Awards of Attorney Fees under the Lanham Act Post-Octane FitnessBy Michael D. Steger with Paul Cirner – January 11, 2016
Any trademark litigator knows that it has historically been difficult to obtain an award of attorney fees in a federal trademark case, no matter how egregious the opposing party’s actions. Section 35(a) of the Lanham Act provides, in part, “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 15 U.S.C. § 1117(a). In practice, federal courts rarely found cases to be “exceptional.”
The Octane Fitness Decision
Last year’s Supreme Court decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), provided an opening for a more liberal standard for fees in trademark cases. Octane Fitness was a patent case where the Supreme Court interpreted the Patent Act’s identical attorney fees language: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35. U.S.C. § 285. In the underlying case, the Federal Circuit had applied its longstanding formulation that “exceptional cases” involved litigation that is (1) objectively baseless and (2) brought in “subjective bad faith.” Octane Fitness, 134 S. Ct. at 1754 (citing Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005)). The Federal Circuit required clear and convincing evidence of both the lack of merit and the subjective bad faith.
In reversing the Federal Circuit, the Supreme Court relied on Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521 (D.C. Cir. 1985), a trademark case that interpreted section 35(a) of the Lanham Act to mean “uncommon” or “not run-of-the-mill.” Noxell, 771 F.2dat 526. (Interestingly, the opinion in Noxell was written by then-Judge Ruth Bader Ginsburg, joined by Judge Scalia). Stating that the Lanham Act provision is identical to the Patent Act fee provision at issue, the Supreme Court held that “an ‘exceptional case’ is simply one that stands out from others with respect to the substantive strength of a party’s litigation position (considering both the governing law and facts of the case) or the unreasonable manner in which the case was litigated.” Octane Fitness, 134 S. Ct. at 1756. Octane Fitness cautioned district courts to determine whether a case is exceptional on a case-by-case basis, evaluating the “totality of the circumstances” while exercising their discretion. In rejecting the Federal Circuit’s standard, the Supreme Court held that an award of fees is justified even if the losing party’s conduct does not rise to the level of bad faith. Moreover, the Federal Circuit’s insistence on clear and convincing evidence of misconduct or bad faith raised the bar too high.
While the Octane Fitness decision did not directly address the Lanham Act, logic would dictate that the same standard should apply since the attorney fees language is identical. However, for now, the Supreme Court has left it to the lower courts to determine whether there are some teeth in the fee-shifting provisions of the Patent and Lanham Acts. By instructing that such decisions would be reviewed only for abuse of discretion, the Supreme Court granted the lower courts great deference.
The Lower Courts’ Implementation of the Octane Fitness Standard
In Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 314 (3d Cir. 2014), the Third Circuit, applying Octane Fitness to a Lanham Act case, recognized that section 35(a) of the Lanham Act is identical to Patent Act section 285 and that the Supreme Court sent “a clear message that it was defining ‘exceptional’ not just for the fee provision in the Patent Act, but for the fee provision in the Lanham Act as well.” Fair Wind concerned a terminated employee who established a competing business that allegedly infringed the plaintiff’s trade dress. The defendant’s motion to dismiss the complaint on the grounds that it failed to allege sufficient facts to establish trade dress infringement was granted, and the district court awarded fees to the defendant. On the plaintiff’s appeal, the Third Circuit remanded the case to the district court for a determination whether the case was “exceptional” under Octane Fitness.
Similarly, in Renna v. County of Union, New Jersey, No. 11-3328, 2015 WL 93800 (D.N.J. Jan. 7, 2015), Magistrate Judge Hammer of the District of New Jersey, awarded attorney fees to a successful plaintiff under the Lanham Act. Renna produced a public access television program that exposed the inner workings of the Union County, New Jersey, government, regularly showing the Union County logo during the programs. Union County, which had earlier tried and failed to obtain a federal registration for its seal (municipal seals are not eligible for federal trademark registration), sent multiple cease and desist letters to Renna claiming that he was infringing the defendant’s registered mark. Renna then successfully brought a declaratory judgment action against the county for First Amendment violations, a declaration of noninfringement, and a request for attorney fees. Magistrate Judge Hammer found that Octane Fitness applied and that the defendant’s meritless and intimidating prelitigation conduct, including actual knowledge that it had no trademark registration, was sufficient to make the case exceptional. The district court then adopted the magistrate’s report, relying on the Third Circuit’s decision in Fair Wind. In deciding whether a party’s position was so exceptional as to justify an award of fees against it, the district court held that “Fair Wind speaks to ‘an unusual discrepancy in the merits of the positions taken by the parties,’” and then went on to compare Union County’s conduct to the “objectively baseless” standard referenced by the Supreme Court. Renna v. Cnty. of Union, N.J., No. 2:11-3328, 2015 WL 1815498, at *2 (D.N.J. Apr. 21, 2015).
