On October 24, 2016, the Ninth Circuit became the latest federal court of appeals to hold that the Supreme Court's 2014 decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., which outlined the standard for finding a case "exceptional" in patent fee-shifting disputes, applies to the Lanham Act.
Both the Lanham Act and the Patent Act provide that "the court in exceptional cases may award reasonable attorney fees to the prevailing party." In Octane Fitness, the Supreme Court overturned the Federal Circuit's existing standard for awarding attorney fees under the Patent Act, holding that a district court should look to the "totality of the circumstances" to determine if a case is exceptional. The Court explained that an "exceptional" case is one that stands out from others with respect to: (1) "the substantive strength of a party's litigation positions (considering both the governing law and the facts of the case)"; or (2) "the unreasonable manner in which the case was litigated." Factors for courts to consider include frivolousness, motivation, factual or legal unreasonableness, and "the need in particular circumstances to advance considerations of compensation and deterrence." Further, the Court lowered the burden of proof, holding a party's entitlement to fees must be proven by a preponderance of the evidence.
This past May, a three-judge panel in the Ninth Circuit issued a non-precedential opinion in SunEarth, Inc. v. Sun Earth Solar Power that addressed the Lanham Act's fee-shifting provision. Affirming the lower court's conclusion that the case was not "exceptional," the Court explicitly rejected the applicability of Octane Fitness, applying instead the prior Ninth Circuit standard, which required "malicious, fraudulent, deliberate, or willful" infringement. On rehearing, however, the en banc panel joined the Third, Fourth, Fifth, and Sixth Circuits and held that the Supreme Court's decision changed the standard for fee-shifting disputes under the Lanham Act. Noting that only the Second and Seventh Circuits have continued to apply pre-Octane Fitness case law, the Court stated that the fee-shifting provisions in the Patent Act and the Lanham Act are "parallel and identical" and are to be interpreted in tandem.
Though the rates of attorney fee awards in patent cases have increased since Octane Fitness, whether the Ninth Circuit will award the plaintiff attorney fees in this case, even under Octane Fitness, remains questionable. In its May decision, the three-judge panel noted, "we have little doubt that this case is unexceptional even under Octane Fitness's totality of the circumstances test." Nonetheless, the Ninth Circuit's decision suggests that Octane Fitness's lower standard may soon apply across all circuits and that, going forward, attorneys and their clients may have to assess the increased risk of fee shifting when assessing the strength of their case.
The case is SunEarth, Inc. v. Sun Earth Solar Power Case No. 13-17622, 15-16096 (Fed. Cir.); Case No. 4:11-cv-04911-CW (N.D. Cal.).
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