Note: This blog post is part of a series that reviews and discusses a number of significant trademark-related decisions handed down in 2015, including two from the U.S. Supreme Court and several from the U.S. Court of Appeals for the Federal Circuit and other Circuit Courts. Going forward, these rulings will impact how parties protect their trademark assets, including in particular the strategies that parties will need to employ to maximize their likelihood of success in litigation. To follow the entire blog series, click here.
Both the Lanham Act and the Patent Act allow an award of
attorneys' fees to a prevailing party in an "exceptional
case." See 15 U.S.C. 1117(a) (i.e., Lanham Act
Section 35(a)); 35 U.S.C. 285. The "exceptional case"
provision is identical in the two statutes; indeed, Congress
referenced the patent "exceptional case" statute when it
enacted the trademark "exceptional case" statute.
Id.; See S.Rep. No. 93-1400, at 2 (1974),
reprinted in 1974 U.S.C.C.A.N. 7132, 7133. Therefore, it
is natural that courts have relied on patent-related
"exceptional case" jurisprudence to construe the
identical Lanham Act statute, particularly in determining when a
case is "exceptional," thereby warranting an award of
attorneys' fees. Id.; Fair Wind Sailing, Inc. v.
Dempster, 764 F.3d 303, 314-15 (3d Cir. 2014) (noting that the
court has "'look[ed] to the interpretation of the patent
statute for guidance' in interpreting § 35(a)" of the
Lanham Act, 15 U.S.C. 1117(a) (citations omitted)). The landscape
of "exceptional cases" in patent litigation changed
dramatically in 2014, and this change has begun making its way into
trademark litigation. We anticipate that this will continue, and
that all Circuits will adopt for trademark litigation the broader
definition of when a case is "exceptional" that now
controls in patent litigation.
The Supreme Court significantly broadened the meaning of an
"exceptional case" in the patent context in 2014. See
Octane Fitness, LLC v ICON Health & Fitness, Inc., 134
S.Ct. 1749 (2014). In Octane Fitness, the Court rejected
the Federal Circuit's rigid two-part analysis for determining
whether a case is "exceptional" for purposes of the
Patent Act. Id. at 1755. Instead, the Court relied on the
plain and ordinary meaning of "exceptional," including
dictionary definitions and concluded:
Id. at 1756. Thus, the Court recognized that district courts are in
the best position to determine whether a case is
"exceptional" based on the district court's
experience with similar cases.1 In that regard, the
Court identified as relevant a nonexclusive list of factors that it
had previously provided in the context of determining whether to
award attorneys' fees under a similar provision of the
Copyright Act. The list includes "frivolousness, motivation
[in bringing and continuing the suit], objective unreasonableness
(both in the factual and legal components of the case) and the need
in particular circumstances to advance considerations of
compensation and deterrence." Id. at 1756 n.6
(quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19
(1994)).
In practice, this standard has played out in the patent litigation
context as "district courts know it when they see it"
– i.e., district courts know when a case should not
have been filed because of substantive problems, or an argument
should have been dropped, or the case dismissed entirely, once it
was rendered untenable by a ruling (e.g., a claim
construction ruling) or discovery of information that undermined
the argument or case. Moreover, since Octane Fitness, the
Federal Circuit has consistently allowed district courts great
latitude, rarely reversing a district court's decision as to
whether or not a case was "exceptional." Accordingly,
Octane Fitness is often cited as one of the reasons that
the number of patent litigation cases, and particularly
"patent troll" litigation, has dropped steadily in
2015.
On the Lanham Act side, numerous district courts and at least two
Circuit Courts have explicitly recognized that Octane
Fitness's holding as to the meaning of
"exceptional" applies equally in the trademark context.
For example, in Fair Wind Sailing v. Dempster, 764 F.3d
303 (3d cir. 2014), the Third Circuit addressed the first case to
come before it after Octane Fitness in which Lanham Act
Section 35(a) was an issue. Previously, the Third Circuit had
required a finding that the losing party had engaged in culpable
conduct such as bad faith, fraud, malice, or intentional
infringement. Id. at 314 (quoting Green V.
