United States: Expanding Attorney Fees In IP Cases

Starting in 2014, and continuing through recent months, both the courts and Congress have redefined the standard for awarding attorney fees in IP cases—wholly returning the discretionary nature to district courts for patent and trademark disputes, largely doing so for copyright actions, and providing, as part of the recently-enacted Defend Trade Secrets Act, attorney fees in trade secret cases limited by statute to bad faith or willful and malicious trade secret assertions or misappropriation. Patents Section 285 of the Patent Act authorizes attorney fees in patent cases. It broadly provides district courts with discretionary power: "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party."²⁵

Despite this broadly-worded statute, the Federal Circuit had until recently greatly restricted district court discretion, holding in its 2005 Brooks Furniture decision that a case was exceptional "only if (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless," proven by clear and convincing evidence.²⁶

In 2014, in the Octane Fitness case, the Supreme Court unanimously rejected the Brooks Furniture test as "unduly rigid" and returned to district courts broad discretion to consider, on a "case-by-case basis," the "totality of the circumstances:" We hold, then, that an "exceptional" case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is "exceptional" in the case-by-case exercise of their discretion, considering the totality of the circumstances.²⁷

In doing this, the Supreme Court also overruled the Federal Circuit's requirement that there be "clear and convincing evidence" before an award of fees, adopting instead a preponderance of the evidence standard. And, in the tandem Highmark case—decided on the same day as Octane Fitness—the Supreme Court significantly heightened the appellate review standard, shifting it from de novo review for abuse of discretion for "all aspects of a district court's § 285 determination...."²⁸

Trademarks

Section 35(a) of the Lanham Act authorizes trademark attorney fees. Just like Section 285 of the Patent Act, Section 35(a) empowers the district court with broad discretion: "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party."²⁹

Since Octane Fitness, the Third, Fourth, Fifth, Sixth and Ninth Circuits—as well as many district courts in other circuits— have followed the reasoning of Octane Fitness, and held that the totality-of-the-circumstances test should be used when determining attorney fees awards in trademark cases. For example, in extending Octane Fitness to trademark cases and returning discretion to district courts, the Third Circuit reasoned that not only is the language of Section 285 of the Patent Act "identical" to Section 35(a) of the Lanham Act, but also that Congress explicitly referenced Section 285 in passing Section 35(a).³⁰

The Fourth, Fifth, and Sixth Circuits have applied similar reasoning and relaxed their prior, more stringent standards.³¹

Most recently, in SunEarth, the Ninth Circuit—one of the most significant circuits for trademark infringement actions— followed suit.³²

Prior to SunEarth, the Ninth Circuit—much like the Federal Circuit in Brooks Furniture—placed significant restrictions on district court discretion. It required that a plaintiff show that a defendant engaged in "malicious, fraudulent, deliberate or willful" infringement in order to receive attorney fees.³³

However, with the relevant statutory language being identical to that governing patent cases and in light of the ruling in Octane Fitness, the Ninth Circuit reheard and reversed a May panel ruling and held that the Octane Fitness analysis equally applies to the Lanham Act.³⁴

Copyrights

Section 505 of the Copyright Act governs attorney fees in copyright cases and provides that a district court "may... award a reasonable attorney's fee to the prevailing party...."³⁵

Continuing the discretionary trend, in June 2016, the Supreme Court vacated the Second Circuit's Kirstaeng v. John Wiley & Sons decision, which had denied attorney fees by placing substantial (nearly "dispositive") weight on objective reasonableness.³⁶

Rejecting the Second Circuit, the Supreme Court found that "objective reasonableness can be only an important factor in assessing fee applications—not the controlling one."³⁷

While a district court should take into account the objective reasonableness of the losing party's position, it should also consider all other relevant factors.³⁸

For example, the Court stated that other factors—such as litigation misconduct and the importance of deterring repeated copyright infringement—must be factored into the analysis, regardless of whether the party's claims are objectively reasonable.³⁹

Trade Secrets On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act ("DTSA"), creating a federal civil cause of action for the misappropriation of trade secrets. The DTSA provides that "a court may... if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated award reasonable attorney's fees to the prevailing party."⁴⁰

This language (e.g., "bad faith," "willfully and maliciously") appears much more stringent than the language of the statutes discussed above, and thus will likely be used less frequently. Summary With increased district court discretion and a less stringent standard of review—particularly in patent and trademark cases, and, to a lesser extent, copyright disputes—it is likely that both fee requests and fee awards will increase. As for trade secrets, while it is too early to tell how courts will treat fee requests, given the explicit bad faith or willful and malicious requirements, we expect that trade secret fee awards will be more difficult to come by.

Footnotes

25 35 U.S.C. § 285.

26 Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).

27 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014).

28 Highmark Inc. v. Allcare Health Mgmt. Sys., 134 S. Ct. 1744, 1747 (2014).

29 15 U.S.C. § 1117(a).

30 Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014).

31 Georgia-Pacific Consumer Prods. LP v. von Drehle Corp., 781 F.3d 710 (4th Cir. 2015); Baker v. Deshong, 821 F.3d 620 (5th Cir. 2016); Slep-Tone Entm't Corp. v. Karoake Kany Store, Inc., 782 F.3d 313 (6th Cir. 2015). Other circuits—including the Second Circuit—have not yet decided the issue. See, e.g., Penshurst Trading Inc. v. Zodax L.P., 652 F. App'x 10 (2d Cir. 2016) ("We have not yet decided whether [the Octane Fitness] rule applies in the context of the Lanham Act, but we need not do so here.").

32 SunEarth, Inc. v. Sun Each Solar Power Co., Ltd., No. 13-17622, – F.3d –, 2016 WL 6156039 (9th Cir. Oct. 24, 2016).

33 Secalt S.A. v. Wuxi Shenxi Constr. Mach. Co., 668 F.3d 677, 687 (9th Cir. 2012).

34 SunEarth, 2016 WL 6156039, at *5.

35 17 U.S.C. § 505.

36 136 S.Ct. 1979 (2016).

37 Id. at 1988.

38 Id.

39 Id. at 1988–89.

40 Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, 130 Stat. 385.

41 81 Fed. Reg. 71653, 71653–54 (Oct. 18, 2016) (to be codified at 37 C.F.R. pt. 42).

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