Determining that the defendant was not the prevailing party, the U.S. Court of Appeals for the Tenth Circuit reversed a district court’s order granting attorneys’ fees to a defendant who defeated a motion for preliminary injunction in a counterfeit case. Lorillard Tobacco Company v. Isaac G. Engida d/b/a I and G Liquors, Case Nos. 08-1037, 08-1334 (10th Cir., July 9, 2010) (Holmes, J.).

Lorillard Tobacco filed suit against Isaac Engida, alleging that he was selling counterfeit Newport® cigarettes in violation of the Lanham Act. The district court initially granted Lorillard’s requests for a temporary restraining order (TRO) and an ex parte seizure order, but it later dissolved the TRO and denied Lorillard’s motion for a preliminary injunction. The 10th Circuit affirmed the district court’s denial of the preliminary injunction and denied Lorillard’s subsequent petition for rehearing. Lorillard filed a petition for certiorari, but was denied at the Supreme Court. When the case finally returned to the district court, Lorillard filed a notice to dismiss without prejudice before Engida filed his answer. Engida moved for an award of attorneys’ fees. The district court awarded Engida fees incurred in defending against Lorillard’s “unnecessary and vexatious” appeals. Lorillard appealed.

Under the Lanham Act, a court may award reasonable attorney fees to the prevailing party in exceptional cases. In reversing the district court’s fee award, the 10th Circuit held that Engida was not a prevailing party because the district court did not grant him any merits-based relief. Lorillard dismissed the action voluntarily before Engida filed an answer, which does not create a prevailing party because there was no judicially sanctioned change in the legal relationship of the parties. According to the 10th Circuit, the district court’s denial of Lorillard’s request for a preliminary injunction was not merits-based. Lorillard lost the motion for a preliminary injunction because it failed to carry its burden of proof on the likelihood of irreparable harm and the balance of harms, not because it failed to establish that it was likely to prevail on the merits.