The Third Circuit in Fair Winds Sailing, Inc. v. Dempster, __ F.3d __ (3d Cir. Sept. 4, 2014) has determined that the U.S. Supreme Court’s Octane Fitness ruling on awarding attorneys’ fees in patent cases should apply equally to trademark cases. For over twenty years the Third Circuit utilized a two-step test that required a finding of culpability, as well as exceptional circumstances, before assessing attorney fees in trademark suits. In holding that the test no longer applies, the Third Circuit concluded that the Supreme Court sent a “clear message” in Octane Fitness that the decision should also affect trademark law.
Back in April, we told you the Supreme Court had greatly relaxed the standard for awarding attorneys’ fees against losing patent litigants. In Octane Fitness, the high court removed requirements that the loser’s case be “objectively baseless” and rooted in “subjective bad faith.” Instead, the Supreme Court held, a patent litigation winner needed only to show that the case “stands out from others” to be awarded fees.
Under this new standard, a case that stands out with respect to either (1) the substantive strength of a party's litigating position or (2) the unreasonable manner in which the case was litigated would sufficiently set itself apart from other cases to warrant a fee award. Further, the Supreme Court held that litigants need not establish entitlement to fees by clear and convincing evidence. Rather, a preponderance of the evidence standard would apply.
The Octane Fitness ruling did not directly involve trademarks. However, as the Supreme Court noted in its April decision, the Lanham Act’s mandate to award attorneys’ fees in “exceptional” cases is identical to the Patent Act’s fee provision and cited the identical language between § 35(a) and § 285.
The Third Circuit in Fair Winds held that the patent “exceptional” standard should apply to trademark and trade dress cases as well. In its reasoning, the court stated “[w]e believe that the court 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.”
With the application of the Octane Fitness standard to trademark cases, the court said the former culpability standard is gone and replaced wholly by the discretion of the trial court. The court further noted that “[t]he losing party’s blameworthiness may well play a role in a district court’s analysis of the ‘exceptionality’ of a case, but Octane Fitness has eliminated the first step in our two-step analysis for awarding fees under . . . the Lanham Act.”
The Third Circuit’s decision came in a trade dress infringement lawsuit lodged by a Virgin Islands sailing school called Fair Wind Sailing Inc. against a rival sailing school. The company claimed it had trade dress rights in several unusual places, like its catamaran boats and its “unique teaching curriculum.” The trial court dismissed those claims, and the Third Circuit affirmed, saying that the supposed trade dress was “simply a hodgepodge of unconnected pieces of its business, which together do not comprise any sort of composite visual effect.”
The trial court had also awarded attorneys’ fees to the defendant. The Third Circuit vacated that decision and ordered the district court to reconsider the request for fees under the newly-adopted Octane Fitnessstandard.
It remains to be seen whether other Circuit courts will follow the Third Circuit’s lead.