In 2014, the Supreme Court of the United States issued its ruling in Octane Fitness (IP Update, Vol. 17, No. 5), in which it examined the fee-shifting provision of the Patent Act and clarified the types of “exceptional” cases that would allow a court to award reasonable attorneys’ fees to the prevailing party. Instead of requiring bad faith or malicious conduct on the part of a losing patent litigant, Octane Fitness adopted a “totality of the circumstances” analysis, under which a prevailing party must show that a case is “exceptional” by a preponderance of the evidence. Although Octane Fitness was an interpretation of the Patent Act only, litigants and courts were quick to acknowledge that the language of the fee-shifting provision in the Lanham Act is “parallel and identical” to its patent counterpart. Almost immediately, district courts began examining fee awards in trademark cases under the new standard, and the US Courts of Appeals for the Third through Sixth Circuits adopted the Octane Fitness approach to those trademark disputes.
Now an en banc panel of the US Court of Appeals for the Ninth Circuit has vacated an earlier panel ruling that affirmed a district court’s refusal to award attorneys’ fees sought by the prevailing party in a trademark dispute, stating that it was joining “the majority of our sister circuits” in concluding that Octane Fitness has altered the analysis of fee applications under the Lanham Act. SunEarth, Inc. v. Sun Earth Solar Power, Case Nos. 13-17622; 15-16096 (9th Cir., Oct. 24, 2016) (Wilken, J). The Court also applied the Supreme Court’s decision in Highmark (IP Update, Vol. 17, No. 5), confirming that courts of appeal should review a district court’s award of fees for abuse of discretion instead of de novo.
The SunEarth appeal stems from a dispute over the scope and violation of an injunction pertaining to Sun Earth Solar Power and its subsidiary NBSolar USA (collectively, SESP) regarding infringing use of the SUN EARTH trademark in the solar products space. When SunEarth, Inc., filed suit against SESP for violating the injunction through infringing activity, SunEarth requested attorneys’ fees under the Lanham Act’s “exceptional case” provision. The district court and the Ninth Circuit each concluded that the case was not exceptional because “SESP’s infringing conduct was the result of a negligent failure to investigate, not ‘malicious, fraudulent, deliberate, or willful’ infringement.” The original Ninth Circuit panel stated that it was bound to the more restrictive pre-Octane Fitness standard in view of a 2015 decision issued by the court in which the stricter standard was reiterated.
The en banc panel, however, focused on the need to interpret the fee-shifting provisions in the Patent Act and the Lanham Act “in tandem.” The Ninth Circuit now requires that district courts analyze a request for fees under the Lanham Act to examine the totality of the circumstances to determine if the case is exceptional. The Court confirmed that the Supreme Court’s non-exclusive Octane Fitness factors for assessing exceptional cases—such as frivolousness, motivation and objection unreasonableness in both the factual and legal components of the case—should be examined. With that guidance, the case was returned to the three-judge appellate panel to address the remaining issues.