even if this court should decide the RTC is on balance a marginally "prevailing party", the fees should be reduced to an amount commensurate with the amount legitimately in controversy, which, in fact, is less than the small claims jurisdiction of most states. Branch v. Ogilvy & Mather, 772 F. Supp. 1359 (S.D.N.Y. 1991) is instructive. In that case plaintiff prevailed on the only copyright claim, but lost on other claims. The Court reduced the award to take into account plaintiff's failure to prevail on the non-copyright claims.
In Farrar v. Hobby, 506 U.S. 103, 113 S.Ct. 556, 121 L.Ed.2d 494 (1994), the Supreme Court held that considerations of proportionality should prevail where the "prevailing party" had attained a minimal victory. The Court found the appropriate fee recovery was "no fee at all." 506 U.S. at 116, 113 S. Ct. at 575. The Fourth Circuit analyzed Farrar in Sheppard v. Riverview Nursing Center, 88 F.3d. 1332, 1339, (4th Cir. 1996), noting that Fogerty commended such determinations to its discretion. It distilled from these cases, the following principle: "Farrar was designed to prevent a situation in which a client receives a pyrrhic victory and the lawyers take a pot of gold." Id. This seems an apt description of the outcome sought by RTC.
The award of attorney's fees to a prevailing plaintiff is a matter of "equitable discretion:" Fogerty v. Fantasy, 114 S.Ct., at 1032.
"the court may also award a reasonable attorney's fee to the prevailing party as part of the costs." The word "may" clearly connotes discretion. The automatic awarding of attorney's fees to the prevailing party would pretermit the exercise of that discretion.
To guide the exercise of the trial court's discretion, the Court endorsed the use of a group of "nonexclusive factors .. so long as such factors are faithful to the purposes of the Copyright Act and applied to prevailing plaintiffs and defendants in an evenhanded manner," 114 S.Ct., at 1033, n. 19, citing Lieb v. Topstone Industries, Inc., 785 F.2d 151, 156 (3rd Cir. 1986). The Lieb factors had already been largely adopted by the Fourth Circuit in Rosciezewski v. Arete Assoc., supra, along with the further caution that "these enumerated factors are not intended as an exhaustive list." 1 F.3d, at 234. Later decisions reiterate that "such awards are not to be made as a matter of course but, rather, as a matter of the Court's discretion." Superior Form Builders, Inc. v Chase, 74 F.3d 488, 498 (4th Cir. 1996).
RTC claims that the "compensatory and deterrence purposes of the Copyright Act would "be particularly ill-served should a meaningful award . . . be denied in this case." RTC Motion, at 3. To the contrary, an award in a case characterized by litigation overkill, general failure by the plaintiff to achieve its goals, and largely technical and nonwillful violations, would send precisely the wrong message. It would be a sign that the Copyright Act could be used to suppress one's enemies or opponents, even when there is no intent to pursue the Act's real goals. ("Copyright law ultimately serves the purpose of enriching the general public through access to creative works." Fogerty, 114 S.Ct., at 130. Emphasis added.
One need not in any way disparage the beliefs of Scientology practitioners to note that RTC's primary goal motivating this law suit -- holding information secret to be used by a small group of adepts, free from comment or criticism -- is a far remove from the goals promoted by Article I, Section 8, cl. 8. While RTC and the Church of Scientology are entitled to pursue their chosen course of action, they have no entitlement to attorneys' fees unless they meet the applicable standards set for this Circuit.
Rosciszewski, which along with Fogerty sets those standards, requires this Court to "consider, and make findings with respect to, the following factors: . . . the motivation of the parties. . . . the objective reasonableness of the legal and factual positions advanced. . . . the need in particular cases to advance considerations of compensation and deterrence. . . .[and] any other relevant factor presented." 1 F.3d, at 234. Each factor will be considered below, in the light of the Supreme Court's decision in Fogerty.
A. The Motives of the Parties Weigh Against a Fee Award.
The first Rosciszewski factor is the "motivation of the parties." While the Fourth Circuit explicitly requires consideration of the parties' motives in the litigation, RTC only discusses "Lerma's Motives." Motion, at 5. Its apparent inability to address its own motives for bringing this action is a telling admission of weakness.
