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Intellectual Property Litigation Trademarks

The Ninth Circuit Applies Octane Fitness Fees Standard to Trademark Cases

Rather than analyzing whether a defendant's infringement of a trademark has been malicious or willful, or whether a plaintiff's claim has been pursued in bad faith, district courts in the Ninth Circuit are required to consider the totality of the circumstances in determining whether a case is "exceptional."

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In SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., __ F. 3d. __, 2016 WL 6156039 (9th Cir. Oct. 24 2016) (en banc), the Ninth Circuit held in an en banc decision that the same test governing the award of attorneys’ fees in patent cases (the “Octane Fitness” test) now governs the award of attorneys’ fees in Lanham Act cases. Now, rather than analyzing whether a defendant’s infringement of a trademark has been malicious or willful, or whether a plaintiff’s claim has been pursued in bad faith, district courts in the Ninth Circuit are required to consider the totality of the circumstances in determining whether a case is “exceptional.” Under this more flexible standard, litigants should take steps before and throughout the case to create stark contrasts between themselves and their adversaries with respect to the merits of their positions and their manner of handling the lawsuit.

The Supreme Court Sets the Standard in Patent Cases

In Lanham Act cases, the court in “exceptional cases may award reasonable attorneys’ fees to the prevailing party.” See, 15 U.S.C. §1117(a). The Patent Act contains an identical provision: 35 U.S.C. §285.

Neither Act, however, defines what an “exceptional case” is. In the patent arena, from approximately 2005 until 2014, the Federal Circuit held that a case was exceptional under §285 only if a court found litigation-related misconduct of an “independently sanctionable magnitude” or determined that the litigation was brought in subjective bad faith and was objectively baseless. See, Brooks Furniture Mfg. v. Dutalier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005).

In 2014, this standard changed when the Supreme Court held in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), that the Federal Circuit’s framework was “unduly rigid.” The Supreme Court rejected the Brooks Furniture standard as “superimpos[ing] an inflexible framework onto statutory text that is inherently inflexible.” Instead, the word “exceptional” as used in §285 was to be given its ordinary meaning, i.e., “uncommon,” “rare,” or “not ordinary.” Thus, the Court held that an “exceptional” case under the Patent Act 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.” Id. The Court emphasized that there was no “precise rule or formula” for making a determination of exceptionality, but that courts should exercise equitable discretion in assessing whether fees should be awarded.

In the wake of Octane Fitness, and in light of the similarities between the Patent Act’s and Lanham Act’s fee-shifting provisions, some, but not all, of the circuit courts applied Octane Fitness to trademark cases. For example, the Third Circuit, in Fair Wind Sailing, Inc., 764 F.3d 303 (3d Cir. 2014), held that the Court in Octane Fitness was “sending 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.” The Fourth, Fifth and Sixth Circuits also concluded that the Octane Fitness standard should apply to trademark cases.

The Ninth Circuit Applies Octane Fitness to Trademark Cases

In SunEarth, the plaintiffs manufactured and sold solar thermal collectors, and the defendants included a Chinese company that manufactured photovoltaic panels and branded its panels with the Chinese words for “Sun Earth.” The district court ultimately found that the plaintiffs were entitled to a permanent injunction, but denied their request for fees. See, No. 11-4991-CW, 2013 WL 4528539, at 21 (N.D. Cal. Aug. 23, 2013). On appeal, a three-judge Ninth Circuit panel held the district court had not erred. See, 650 Fed. Appx. 473 (9th Cir. May 24, 2016). While the plaintiffs argued that the analysis for a fees award had changed under the Supreme Court’s decision in Octane Fitness, the panel noted that it was “bound” by a post-Octane Fitness panel’s decision in Fifty-Six Hope Rd. Music, Ltd., 778 F.3d 1059 (9th Cir. 2015), which had hewed to the then-existing Ninth Circuit standard of requiring that an infringer’s conduct be malicious, fraudulent, deliberate, or willful.

The Ninth Circuit then heard the case en banc and on Oct. 24, 2016, held that Octane Fitness had “altered the analysis of fee applications under the Lanham Act.” Thus, district courts in the Ninth Circuit must consider the “totality of the circumstances,” and assess a “‘nonexclusive’ list of ‘factors,’ including frivolousness, motivation, 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.” They are also to exercise “equitable discretion” in deciding fees awards. It further held that review of Lanham Act fees decisions are for abuse of discretion.