The Sixth Circuit has also incorporated the Octane Fitness standard into a review of an attorney fees award in Premium Balloon Accessories, Inc. v. Creative Balloons Manufacturing, Inc., 573 F. App’x 547 (6th Cir. 2014). In Premium Balloon, the district court granted summary judgment for the plaintiff on its trade dress infringement claim. In a prior action, defendant Creative Balloons had settled by agreeing to pay Premium Balloon a license fee for the subject trade dress. Creative then infringed another trade dress and counterclaimed against Premium for patent infringement, a counterclaim it voluntarily dismissed. The district court found that Creative’s claims were “exceptional” in their “groundlessness.” On appeal, the Sixth Circuit reversed the award of fees, finding that there was no evidence Creative was aware that its claim was meritless, and cited its good faith in immediately withdrawing that claim upon notification of its defects. Premium Balloon appears to hold that Octane Fitness will apply to Lanham Act cases in the Sixth Circuit.
In Slep-Tone Entertainment Corp. v. Karaoke Kandy Store, Inc., 782 F.3d 313 (6th Cir. 2015), the Sixth Circuit remanded the prevailing defendant’s motion for attorney fees because there was no final judgment issued. In this case, the plaintiff brought an infringement action against a competitor who copied and sold karaoke tracks bearing the plaintiff’s marks without consent. The plaintiff filed a Rule 52 motion after the jury returned a verdict against it. While this motion was pending, the defendant appealed the district court’s denial of its motion for attorney fees, a decision based on pre-Octane Fitness standards. The Sixth Circuit instructed the district court to decide the attorney fee issue in light of Octane Fitness once final judgment was entered. “[T]he question of whether this case is exceptional enough to merit fees to the prevailing party under § 1117(a) could very well turn on the district court’s final findings of fact and conclusions of law.” Slep-Tone, 782 F.3d at 317.
The Fourth Circuit vacated an award of $2,225,782.35 in attorney fees and remanded the issue to be decided under Octane Fitness in Georgia-Pacific Consumer Products LP v. von Drehle Corp., 781 F.3d 710 (4th Cir. 2015). In Georgia-Pacific, a paper towel manufacturer brought an infringement action against a competitor who made cheaper towels specifically to be used in the plaintiff’s trademarked dispenser. The district court upheld a jury verdict for the plaintiff and awarded attorney fees. The district court had relied on a willfulness standard, citing the competitor’s purposeful infringement, but the Supreme Court decided Octane Fitness after the parties had filed their appellate briefs. In remanding the case for the district court to apply the Octane Fitness standard, the Fourth Circuit relied on Fair Wind:
[W]e conclude that a district court may find a case “exceptional” and therefore award attorneys fees to the prevailing party under § 1117(a) when it determines, in light of the totality of the circumstances, that (1) “there is an unusual discrepancy in the merits of the positions taken by the parties,” based on the non-prevailing party’s position as either frivolous or objectively unreasonable; (2) the non-prevailing party “has litigated the case in an ‘unreasonable manner’”; or (3) there is otherwise “the need in particular circumstances to advance considerations of compensation and deterrence.”
Georgia-Pacific, 781 F.3dat 721 (citations omitted).
The Ninth Circuit has yet to weigh in on this issue, but California district courts have issued several decisions. In another decision in the long-running intellectual property feud between Apple and Samsung, Judge Koh in the Northern District of California applied Octane Fitness to Ninth Circuit precedent on Lanham Act attorney fees claims. In Apple Inc. v. Samsung Electronics Co., No. 11-CV-01846, 2014 WL 4145499 (N.D. Cal. Aug. 20, 2014), the court first overruled the jury’s finding that Samsung had willfully infringed Apple’s trade dress, finding that Samsung had asserted reasonable defenses of noninfringement. Judge Koh found that Samsung’s defenses showed that “Samsung might have reasonably thought that Samsung’s actions were not barred by statute and that, therefore, Apple is not entitled to attorneys’ fees” under section 35(a) of the Lanham Act.
In Perfect 10, Inc. v. Giganews, Inc., No. CV 11-07098-AB, 2015 WL 1746484 (C.D. Cal. Mar. 24, 2015), Judge Birotte of the Central District of California refused to award attorney fees under the Lanham Act, finding that Perfect 10’s claims of infringement against Giganews for in-line linking/search engine viewing were reasonable despite being unavailing.
On amendment, Perfect 10 reasonably elected to drop its unmeritorious Lanham Act claim rather than pursue it further. It may be that Perfect 10’s trademark claims were “outside the limits of any previous . . . trademark decisions,” but that fact alone does make Perfect 10’s trademark claims an “exceptional case.” A trademark claim is not “unreasonable” or “vexatious” simply because it is novel. (“[C]omplex and novel legal issues related to the Internet cannot be considered as . . . groundless or unreasonable only because they do not meet the current legal standards[.]”)
