Copyright–What happens if you lose the lawsuit?
Don't think about bringing a copyright lawsuit unless you are incorporated, a limited liability company, or rich! Once again the U.S. Court of Appeals, Seventh Circuit, which hears appeals from U.S. District Courts in Illinois, Indiana, and Wisconsin, has ruled that the prevailing party in a copyright lawsuit is entitled to be compensated for its lawyers' fees and costs by the losing party.
Although the U.S. Copyright Act gives the district court that tries the case the discretionary authority to grant these fees and costs, the Seventh Circuit has again ruled, in the case of Hyperquest, Inc. v. N'Site Solutions, Inc., that a prevailing defendant in a copyright infringement case is entitled to a strong presumption in favor of a grant of fees. The court ruled that although Hyperquest filed its lawsuit in good faith and that the case had some merit (although the case was dismissed because Hyperquest held a non–exclusive interest in the software at issue), this did not distinguish the case from many other copyright infringement cases, and the trial court had ruled in the defendants' favor.
So what does this case say if you own copyrighted materials and may have to bring a lawsuit in the future? If you operate your business as a sole proprietorship or partnership you should change your business type to some form of corporation or a limited liability company ("LLC"). The reason for doing this is that a corporate or LLC form of business will protect your personal assets from an adverse ruling regarding lawyers' fees and costs in a copyright lawsuit. Remember, you don't have to bring the lawsuit, a client or another photographer could bring a lawsuit against you.
If you don't believe these things can happen to you, think again. In a case one copyright owner had against a defendant business the plaintiff's (person or company bringing the lawsuit) owner had incorporated. Before the lawsuit was filed the plaintiff's owner became ill, and during pretrial he died. Because he was the sole witness to what had transpired, the plaintiff had to dismiss the case. The defendant thus prevailed and was entitled to be compensated for their lawyers' fees and costs, which amounted to more than $200,000. If this plaintiff had not been incorporated his estate and therefore possibly his widow could have been liable for paying this judgment. Death may be unusual, but many strange things can happen in a lawsuit.
The cost to register and maintain a corporation or LLC is miniscule when compared to the liability protection these types of business offer their owners, officers, stock holders, and others involved in running the business.