SunEarth‘s Ramifications In the Ninth Circuit

The Ninth Circuit’s decision did not come as a surprise. Even before SunEarth was decided, some district courts in the Ninth Circuit had discussed and seemed to consider Octane Fitness’s more flexible standards in trademark cases. See, e.g., Fitbug Ltd. v. Fitbit, Inc., No. 13-1418, 2015 WL 3543116 (N.D. Cal. June 5, 2015). However, now that the Ninth Circuit has instructed district courts to follow Octane Fitness, litigants should take note of the wider range of conduct that has been found sufficient to justify fees awards post-Octane Fitness, and take steps accordingly to lay the groundwork for their fees requests.

As one example, at least a handful of district courts have held that a litigant’s pre-litigation actions can factor into the exceptional case analysis. In CarMax Auto Superstores, Inc. v. StarMax Finance, Inc., No. 6:15-cv-898-Orl, 2016 WL 3406425 (M.D. Fla. June 21, 2016), a Florida district court held that CarMax, the prevailing plaintiff, was entitled to fees in part because of the defendant’s (StarMax) unreasonable response to CarMax’s extensive pre-litigation efforts to resolve their disputes. For a period of more than two years before CarMax filed suit, CarMax repeatedly notified StarMax of its rights and told StarMax that it was causing confusion in the marketplace. StarMax continued to use the infringing marks. Then, after CarMax was forced to file suit, StarMax never appeared in the case, and the court entered a default judgment against it. StarMax’s continuing use of the marks and utter silence in response to CarMax’s reasonable attempts to enforce its rights were “patently unreasonable” under Octane Fitness, which permitted the court to consider “all circumstances surrounding the litigation event, not solely the conduct within the confines of the immediate litigation.” Id. at 4.

Before Octane Fitness, it may have been more difficult for CarMax to establish that a defendant’s conduct was malicious, fraudulent, deliberate or willful. However, under the more “liberal” standard for awarding fees, the court could, and did, consider the alleged infringer’s conduct before the litigation began, which included its unreasonable refusal to resolve the parties’ disputes informally when given multiple opportunities to do so.

Similarly, accused infringers have obtained fees based on circumstances outside of the litigation, where the alleged trademark holder made baseless threats of trademark violations. In Renna v. Cty. of Union, N.J., No. 2:11-3328 KM MAH, 2015 WL 1815498 (D.N.J. Apr. 21, 2015), a county in New Jersey sent letters to a host of a public access television program stating that her use of a graphic including the county’s seal violated federal and state trademark law. The county sent these letters even though the Patent and Trademark Office had found the insignia unregistrable. The host sought a declaratory judgment, and on summary judgment the court ruled that the seal was unprotectable and the host’s use of it did not violate trademark law.

The court ultimately awarded the host fees and held that the county’s pre-litigation conduct was relevant to a consideration of fees under the “totality of the circumstances” standard of Octane Fitness. While the Third Circuit’s earlier standard for fees had focused on a party’s “culpable conduct” during the litigation, the court in Renna held that under Octane Fitness, it was permitted to look beyond the events of the litigation and determine whether pre-litigation cease-and-desist letters (i.e., not pleadings in a court action) had basis. Because they did not, a fees award was appropriate.

Conclusion

As these cases illustrate, litigants in the Ninth Circuit now have the ability to pave new and different roads toward obtaining fees in trademark cases by pointing to, for example, unreasonable conduct by a party that might not have been considered pre-Octane Fitness. Courts might not increase the frequency of awarding fees at the end of trademark cases, but they may be more receptive to fees requests where a litigant has diligently laid the groundwork, both before and during a lawsuit, to set up stark contrasts in both the merits of the parties’ positions and their respective manners of litigating the action.

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Cathy Tran Moses is an associate in the Newport Beach, CA, office of Irell & Manella LLP. She specializes in intellectual property litigation and complex commercial litigation, and can be reached at 949-760-0991 or via email at cmoses@irell.com.

The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.

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