1. RTC's Motives Are Inconsistent With The Purpose of the Copyright Act.
In its Injunction Opinion, this Court wrote that "the primary motivation of RTC in suing Lerma . . . is to stifle criticism in general and to harass its critics." 908 F. Supp. 1353, at 1360. Granting attorney's fees to the Post, the Court further found RTC's motives to be "reprehensible. Although the RTC brought this complaint under traditional secular concepts of copyright and trade secret law, it has become clear that a much broader motivation prevailed -- the stifling of criticism and dissent of its religious practices and the destruction of its opponents" 908 F. Supp. 1362, at 1368. In these opinions, the Court was speaking of RTC's actions in this very lawsuit. The facts underlying these well-justified conclusions are set forth in the Post opinion. Mr. Lerma presented them more expansively, along with new supporting evidence, in his Memorandum in support of his Motion for Summary Judgment (hereinafter "D's Memorandum"), at 4-29.
Given its motives for bringing this action, the first Rosciszewski factor must necessarily weigh heavily against the plaintiff. For this Court to award attorneys' fees to a plaintiff whose "primary motivation" is harassment would not only offend the purpose and spirit of 17 U.S.C. 107, as explained in Fogerty, but would utterly contradict the public policy -- expressed in Fed. R. Civ. P. 11(b)(1) and Fed. R. Civ. P. 26(g)(2)(B), that federal litigation is not to be used as a tool for harassing opposing parties or causing them unnecessary work and expense. See, Cohen v. Virginia Electric & Power Co., 788 F.2d 247, 249 (4th Cir. 1986) (fact that motion had arguable basis in fact and law no defense to claim for attorneys' fees when alternative approaches would have reduced opposing party's costs). See also, Blair v. Shenandoah Women's Center, Inc., 757 F.2d 1435 (4th Cir. 1985) (costs and attorneys' fees assessed under 28 U.S.C. 1927 on the basis of plaintiff's counsel's "obvious bad faith").
But the issue need not rest on this Court's prior finding of RTC's bad motives in the conduct of this litigation. Taking RTC's motives at face value, no one could for a moment claim that they included any desire to achieve the "broad public availability" of the Works contemplated by the copyright law. See, Fogerty, 114 S. Ct., at 1029. Instead, its self-proclaimed goal in this case -- and in numerous others, has been to keep the Works permanently out of the hands of the uninstructed public. In the course of this litigation, which combined copyright and trade secret claims, the RTC has openly stated that the beliefs and practices of Scientology "always have and always will include never permitting disclosure of these materials to anyone who has not progressed through the necessary spiritual prerequisites because to do so would cause profound spiritual harm to the person prematurely exposed." In its view, the restriction of these works to a select circle of initiates is a matter of religious duty. See, e.g., P's Exhibits 27, 28, and 40. In pursuit of this goal,

RTC has enacted a comprehensive protection plan that includes locked vaults, numerous guards, key cards, and signed nondisclosure statements by all church members. RTC has also been relentless in tracking down suspected offenders [i.e., those who attempt to publish or disclose the Works] and vigorously pursuing legal remedies against them.
Mem. Op., at 3. It requires those who are invited (McShane III, 40) into the courses of which the Works are a part to a) sign a "perpetual" confidentiality agreement (P's Exhibit 40), and b) successfully pass a "Confessional," in which the prospective student must show "that he has not violated . . . policy letters and that he does not have any undisclosed or unhandled overts on Scientology." P's Exhibit 22.
Copyright ownership entails the right to suppress the copyrighted work, or at least control the date of its publication. Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985). But unlike Harper & Row, the suppression RTC seeks here will not ultimately promote the Works' wider publication; the relief sought here does not further "broad public availability." While works not intended for publication are still afforded copyright protection, that right is a concomitant of the statutory scheme, not its central purpose.
As the Supreme Court has explained in Fogerty, Sony, Campbell v. Acuff-Rose Music, Inc., 510U.S. 569, 114 S. Ct. 1164, 127 L.Ed. 2d 500 (1994), and numerous other cases, the public interest in promoting the creation and dissemination of knowledge lies at its core. Before the late eighteenth century, one could financially benefit from a creation only by keeping it a secret, or disseminating it to a chosen few. The Constitution turned its back on these practices, and tied the financial interest of writers and inventors to the wide dissemination of their creations. The laws enacted under the patent and copyright clause created incentives for a public pooling of knowledge, and consequent "Progress in Science and the useful Arts," impossible under the ancient system of secrecy and close control.
