11.17.2016
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Updates
Following several other circuits as well as patent law precedent, in SunEarth, Inc. v. Sun Earth Solar Power Co., the U.S. Court of Appeals for the Ninth Circuit recently made it easier for Lanham Act litigants to recover attorneys’ fees. If Lanham Act litigation follows trends from Patent Act litigation on this issue, in the coming years we expect Lanham Act litigants to file more attorneys’ fee motions and courts to grant more such requests.
Under the Lanham Act, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”[1] The Ninth Circuit has held that “exceptional” cases are those where the infringement was “malicious, fraudulent, deliberate or willful.” Gracie v. Gracie, 217 F.3d 1060, 1068 (9th Cir. 2000). Similarly, the Patent Act allows for attorneys’ fees in exceptional cases, which used to be defined as willful infringement of a patent.
In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the U.S. Supreme Court broadened the exceptional case standard under the Patent Act when it held that an exceptional case “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated” and lowered the burden of proof from “clear and convincing” evidence to a preponderance of the evidence standard.[2] In SunEarth, the Ninth Circuit joins the Third, Fourth, Fifth and Sixth Circuit in applying the Octane Fitness standard when deciding whether a case is exceptional under the Lanham Act.
Octane Fitness Changed the Definition of Exceptional
Beginning in 2005, the U.S. Court of Appeals for the Federal Circuit held that an exceptional case under the Patent Act was “when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud, or inequitable conduct in procuring the patent, misconduct during litigation, vexations or unjustified litigation . . . .”[3] The Federal Circuit also explained that fees may be imposed when “(1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Lastly, a party had to prove a case is exceptional with “clear and convincing evidence.”[4]
In Octane Fitness, the Supreme Court overturned this approach, explaining that it was “unduly rigid” and “impermissibly encumbers” a court’s discretion. The Court held that an exceptional case “stands out from others with respect to the substantive strength of a party’s litigating position” or was litigated in “an unreasonable manner.” Specifically, a district court is to consider the totality of the circumstances 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.” The Court also lowered the standard of proof to preponderance of the evidence. In a companion case, Highmark Inc. v. Allcare Health Management Sys., Inc., 134 S. Ct. 1744 (2014), the Supreme Court held that an appellate court reviews a district court’s decision on attorneys’ fees for an abuse of discretion.
SunEarth, Inc. v. Sun Earth Solar Power—District Court Proceedings
Since 1978, SunEarth, Inc. (SEI) has manufactured solar thermal power equipment and photovoltaic devices and components. SEI’s primary market is the United States, where it is recognized as the market leader of solar thermal products. One of its competitors, Sun Earth Solar Power (SESP), previously known as Ningo Solar Electric Power until 2010, manufactures photovoltaic panels for commercial and residential use. After competing directly with SEI for three years, SESP secured a trademark registration for the name “Sun-Earth.” After SEI discovered the registration, it filed cancellation proceedings before the Trademark Trial and Appeal Board and filed suit for trademark infringement in the U.S. District Court for the Northern District of California seeking, among other things, a preliminary injunction.[5] The court issued a preliminary injunction, which prohibited SESP from selling its products without changing its mark. Importantly, SESP violated the preliminary injunction and was held in civil contempt. After a bench trial, the court found in August 2013 that SESP’s use of the “Sun-Earth” mark would cause consumer confusion and noted that SESP submitted misstatements with the court.
As the prevailing party, SEI sought attorneys’ fees, arguing that SESP willfully infringed SEI’s trademark and that SESP lacked respect for the judicial process because SESP violated the preliminary injunction and submitted misstatements to the court. The court declined to award fees, reasoning that SESP’s infringement was negligent and not willful. The court further explained that the civil contempt order addressed SESP’s violation of the preliminary injunction order and was not a basis for an award of fees. Lastly, the court found that SESP’s misstatements to the court were the result of carelessness and not intended to deceive the court.[6]
Ninth Circuit Adopts the Octane Fitness Standard
SEI appealed the denial of fees, arguing that Octane Fitness should apply and that the case was exceptional under the “totality of the circumstances” test. The panel disagreed because it was “bound by a post-Octane Fitness panel’s decision applying [the Ninth Circuit’s] prior definition of exceptional” and the case was not exceptional under that standard.[7] In dicta, the panel had “little doubt that this case is unexceptional even under Octane Fitness’s totality of the circumstances test” because SESP sought to unify its brands globally, it believed that its registered mark established non-infringement, it complied with the injunction and all other mistakes were careless.
SEI moved for a rehearing en banc. In a per curiam opinion issued on October 24, 2016, the en banc Ninth Circuit adopted the Octane Fitness’s definition of “exceptional.” The court explained that it interprets the attorneys’ fee provisions in the Patent and Lanham Acts in tandem, and uses the interpretation of one to “guide our interpretation of the parallel provision in the other.” The court also noted that the Third, Fourth, Fifth and Sixth Circuits adopted the Octane Fitness standard for exceptional cases under the Lanham Act. Thus, courts “should examine the ‘totality of the circumstances’ to determine if the case was exceptional [under the Lanham Act]” and consider “the nonexclusive factors identified in Octane Fitness and Fogerty, and using a preponderance of the evidence standard.”[8] The Ninth Circuit also adopted the Highmark standard, holding that the Ninth Circuit would apply an abuse of discretion standard when reviewing a district court’s decision on fees.
Impact on Litigation
In the patent context, the Octane Fitness standard lowered the burden of establishing exceptional cases by lowering the burden of proof from clear and convincing evidence to mere preponderance of the evidence, while expanding the definition of “exceptional” to include more than just willful infringement or malicious conduct. This lower standard of “exceptional” has led to an increase in the number of motions for and awarding of attorneys’ fees, with a 40 percent increase in the number of motions and a 15 percent increase in motions granted.[9] By adopting the Octane Fitness standard, the Ninth Circuit has broadened the definition of “exceptional” under the Lanham Act and, based on the effect of Octane Fitness in patent law, will likely increase the number of fee motions and the percentage of motions granted.
ENDNOTES
[1] 15 U.S.C. § 1117(a).
[2] Octane Fitness LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014).
[3] Brooks Furniture Mfg., Inc. v. Dutailier Int’l Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).
[4] Id.
[5] The TTAB proceedings were stayed pending the resolution of the district court proceedings.
[6] SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., No. C 11-4991 CW, 2013 WL 4528539 (N.D. Cal. Aug. 23, 2013). SEI moved to reconsider an award of attorneys’ fees because the court failed to consider SESP’s failure to comply with the preliminary injunction and that SEI should be compensated for SESP’s wrongdoing. The court denied the motion.
[7] SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., 560 Fed. App’x 473, 475 (9th Cir. 2016) (citing Fifty-Six Hope Rd. Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d 1059 (9th Cir. 2015)). In Fifty-Six Hope Rd., the district court held that the defendants had willfully infringed the plaintiff’s trademark and awarded fees. On appeal, neither side appears to have briefed Octane Fitness as the new definition of “exceptional.”
[8] SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., No. 13-17622, slip op. (9th Cir. Oct. 24, 2016).
[9] See Jared A. Smith & Nicholas R. Transier, “Trolling for an NPE Solution,” 7 Hastings Sci. & Tech. L.J. 215, 247-48 (2015); see also Alison Haddock Hutton & S. Neil Andersen, “Octane and Highmark: One Year Later,” ABA Litigation Section Article (Sept. 3, 2015).
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