For the second time in recent years, a Supreme Court decision in a patent case is having a major impact on Lanham Act litigation. The Supreme Court’s decision in Octane Fitness broadened the circumstances under which attorneys’ fees may be awarded in patent cases. That decision is now being applied to trademark and false advertising cases arising under the Lanham Act.

eBay and Its Progeny

As we noted in this newsletter last October,1 the Supreme Court’s 2006 decision in eBay changed the landscape regarding injunctive relief in patent cases. Whereas injunctive relief had been virtually automatic in such cases, the Supreme Court held that the propriety of injunctive relief must be determined via application of the four traditional equitable factors: (1) irreparable harm; (2) inadequacy of legal remedies; (3) balance of hardships; and (4) the public interest.2  

Because the Patent Act and the Lanham Act contain virtually identical language regarding injunctive relief, it was inevitable that the courts would apply eBay to Lanham Act trademark and false advertising cases. This has proven to be the case. As a result, the presumption of irreparable injury, which was typically applied in many trademark and false advertising cases, is becoming a thing of the past. Instead, trademark and false advertising plaintiffs must now prove that their injury is truly irreparable and that injunctive relief is warranted under the traditional equitable criteria.3 The eBay experience is now being repeated in connection with the availability of attorneys’ fees under the Lanham Act.

The Octane Fitness Ruling

In April of last year, the Supreme Court handed down its decision in Octane Fitness.4 The District Court had granted defendant Octane’s motion for summary judgment of non-infringement, but denied Octane’s motion for attorneys’ fees under section 285 of the Patent Act. That statute provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”5  

The District Court based its denial on an earlier Federal Circuit ruling that a case may only be deemed exceptional within the meaning of Section 285 in two limited circumstances: (1) where there has been some material inappropriate conduct in the course of the litigation; or (2) where the litigation was brought “in subjective bad faith” and was “objectively baseless.”6 In Octane’s appeal, the Federal Circuit affirmed both the award of summary judgment and the denial of attorneys’ fees. The Supreme Court granted certiorari to review the denial of Octane’s request for attorneys’ fees.

In a unanimous opinion, the Court stated that the earlier Federal Circuit’s standard was “unduly rigid” and “impermissibly encumbers the statutory grant of discretion to district courts.”7 The Court went on to hold that:

[A]n “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.8

Significantly, the Supreme Court cited the definition of “exceptional” in a Lanham Act decision by the D.C. Circuit (authored by then Circuit Judge Ginsberg and joined in by then Circuit Judge Scalia). According to the Supreme Court, that case defined the term “exceptional” as it was used in the Lanham Act to mean “uncommon” or “not run-of-the-mill.”9 The Court also rejected the earlier Federal Circuit rule that a party’s entitlement to attorneys’ fees must be proven by “clear and convincing evidence.”10  

Attorneys’ Fees in Lanham Act Cases

Like Section 285 of the Patent Act, Section 285 of the Lanham Act11 provides that: The Court in exceptional cases may award reasonable attorney fees to the prevailing party. Prior to Octane Fitness, the courts had adopted a variety of tests for an award of attorneys’ fees in Lanham Act cases. But like the prior rule in patent cases, most circuits had adopted relatively rigid requirements. The following four tests were typical:

Second Circuit: Attorneys’ fees are recoverable only on a showing of  fraud, bad faith or willful infringement.12

Third Circuit: The court must first determine whether there was “culpable conduct,” such as bad faith, fraud, malice or knowing infringement. If such conduct is established, the court must then determine whether the circumstances are sufficiently “exceptional” to warrant a fee award.13

Seventh Circuit: Defendant’s infringement must have been “malicious, fraudulent, deliberate or willful.”14  

D.C. Circuit: No attorneys’ fees may be awarded unless there is a showing of “willful or bad faith conduct.”15  

Octane Fitness and the Lanham Act

Since the Lanham Act and Patent Act fee award provisions are identical, the courts have not taken long to announce that the Supreme Court’s Octane Fitness ruling is applicable to attorneys’ fees under the Lanham Act.

The first appellate court to apply Octane Fitness to the Lanham Act was the Third Circuit. In a decision handed down last September in a trade dress case, the court noted that the Supreme Court, by citing a Lanham Act case in its Octane Fitness ruling, “was sending a clear message that it was defining ‘exceptional’ not just for the fee provision in the Patent Act case, but for the fee provision in the Lanham Act as well.”16 The court went on to hold that a Lanham Act case may be deemed exceptional where:

(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.”17

The court added that, while there is no requirement that the losing party acted “culpably,” that party’s “blameworthiness” can play a role in determining whether a case is exceptional.

Last month, the Sixth Circuit reached the same result. In that case, a trademark case, the District Court had denied defendant’s motion for attorneys’ fees. The Sixth Circuit remanded the case to the District Court for determination of the fee request under the Octane Fitness decision. The court pointed out that the fee-shifting provisions of the Patent Act and the Lanham Act “are identical” and that “statutes using the same language should generally be interpreted consistently.”18  

Two District Courts have also reached the same result.19 Surprisingly, a District Court in Connecticut reached the opposite result, holding that in Octane Fitness the Supreme Court was “interpreting only the Patent Act and not the Lanham Act.” It therefore applied the more restrictive Second Circuit law on Lanham Act fee awards.20 This ruling is unlikely to withstand scrutiny by the Second Circuit, or even by other District Courts in the Circuit.

There is little doubt that the Supreme Court’s ruling in Octane Fitness will be universally applied to attorneys’ fee awards in trademark and false advertising cases under the Lanham Act. It is also likely that such awards will gradually become more frequent in Lanham Act cases. The party against whom a fee award is sought will no longer be able to insist that such an award cannot be made because there was no showing of bad faith, fraud, willful misconduct or the like. The party seeking attorneys’ fees will be free to make a more general argument that, under all the facts and circumstances, the case is exceptional in that it “stands out from the others” in terms of the lack of strength in the other party’s “litigation position”21 or the “unusual discrepancy in the merits of the positions taken by the parties.”22 At the very least, this will lead to a surge of attorneys’ fee applications in trademark and false advertising cases.

Why it matters: In the past, the high standard a party had to meet to recover attorneys’ fees in trademark and false advertising cases created an informal restraint on attorneys’ fee applications. Now that strict standards are a thing of the past, that restraint will be removed. More prevailing parties will now pursue attorneys’ fee awards. This should, in turn, cause counsel to be more cautious in the positions they take and the arguments they advance. In addition, as has happened in the patent field, defendants may be more willing to fight frivolous lawsuits rather than settle them in order to save litigation costs. A recent study by the Federal Bar Association reports that attorneys’ fee motions by accused patent infringers virtually doubled in the 11 months following Octane Fitness, and the success rate of such motions increased from 13% to 36%.23