RTC's purposes are clearly not those contemplated by the Constitution or the Copyright Act. This is not a case where an author or publisher argues that unauthorized copying will destroy the market for legitimate copies. Uniquely, it is one where the plaintiff wishes to prevent any public distribution and knowledge of the Works forever. Nothing could be further from the policy of the copyright laws, as explained in Fogerty and numerous other cases. While the law may give RTC the right never to publish the Works, and permits it to suppress their publication by others, its motives in pursuing this course of action -- even were they found to be exactly as advertised -- weigh against it in determining its entitlement to attorneys' fees.
2. Lerma's Motives Are Consistent With His Status As a Nonwillful Infringer and Do Not Merit The Award Of Fees.
To make the case that Lerma's motives were suspect, RTC engages in a curious attack, focusing on matters which took place well before or after his posting of the Fishman affidavit. In particular they claim that "evil motive" can be inferred from his failure to delete all files containing copyright materials from his computer, his foreknowledge that he might be subject to a raid, and his inability to recall where he got the Fishman affidavit. They also allege that he deleted confidentiality legends on copyrighted material. None of these claims have merit.
Alleged Failure to Delete Computer Files: Lerma's computer, with its mirrored one-gigabyte hard drives, had 8,867 files on it. No copy of the Fishman upload, Pl. Tr. Ex 46a and 46b, was ever found on it. Plaintiff identified nine files containing copyrighted material in their trial exhibits. Pl Tr. Ex 47a-47i. Three (47D, 47H, 47I) came from floppy disks found in the house. Two (47E, 47G) were windows "TMP" files. One (47B) was a large file containing archived e-mails. I-Net's Settle found that the drive had recently been defragmented, so that "deleted" files would be permanently erased. What was left were floppy disks and large files in which small scraps of copyrighted material were buried. None of these files -- particularly the floppies and the TMP files -- would have stuck out as a likely place where OT material was residing, nor would they be easy to locate. All available evidence points to the fact that Lerma tried to do exactly what he said, remove infringing material from his drive. Ex. B,  6-7. He certainly removed the Fishman affidavit: what was left were scraps of documents almost impossible to identify.
Lerma's Alleged Infringement After Notice. RTC alleges the Lerma received formal notice, Mem. at 7. But this notice came after the posting. RTC also reads guilt into Susan Taylor's claim that Lerma expected a raid. Ex. H, 6; Ex. F, p. 301. But, after receiving the Willian Brinks letter and Taylor's visit, this expectation was reasonable and, it turned out, correct. Source of the Fishman Affidavit. Lerma's inability to recall from whom he received the document is a classic red herring. The affidavit's uncontested status as a publicly-available court document, which eliminates any implication of wrongdoing, would not change, regardless of who transmitted it to Mr. Lerma.
The Alleged Removal of Confidentiality Legends The claim that Lerma deleted "Confidential" headings or copyright notices is simply false. RTC has never claimed that Lerma removed any such notices or headings from any part of the Fishman Affidavit, the only document that he ever uploaded onto the Internet. Nor did they claim in their summary judgment papers that anything had been removed from any document at all. The Court, when presented with "cropped" documents that had been copied from a download files, came to the erroneous conclusion that Mr. Lerma had removed notices from these documents. RTC then rushed to confirm the Court's suspicions (Motion, at 9-10), even though its newly hatched allegations conflict with statements in its Motion for Summary Judgment. Put on notice of these charges for the first time on October 4, 1996, Mr. Lerma flatly denies them in a declaration submitted with this Memorandum. Exhibit B, 9.
Lerma's motives do not fit the malevolent portrait drawn in plaintiff's Motion. Lerma is exactly what he says he is: an Internet scribe, who uses his skills to circulate knowledge. Though he has uploaded thousands of pages of documents, and made hundreds of comments, there is no claim that he ever sent any copyrighted document on the Internet, other than the Fishman Affidavit. Plaintiff's characterization of Lerma as an "Internet highwayman" trying to jeopardize RTC's property rights is ludicrous. Lerma posted one document, containing small portions of two copyrighted works, because he thought that court documents could be publicly circulated. His downloading of documents before that date was done without having on the screen in front of him any copy of what he was actually downloading. Even if this was an infringement, it scarcely qualifies him as a highwayman.
