Why it matters: On October 16, 2016, the Ninth Circuit, sitting en banc, unanimously decided in SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd. to extend the "totality of the circumstances" fee-shifting test for attorney fee awards under the Patent Act—established by the Supreme Court in the 2014 case of Octane Fitness, LLC v. ICON Health & Fitness, Inc.—to trademark cases brought under the Lanham Act. In so doing, the Ninth Circuit followed the lead of a majority of the other circuits that had considered the issue and specifically overturned its precedent to the contrary. Read on for a recap.
Detailed discussion: On October 16, 2016, in the case of SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., the Ninth Circuit, sitting en banc, unanimously held that the "totality of the circumstances" test established by the Supreme Court in the 2014 case of Octane Fitness, LLC v. ICON Health & Fitness, Inc.—which related to attorney fee awards under the fee-shifting provisions of the Patent Act—applied equally to the "parallel and identical" fee-shifting provisions of the Lanham Act. In addition, the Ninth Circuit held that the "abuse of discretion" standard established by the Supreme Court in Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.—another Patent Act fee-shifting case decided on the same day as Octane Fitness in 2014—is the appropriate standard for appellate review of district court decisions regarding fee-shifting. In so doing, the Ninth Circuit followed the lead of the majority of the other circuits that had considered the issue and specifically overturned its precedent to the contrary.
At the outset of its opinion, which was "suitable for decision without oral argument," the Ninth Circuit said that it had "voted to rehear this case en banc to reconsider [its] jurisprudence concerning fee awards in cases filed pursuant to the Lanham Act, 15 U.S.C. § 1051 et seq."
Lanham Act "Fee-shifting Provision" and Ninth Circuit Precedent
The Ninth Circuit began its analysis by identifying the fee-shifting provision of the Lanham Act at issue: "Section 35(a) of the Lanham Act provides that '[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.' 15 U.S.C. § 1117(a)."
The court next reviewed its precedent involving the interpretation of Section 35(a), explaining that "[h]istorically, we have reviewed de novo a district court's finding as to whether a defendant's infringement was 'exceptional' within the meaning of the Lanham Act's fee-shifting provision … We have required that a plaintiff show that a defendant engaged in 'malicious, fraudulent, deliberate or willful' infringement."
The Ninth Circuit further cited to its precedent to state that "[w]e interpret the fee-shifting provisions in the Patent Act, 35 U.S.C. § 285, and the Lanham Act in tandem" because the "fee-shifting provisions in both acts are 'parallel and identical.' " The court concluded that "[t]hus, we rely on an interpretation of the fee-shifting provision in one Act to guide our interpretation of the parallel provision in the other."
Octane Fitness and Highmark
The Ninth Circuit explained that, in Octane Fitness, the Supreme Court "clarified how courts should analyze fee requests under the Patent Act," holding that "a district court analyzing a request for fees under the Patent Act should look to the 'totality of the circumstances' to determine if the infringement was exceptional." Per the Ninth Circuit, the Supreme Court defined an "exceptional case" as "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." The Ninth Circuit pointed out that the Supreme Court "eschewed a precise rule or formula for making these determinations and instructed that equitable discretion should be exercised in light of the considerations we have identified," citing to 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." (Internal quotations omitted.) In addition, the Ninth Circuit noted the Supreme Court's clarification that "the applicable burden of proof for fee entitlement was the preponderance of the evidence standard and not proof by 'clear and convincing evidence.' "
The Ninth Circuit also pointed out that in Highmark, decided on the same day in 2014, the Supreme Court held that "abuse of discretion" is the proper standard an appellate court should apply when reviewing a district court's award of fees under the fee-shifting provision of the Patent Act.
Extension of Octane Fitness and Highmark to Lanham Act Cases
The Ninth Circuit observed that, post-Octane Fitness, "the Third, Fourth, Fifth, and Sixth Circuits have recognized that Octane Fitness [also] changed the standard for fee-shifting under the Lanham Act" and that "[o]nly the Second and Seventh Circuits have applied earlier case law to Lanham Act fee disputes, and both did so without mentioning Octane Fitness or Highmark."
The Ninth Circuit thus held that "[w]e agree with the majority of our sister circuits and conclude that Octane Fitness and Highmark have altered the analysis of fee applications under the Lanham Act. Therefore, district courts analyzing a request for fees under the Lanham Act should examine the 'totality of the circumstances' to determine if the case was exceptional ... exercising equitable discretion in light of the nonexclusive factors identified in Octane Fitness … and using a preponderance of the evidence standard. Pursuant to Highmark, our review of the district court's decision on fees awarded under the Lanham Act is for abuse of discretion." Furthermore, the Ninth Circuit made clear that "[w]e overrule our precedent to the contrary."
With this "correction of the law," the Ninth Circuit remanded the case to the "three-judge panel for resolution of the remaining issues presented by the case."