## Facts

- Two public high-school business-course teachers created and distributed (without copyright notice) an instructional manual for operating the school’s DEC word processors.
- After the school district bought Sony word processors, it provided the teachers’ manual to Sony and asked Sony to adapt it for the new machines.
- Sony prepared a revised manual that was very similar to, and in places copied verbatim from, the teachers’ manual.
- Sony did not charge the school district for the adaptation, and there was no evidence Sony sold or distributed the adapted manual beyond the district.
- After learning of Sony’s adapted manual, the teachers registered their manual with the Copyright Office and sued Sony alleging state common-law copyright and federal statutory copyright infringement.
- The complaint alleged Sony had made “large profits” from the manual and sought compensatory and punitive damages, an accounting of profits, injunctive relief, and attorney’s fees.
- The district court dismissed the action for failure to state a claim and later imposed Rule 11 sanctions of $14,895.46 against plaintiffs’ counsel (not the plaintiffs), using a staged percentage-of-fees approach tied to points when counsel should have recognized defects.
- Plaintiffs filed a notice of appeal that purported to challenge both the dismissal and the sanctions order, but it was filed long after the final judgment dismissing the action.

## Issues

1. Whether the appellate court had jurisdiction to review the dismissal of the action given the untimely notice of appeal.
2. Whether Rule 11 sanctions were warranted based on counsel’s pre-filing inquiry and continued litigation conduct.
3. Whether the sanctions amount and staged structure were a proper exercise of discretion.
4. Whether copyright ownership uncertainties (including possible work-for-hire status) affected the objective reasonableness of filing and pursuing the claims and requested relief.

## Decision

- The court dismissed the appeal from the underlying dismissal for lack of appellate jurisdiction because the notice of appeal was untimely as to the merits judgment.
- The court affirmed the Rule 11 sanctions against plaintiffs’ counsel.
- The court concluded the core statutory copyright theory was not necessarily frivolous given substantial copying and subsequent registration, but most of the requested relief (especially claims of large profits and broad monetary and punitive damages) lacked factual support.
- The court upheld the district court’s calibrated, staged fee award as reasonably tied to points when counsel should have known key allegations and demands were untenable.

## Legal Principles

- A timely notice of appeal is jurisdictional; a later sanctions order does not reopen or extend the time to appeal an earlier final judgment on the merits.
- Rule 11 requires an objective assessment of whether counsel acted reasonably under the circumstances, including whether counsel conducted a reasonable pre-filing factual inquiry.
- Sanctions may be appropriate where a complaint asserts factual contentions (e.g., profits or commercial exploitation) without adequate investigation and where counsel continues pressing unsupported theories of damages after the absence of evidentiary support becomes apparent.
- A claim may have a non-frivolous legal core while particular requests for relief are sanctionable if plainly unsupported by known facts.
- Potential work-for-hire or ownership questions can bear on reasonableness, but do not excuse unsupported allegations of profits or expansive damages demands absent evidence of dissemination or revenue.

## Conclusion

The Seventh Circuit lacked jurisdiction to review the merits dismissal because the appeal was untimely, and it affirmed Rule 11 sanctions against counsel for failing to investigate the factual basis for alleged profits and for continuing to pursue expansive monetary and punitive relief despite the absence of evidence that Sony commercialized the adapted manual.


Hays v. Sony Corp. of Am., 847 F.2d 412 (7th Cir. 1988)