B. Lerma's Position Was Objectively Reasonable
Lerma rested his opposition to Summary Judgment principally on the "fair use" doctrine which " permits [and requires] courts to avoid rigid application of the copyright statute. . . .' The task is not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by case analysis." Campbell v. Acuff-Rose, 114 S.Ct. 1164, 1170. Fair use analysis, developed by the courts and now codified at 17 U.S.C. 107, is guided by, but not limited to, a consideration of four statutory factors, all of which "are to be explored, and the results weighed together, in light of the purposes of copyright." Campbell, 114 S.Ct., at 1164. Courts evaluating a fair use claim should ever be mindful that fair use is a principal means by which First Amendment values are read into copyright law. See, Patterson, Free Speech, Copyright and Fair Use, 40 Vand. L. Rev. 1 (1987); Triangle Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171, 1174 (5th Cir. 1980).
When considering RTC's Motion for Summary Judgment, this Court undertook the rather daunting task of applying the four statutory factors to the facts of this case. It found that the fourth, and "most important" (Mem. Op., p. 21) factor "tips slightly" in Lerma's favor. Mem. Op., 23. By contrast, the first and second factors weighed slightly in favor of RTC. Mem. Op., 13 and 16. Only the third factor, the "amount and substantiality of the portion used in relation to the copyrighted work as a whole," weighed "heavily" against Mr. Lerma. Mem. Op., 20-21. The Court's finding on this third factor turned on its understanding of what, in this case, was "the copyrighted work as a whole." Was it each of the "OT writings" that the Church sold and copyrighted together as "Parts" of Scientology's "Operating Thetan Course?" Or was it the each of the fragmentary writings found within these works? The Court said this issue was "critical" to its "fair use assessment, and indeed may be the determining factor." Mem. Op., 18. Mr. Lerma argued that the "copyrighted work as a whole" consisted of each Part in the OT course, e.g., OT II, OT III, etc. His position cannot be said to be objectively unreasonable.
The following facts are undisputed. Each Part is promoted by the Church as a stage on the path to spiritual purification. See, Hirsh VI, Exh. N,  8-10. Each Part is advertised as a unit, bound together, and presented to the student as a single document upon the receipt of a single "donation." McShane I,  18; P's Exhibits 1, 57 and 58. Other than in the context of this action, even RTC regards each Part as a complete work. Its pleadings refer to them by their unit designations. Second Am. Comp., 27, and Exhibit A. In a declaration filed in this action, the President of RTC states: "Among the unpublished confidential works constituting the Advanced Technology materials which RTC owns . . . are the following works: . . . OT II' - which is a confidential writing created by L. Ron Hubbard in or about September 1966 . . . OT III' -- which is a confidential writing created by L. Ron Hubbard in or about January 1968. . . ." McShane II,  21; emphasis added. All the material in a given Part allegedly operates together to create the "profound" spiritual effects that Hubbard intended at that level. McShane III,  39-40. "Each level has to be fully completed before the next is started." Hirsh VI, Exh. N,  9.
The manner in which the Works are marketed and used is a highly relevant consideration under the approach taken in Walt Disney Co. v. Powell, 897 F.2d 565,569 (D.C. Cir. 1990). Disney identifies a "work" through a functional approach, focusing on whether an expression has an independent economic value and is, itself, viable in the market, 897 F.2d, at 569. See, 3 Nimmer, Copyright  14.04[E], (1996 ed.) holding that even "separate copyrights are not distinct unless they can live their own copyright life.'" Applying a functional test, none of Exhibits G-1 through G-25 could be viewed as a work for purposes of the third prong of the fair use test; instead, each OT Part would be so viewed.
This Court did not adopt a functional test when it concluded that the fragmentary writings in RTC's "G" Exhibits were separate works for purposes of fair use analysis. Instead, it relied on 37 C.F.R. 202.3(b)(3)(B), which provides the following definition of a "single work":
In the case of unpublished works: all copyrightable elements that are otherwise recognizable as self-contained works, and are combined in a single unpublished "collection."
