On October 24, 2016, the U.S. Ninth Circuit Court of Appeals held that the U.S. Supreme Court's holding in the 2014 patent case Octane Fitness also applies to trademark cases.
As background, Section 285 of the Patent Act authorizes federal courts to award the winner its attorney's fees in "exceptional cases." Prior to Octane Fitness, courts applied a fairly strict standard in determining whether a case was "exceptional," namely, an "exceptional
case" was one that either involves "material inappropriate conduct" or is both "objectively baseless" and "brought in subjective bad faith." Parties were also required to establish the exceptional nature of a case by clear and convincing evidence. Octane Fitness loosened the standard, and instructed courts to look at the "totality of the circumstances" to see if the case simply "stands out from others."
The Octane Fitness ruling didn't apply to trademark cases, but the Lanham Act (which governs federal trademark claims) also provided for an award of fees in "exceptional" cases. Practitioners have been waiting to see if the Octane Fitness analysis would shift into the trademark arena. On Monday, in an en banc ruling involving a dispute between two solar companies called SunEarth Inc. and Sun Earth Solar Power Co., the nation's largest circuit court answered that question.
"We agree with the majority of our sister circuits and conclude that Octane Fitness ... altered the analysis of fee applications under the Lanham Act," the appeals court wrote. "Therefore, district courts analyzing a request for fees under the Lanham Act should examine the 'totality of the circumstances' to determine if the case was exceptional, exercising equitable discretion in light of the nonexclusive factors identified in Octane Fitness and Fogerty, and using a preponderance of the evidence standard."
The Ninth Circuit similarly adopted the Supreme Court's ruling in Highmark v. Allcare Health, which changed the standard by which appellate courts review fee-shifting rulings. Under Highmark, such decisions are only reviewed for abuse of discretion, not the more stringent de novo review.
With Monday's ruling, the Ninth Circuit is the latest and largest court to extend Octane Fitness to trademark cases. The Third, Fourth and Fifth Circuits have already done so, and the Second Circuit is currently considering whether or not to adopt the standard.
The ruling remands the case back to a trial judge for a reconsideration of the attorney's fees issue.
The case is SunEarth Inc. et al. v. Sun Earth Solar Power Co. et al., case number 13-17622, in the U.S. Court of Appeals for the Ninth Circuit.
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