Fornario, 486 F.3d 100, 103 (3d Cir. 2007)). Overruling more
than two decades of caselaw, the Third Circuit "import[ed]
Octane Fitness's definition of
'exceptionality' into [its] interpretation of § 35(a)
of the Lanham Act." Id. at 315. Going forward,
"a district court may find a case 'exceptional,' and
therefore award fees to the prevailing party, when (a) there is an
unusual discrepancy in the merits of the positions taken by the
parties or (b) the losing party has litigated the case in an
'unreasonable manner.'" Id. The court
continued, "[i]mportantly, that discretion [to decide
exceptionality] is not cabined by a threshold requirement that the
losing party acted culpably. The losing party's blameworthiness
may well play a role in a district court's analysis of the
'exceptionality' of a case, but Octane Fitness has
eliminated the first step in our two-step test for awarding fees
under § 35(a) of the Lanham Act." Id. The court
remanded the case so that the district court, "[w]ith its
unparalleled knowledge of the litigation and the parties"
could assess exceptionality in the first instance.
Id.
Similarly, the Fourth Circuit recently rejected years of caselaw in
which it had "defined the 'exceptional' case for
purposes of § 1117(a) 'as one in which the defendant's
conduct was malicious, fraudulent, willful or deliberate in
nature.'" Georgia-Pacific Consumer Prods. LP v. von
Drehle Corp., 781 F.3d 710, 719 (4th Cir. 2015) (quoting
Retail Servs., Inc. v. Freebies Publ'g, 364 F.3d 535, 550
(4th Cir. 2004)). In that context, "willful" did not mean
merely that the defendant's actions were volitional but,
rather, that the defendant acted with the intent to
infringe the plaintiff's trademark. Id. Thus, the
Fourth Circuit's test for exceptionality in a Lanham Act case
was particularly stringent before Octane Fitness.
Recognizing that the exceptional case provision in the Lanham Act
is identical to the corresponding provision in the Patent Act, the
court held that there was "no reason not to apply the
Octane Fitness standard when considering the award of
attorneys fees under § 1117(a)." Id. at 721
(citing Fair Wind Sailing, 764 F.3d at 314-15). In
addition to the factors set forth in Fair Wind Sailing,
supra, the Georgia-Pacific court noted that after
Octane Fitness, a Lanham Act case could be found
exceptional when "there is otherwise 'the need in
particular circumstances to advance considerations of compensation
and deterrence.'" Id. (quoting Octane
Fitness, 134 S.Ct. at 1756 n.6). Like the Fair Wind
Sailing court, the Georgia-Pacific court remanded the
case to the district court to consider exceptionality in view of
the new standard set out by Octane Fitness. See also
Slep-Tone Entm't Corp. v. Karaoke Kandy Store, Inc., 782
F.3d 313, 317-18 (6th Cir. 2015) (remanding exceptional case issue
with directions to "assess the applicability of Octane
Fitness before determining whether it is necessary to reassess
if this case qualifies as extraordinary under §
1117(a).").
While not all of the Circuit Courts have had an opportunity to
consider the exceptionality of a Lanham Act case under Section
35(a) since the Supreme Court issued Octane Fitness, it is
notable that the two Circuit Courts that have done so, as well as
all district courts that have done so, have recognized the
applicability of the Octane Fitness holding in the context
of Section 35(a). There is no basis for believing that every
Circuit will not apply the Octane Fitness standard to
determine whether a Lanham Act case is exceptional, warranting an
award of the prevailing party's attorneys' fees.
Accordingly, it is now significantly
easier, particularly in the Fourth
Circuit and other Circuits where exceptionality was traditionally
determined pursuant to a strict scheme, for a prevailing party to
convince a district court that a case is exceptional, and
practitioners need to analyze their arguments and tactics, both at
the outset of a case and as the case progresses, through the lens
of Octane Fitness. Simply put, the new standard is
"we know it when we see it" and practitioners need to be
careful out there.
Footnote
1 In a companion to Octane Fitness, the Supreme Court held that a district court's determination of exceptionality, or lack thereof, in the patent context is subject only to the deferential abuse of discretion standard on appeal. See Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S.Ct. 1744 (2014). The same standard will apply to a district court's determination of whether a case is exceptional under the Lanham Act's "exceptional case" provision.
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