(Emphasis added.) The question thus arises: was it objectively reasonable for Lerma to argue that the fragmentary elements of the various OT "Parts," including OT II and OT III are not "recognizable as self-contained works?"
Consider RTC's Exhibits G-1, G-3, G-4, G-7, and G-8, the "narrative" elements of OT III. While each fragment is nearly incomprehensible by itself, read together they can be understood as notes for a science fiction story. The story involves a Galactic ruler named Xenu who uses "renegades" to kidnap people, and take them to Earth. On Earth, he places them in volcanoes, and kills them by exploding atomic bombs. Terms and ideas include "Loyal Officers," "renegades," a "pilot," the "Galactic Confederation," thoughts being understood as speech, and the idea that these events which took place 75 million years ago have continuing relevance today. Intriguingly, all of these terms, ideas, and events are, in fact, contained in a single science fiction screenplay, Revolt In the Stars (D Tr. Exh. 15), written by Hubbard about eight or nine years after the fragments described above. See, D. Exh. 14. In the face of these facts, it is reasonable to conclude that Exhibits G-1, G-3, G-4, G-7, and G-8 are not "recognizable as self-contained works" (because they were never intended as such), but rather are fragments or notes on a single piece of writing. A work embodying them in their raw form is therefore not necessarily a "collection" for purposes of 37 C.F.R. 202.3(b)(3)(B).
Mr. Lerma argued that, considered in this fashion, he had copied only a small fraction of each of the Works (i.e., of each of the Parts), and that this branch of the fair use test tipped in his favor. Had the Court agreed, Mr. Lerma's use of these writings almost certainly would have been deemed "fair." Mem. Op., 23. With respect to Mr. Lerma's downloading of three works, no previous case has held that an Internet download without more constitutes copyright infringement -- especially where, as here, the defendant was unaware of the contents of the download at the time he was doing it. On the foregoing basis, Mr. Lerma's position on both the upload and download prongs of the copyright litigation was clearly "objectively reasonable."
C. Considerations of Compensation and Deterrence Favor Mr. Lerma.
The third Rosciszewski factor is the "need in particular circumstances to advance considerations of compensation and deterrence." 1 F.3d, at 234. Under this heading, a Court may weigh the "relative financial strength of the parties," and "damages [awarded]." Lieb v. Topstone Industries, Inc., 788 F. 2d at 156. It should also consider "the ability of the non-prevailing party to fund an award." Rosciszewski,1 F. 3d, at 234. RTC is financially strong, and would pursue these issues with or without attorneys's fees; Lerma is barely solvent. It is not Lerma's temporary lack of counsel that is crucial here, it is his lack of wealth. Defendant has submitted facts concerning the purported insurance coverage for in camera review.
Plaintiff claims that the fee award is necessary to permit it to prosecute further infringement claims. But there can be no doubt whatsoever that the Church and the RTC possess both the will and the resources to continue litigating these issues indefinitely, whether or not they recover legal fees from Mr. Lerma. RTC also states that attorney's fees are necessary to keep Mr. Lerma and other similarly situated from playing "games." RTC seems confused on this issue. It is RTC's opponents, like Mr. Lerma, who have complied with every court order, produced discovery in a timely fashion, and lived up to their legal obligations. By contrast, RTC and the Church have treated litigation, especially unsuccessful litigation, not so much like a game as like all-out war.
D. Additional Considerations Favor Lerma.
Finally, this court must consider "any other relevant factor presented." Rosciezewski, 1 F.3d at 234. At least two additional factors argue against the grant of attorney's fees.
1. RTC's Unlawful Search and Seizure, and the Way It Conducted this Litigation.
In Warner Brothers, Inc. v. Dae Rim Trading, Inc., 677 F. Supp. 740, 772 (S.D.N.Y. 1988) aff'd 877 F.2d 1120 (2nd Cir. 1989), a prevailing plaintiff was denied attorney's fees for, inter alia, "oppressive," "improper," and "vexatious" conduct. That conduct had two key elements: implementation, under cover of a court order, of an overbroad search that violated Mr. Lerma's Fourth Amendment rights, and a costly and expensive litigation strategy.