Perfect 10, 2015 WL 1746484, at *14 (citations omitted). That Perfect 10 declined to pursue its Lanham Act claims after the court determined that they were defective only supports the conclusion that Perfect 10 acted reasonably in abandoning its trademark claims. “There is nothing about Perfect 10’s conduct with respect to its trademark claims that make this action ‘exceptional,’ and it would be inappropriate to award Defendants’ attorneys’ fees under 15 U.S.C. section 1117.” Id.
In Albrecht v. Tkachenko, No. 14-cv-05442-VC, 2015 WL 2227607, at *1 (N.D. Cal. May 11, 2015), Judge Chhabria of the Northern District of California awarded the defendant attorney fees under the Lanham Act, relying on Octane Fitness. According to the complaint, Albrecht sued his ex-wife for her continued use of his surname in connection with her immigration law firm. They used the name together prior to the divorce, and although she remarried under a different name she continued to use the name Albrecht just on her website. The court found the plaintiff’s Lanham Act claims “groundless, unreasonable, [and] vexatious” and the case to be an exceptional one. The plaintiff was ordered to pay $58,929.42 of the defendant’s attorney fees and costs. This appears to be an egregious example that would warrant an attorney fees award even under the higher pre-Octane Fitness standard.
Several other post-Octane Fitness district court decisions have incorporated that decision into their evaluations of attorney fee claims under the Lanham Act. For example, although the courts used their discretion to deny fee awards, the opinions in Reynolds Consumer Products, Inc. v. Handi-Foil Corp., No. 1:13-cv-214, 2014 WL 3615853 (E.D. Va. July 18, 2014), and BMW of North America, LLC v. Cuhadar, No. 6:14-cv-40-Orl-37DAB, 2014 WL 5420133 (M.D. Fla. July 10, 2014), demonstrated that federal judges in Virginia and Florida also held that the new interpretation of “exceptional” applied in their districts.
In the only outlier decision to date, a Connecticut court refused to apply the Octane Fitness standard. In Romag Fasteners, Inc. v. Fossil, Inc., No. 3:10cv1827, 2014 WL 4073204, at *5 (D. Conn. Aug. 14, 2014), Judge Arterton refused to award the plaintiff attorney fees after a finding of nonwillful trademark infringement under the Lanham Act, relying on Second Circuit precedent that section 35(a) “allows recovery of a reasonable attorney’s fee only on evidence of fraud or bad faith” (quoting Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 111 (2d Cir. 2012)). Addressing the application of the Supreme Court’s decision, the court found that “the Supreme Court was interpreting only the Patent Act and not the Lanham Act in Octane Fitness. As such, the Second Circuit cases interpreting the fee provision of the Lanham Act remain good law and represent binding precedent on this Court.” Romag Fasteners, 2014 WL 4073204, at *5. Because there was no evidence of “fraud or bad faith, or willful infringement,” the court then rejected the plaintiff’s fee application.
Other courts in the Second Circuit have found that Octane Fitness applies to Lanham Act claims. In River Light V, L.P. v. Lin & J International, Inc., No. 13cv3669, 2015 U.S. Dist. LEXIS 82940, at *27–29 (S.D.N.Y. June 25, 2015), the court awarded attorney fees to the successful plaintiff under both 15 U.S.C. § 1117(a) and the intentional counterfeiting provision of 15 U.S.C. § 1116(b), as well as fees for sanctions for the defendant’s litigation misconduct. The court concluded:
By these or indeed any measures this case is exceptional. Defendants engaged in intentional infringement, perpetrated fraud and spoliation, pursued counterclaims grounded in that fraud, and have continued to sell their infringing merchandise throughout this litigation, all with the intent to deceive and profit at the expense of the administration of justice. Indeed, “courts in this District typically award Lanham Act fees based on extreme misconduct during litigation.”
River Light, 2015 U.S. Dist. LEXIS 82940, at *29 (citing Beastie Boys v. Monster Energy Co., No. 12 Civ. 6065, 2015 U.S. Dist. LEXIS 77185, at *29 (S.D.N.Y. June 15, 2015)). These rulings in the Southern District of New York highlight the anomalous nature of the Romag Fasteners decision.
As the district courts attempt to sort out of the implications of the Octane Fitness ruling for trademark claims, courts appear to be embracing a “totality of the circumstances” test that evaluates all relevant factors for each case. A “totality of circumstances” test does tend to lead to more litigation as each side digs in to seek reimbursement for its fees or to avoid additional costs. There are differences among the circuits, including differences as courts attempt to reconcile Octane Fitness with their own circuit precedents on Lanham Act fee awards. As the lower courts sort out the repercussions of the Supreme Court decision on trademark, trade dress, and unfair competition litigation, parties may push for the Supreme Court to clarify the standard for attorney fees under section 35(a) once and for all.
Keywords: litigation, intellectual property, trademarks, attorney fees, totality of the circumstances, Octane Fitness, trademark, fee-shifting