Lynwood Investments CY Limited v. Konovalov

Background

Lynwood filed this action seeking more than $750 million in alleged damages arising from an asserted conspiracy to steal the “NGINX Enterprise” from Rambler Internet Holding LLC. Lynwood alleged that Rambler had assigned its intellectual-property rights to Lynwood in 2015.

The court previously ordered Lynwood to select claims for trial. Judge Lucy H. Koh later dismissed the initially selected claims while allowing Lynwood to amend. Lynwood filed an amended complaint asserting 25 causes of action. On August 16, 2022, this Court granted defendants’ consolidated motion to dismiss the non-stayed claims without further leave to amend. Lynwood then dismissed the 16 remaining claims under a stipulation and appealed the August 16 order to the Ninth Circuit. The appeal was pending when this fee order was issued.

Motions and request to wait

The F5 Entities—F5, Inc., NGINX., Inc. (BVI), and NGINX Software, Inc.—sought $837,602.15 in attorneys’ fees under 17 U.S.C. § 505. The Individual Defendants—Maxim Konovalov, Igor Sysoev, Andrey Alexeev, Maxim Dounin, Gleb Smirnoff, and Angus Robertson—sought $770,367.10 under the same statute.

Lynwood asked the Court to defer ruling on the fee motions until the Ninth Circuit decided the pending appeal. Applying four factors used to evaluate a stay—likelihood of success, irreparable harm, injury to other parties, and the public interest—the Court found that only the possible injury to defendants favored waiting. The other three factors weighed against a stay. The Court therefore denied Lynwood’s request for a stay.

Entitlement to attorneys’ fees

Section 505 of the Copyright Act allows a court to award a reasonable attorneys’ fee to the prevailing party. The Court considered the parties’ degree of success, the objective unreasonableness of Lynwood’s claim, and whether awarding fees would advance the purposes of the Copyright Act. The Court found that all three considerations favored an award.

First, the defendants obtained dismissal of all of Lynwood’s claims with prejudice, which the Court treated as complete success. The Court also found that the copyright claim involved more than a technical pleading defect: Lynwood had not adequately identified the copyrighted work or which defendant allegedly infringed which copyright, and its definition included software that had been conceived but not developed. The Court noted that copyright protection does not extend to ideas.

Second, the Court found Lynwood’s copyright claim objectively unreasonable, although not frivolous. The Court concluded that Lynwood should have understood from the outset that its failure to identify the copyrighted work and the alleged infringer made its chance of success very small. The Court further found that the claim became objectively unreasonable by the time Lynwood filed its amended complaint because Lynwood continued to include uncopyrightable ideas and did not correct the identification problems after receiving leave to amend.

Third, the Court concluded that awarding fees would further the Copyright Act’s purposes. It emphasized that the Act is intended to promote public access to creative works and that successful defendants should be encouraged to litigate meritorious copyright defenses. The Court also considered defendants’ contention that Lynwood pursued more than $750 million in damages and sought destruction of NGINX software, while the evidence submitted by defendants indicated that any arguable loss to Rambler was around $810,000. The Court found that this factor favored a fee award.

Amount of fees

The Court did not determine the reasonable amount of fees. It explained that the lodestar method generally calculates fees by multiplying reasonably expended hours by a reasonable hourly rate, and that the party seeking fees must document the hours and rates. The Court found the defendants’ descriptions of their work too general to determine whether the hours were reasonable, excessive, redundant, or duplicative.

The Court therefore afforded both groups of defendants leave to supplement their motions with more detailed records concerning the amount of fees. It did not enter a final fee amount in this order.

Disposition

The Court found defendants entitled to an award of attorneys’ fees, denied Lynwood’s request to defer the fee ruling pending appeal, and afforded defendants leave to supplement their motions as to the amount. Defendants’ supplemental submissions were due January 17, 2023; Lynwood’s supplemental opposition was due February 7, 2023; and defendants’ supplemental replies were due February 21, 2023. The motions were to stand submitted on January 30, 2023 unless the parties were otherwise advised. The Court also stated that records could be filed under seal but could not be submitted to the Court privately without giving Lynwood an opportunity to review them.