The August 11, 1995 Writ of Seizure was misused by RTC in a disturbing fashion to invade Mr. Lerma's home, violate his privacy, obtain confidential information, and even read his mail. These violations are detailed in Defendant's Motion for Summary Judgment at 9-29. Just as this case was not really about copyright protection, the seizure was not really an attempt to recover infringing articles. Rather it was part of a co-ordinated attempt to execute sweeping searches of Scientology opponents in order to gain intelligence and tactical advantage against them. Other elements of this case, including the repeated appeals, reconsiderations, and discovery stonewalling, are consistent with vexatious litigation tactics. RTC may have a right to engage in such tactics, it has no right to expect to be paid for them.
2. The Case Presented Novel Questions, Which Mr. Lerma Litigated in Good Faith..
Mr. Lerma has never disputed that he uploaded the Fishman affidavit, or any other relevant fact in this case. The cost of this action stemmed from three factors -- RTC's unsuccessful trade secret claims, its propensity to litigate and relitigate every issue, and novel questions concerning fair use on the Internet. The Internet is a new technological development which is already bending traditional boundaries in the law of intellectual property. Just as the VCR gave rise to disputes that ultimately led to Sony, the Internet has created legitimate uncertainty in the field of copyright law. In an early VCR cases, the Court observed:
When faced with novel, unsettled or complex problems in copyright cases, courts have refused to award attorneys' fees. This case has presented such novel issues, based upon technical advancements, as well as unsettled issues of law and fact. The defendants have reasonable grounds for the position they have taken in respect to fair use, capably presented by counsel. In a case such as this, the interest of justice would be best served by refusing to award attorneys' fees.
Encyclopedia Britannica Ed. Corp. v. Crooks, 542 F. Supp. 1156, 1187 (W.D.N.Y. 1982).
There is broad support for this approach. Bourne Co. v. MPL Communications, Inc. 678 F. Supp. 70, 72 (S.D.N.Y. 1988); Applied Innovations v. Regents of University of Minnesota, 876 F.2d 626 (8th Cir. 1989). This case centered on novel questions of law in a rapidly changing technological milieu. To the extent that the case was not bogged down on trade secret issues and discovery fights, it was covering uncharted territory in cyberspace. Any award of attorneys' fees against defendant for maintaining his position would be manifestly unfair.
A. Plaintiff's Proposed Legal Fees are Disproportionate to the Issues in the Case
This case joins a complex and important trade secret dispute with a novel but straightforward copyright case. The legal fees RTC incurred in this case were almost entirely the result of the cutting edge trade secret claims it made, and its insistence in litigating and relitigating every legal position. Discovery was driven almost entirely by the needs of the trade secret case. Stripped of all rhetoric, the copyright issues are interesting and novel, but not complex. Yet the legal fees sought, if granted, would make this the largest award of legal fees in a reported copyright case in history, outstripping the award in Cable/Home Communciations Corp. v. Network Products, Inc., 902 F.2d 829, 834-838 (11th Cir. 1990), where there was "outrageously willful conduct." Cut in half, they would be larger than the second largest award of legal fees in a copyright case in history, awarded for litigation that was "unnecessary, unreasonable, vexatious, oppressive, obdurate, and in bad faith".
B. The Proposed Award is Not Justified Under Barber
In Barber v. Kimbrell's, Inc., 577 F.2d 216, 226 (4th Cir. 1978) the Fourth Circuit set forth a twelve factor test in judging the propriety of legal fees. An analysis of the Barber factors is set forth in the accompanying footnote. The Barber factors do not justify even a fraction of the amount requested.
C. An Analysis of the Bills Submitted by RTC Shows That They Are Not Reasonable
Although copyright issues were generally a footnote in this case, RTC asks for approximately $483,059.24 in attorneys' fees for the services of thirteen attorneys from six law firms. These lawyers have been characterized in RTC's Exhibit C as "Local Trial Counsel," "Local Intellectual Property Counsel," "Summary Judgment Copyright Counsel," "Constitutional and Summary Judgement Copyright Counsel," and "Co-ordinating Attorney and Litigator." This is clearly excessive.
As a back-up for these bills, RTC presented a series of complex and generally uninformative billings. Clearly RTC hopes that by submitting an unreasonable bill, it might coax the Court into "splitting the difference." Furthermore, notwithstanding the Court's October 14, 1996 order that unredacted bills be provided, RTC has provided bills which are neither complete nor unredacted. For this reason alone, no award should be made on the fee request, until the Court and Mr. Lerma see the unredacted bills which were ordered. Given the space limitations and the uninformative nature of the bills, it not possible to present an item-by-item analysis. Our analysis has also been hampered by the nearly unreadable format of some bills and the provision of incomplete records. However, a few examples show why this application should be rejected.
Earl Cooley : RTC seeks $73,108.75 for 265.85 hours of Mr. Cooley's time. Mr. Cooley's last billing is dated November 24, 1995. To that point, he had participated in the initial seizure, lost on the preliminary injunction and on the reconsideration thereon, and lost on the order vacating the seizure. It is not clear that any of the work which Mr. Cooley did came in matters on which RTC prevailed. Furthermore, the effort was made to segregate out billings on the Post and Digital Gateway sections of the case, was not completely successful. Thus, on August 19, 1995, there is an entry for 2.5 hours for a conference call concerning the Post article and to "review pleadings re Post." On October 18, the deposition of the Vice President of the Post is totally billed to Lerma in the amount of $3,000.
When viewing all of the hours billed by Mr. Cooley on this case -- including the Washington Post, including Lerma, noncopyright matters -- he claims that 60% of his time was spent on Lerma copyright matters. When approximately 76 hours related to litigation in other cases is factored out, Mr. Cooley appears to be claiming that he spent 76% (267.85 hours out of 372.50) of his time on successful Lerma copyright matters. With all due respect, there were almost no successful Lerma copyright matters on which he worked.
Winter Overkill: On December 1, 1995, this court granted Mr. Lerma's motion for summary judgment on trade secret issues. At that point, the case was reduced to a copyright case and the Court made it clear, from the Bench, that it thought the scope of issues had narrowed dramatically. (D 293, p. 37). Notwithstanding this fact and notwithstanding that parties had billed 1460.62 hours during the flurry of motions, hearings, and discovery from August 15 through December 1, 1996, they managed to bill an astounding 933 hours in December and 1014 hours in January. This uncalled for when only a summary judgment motion was pending.
Crowded Benches: There were ten hearings in this case. At each hearing except the last, a minimum of three lawyers, at least two from out-of-town appeared. Now RTC seeks to bill for this overlawyering, including the travel time. Even Ms. Kobrin, whose rates are otherwise quite reasonable, has managed to log a number of twenty hour days due to travel.
RTC also claims that it should be allowed to charge for thirteen lawyers because Mr. Lerma used ten. In fact, Mr. Lerma used one law firm until it was ordered by its insurers to switch to another. The lawyers were used seriatim. Comparison with RTC's estimates of what defendants may have spent also miss the point. Defendant's expenditures are for two cases, involving both copyright and trade secret issues.
RTC proposes a permanent injunction, relief appropriate only when a continuing violation otherwise threatens. Basic Books, Inc. v. Kinko's Graphics Copy, 758 F. Supp. 1522, 1542 (S.D.N.Y. 1991). Lerma uploaded OT II and III in the mistaken belief that they were proper to do so; his downloads were innocent infringements. Though effectively judgment proof, he has complied with all orders of this court. Unlike infringers in cases cited by plaintiff, Mr. Lerma does not compete with RTC or produce the same product. While Mr. Lerma does not object to impoundment of any remaining copies of the five subject works in his possession, he presents no danger of continuing violation and no reason for a permanent injunction.
There is no basis for an award of attorney's fees in this case. RTC won a pyrrhic victory in a proceeding dominated by loses on related intellectual property questions. The Rosciszewski factors weigh heavily against an award. The bills submitted are grossly disproportionate when the nature of the copyright dispute at issue is considered. This case does not merit the largest fee award in copyright history.
Respectfully submitted,
David Masselli
Virginia Bar No. 25869
William C. Lane
Virginia Bar No. 26118
3426 North Washington Boulevard
Suite 202
Arlington, VA 22201
(703) 741-0975
Counsel for Defendant
Arnaldo P Lerma