Applying the Octane Fitness Definition of Exceptional Cases in Trademark Litigation

The trademark infringement case is over. And now it is time to argue that it was an “exceptional case” that warrants attorneys’ fees under 15 U.S.C. § 1117(a) (also known as § 35 of the Lanham Act). Well, it appears that the U.S. Supreme Court has made it a little easier to meet the “exceptional case” requirement.

In Octane Fitness, LLC v. Icon Health & Fitness, Inc., the U.S. Supreme Court interpreted what an exceptional case is under 35 U.S.C. § 285 of the Patent Act (which is identical to 15 U.S.C. § 1117). In doing so, the Supreme Court found that the Federal Circuit’s standard was overly rigid. In this regard, the Federal Circuit had required that the litigation be brought in subjective bad faith and be objectively baseless in order to meet the exceptional case requirement. The Supreme Court reversed the Federal Circuit and clarified the exceptional case requirement:

We hold, then, that an “exceptional” case is 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. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances.

The Supreme Court’s decision substantially lowered the bar for exceptional cases. And in coming to its decision, the Supreme Court noted that 15 U.S.C. § 1117(a) is identical to 35 U.S.C. § 285 and cited to a case interpreting the Lanham Act’s reference to exceptional to mean uncommon or not run-of-the-mill). This, of course, set the stage to apply Octane Fitness’ interpretation of exceptional to trademark cases.

To Date, Circuit Courts Are Holding That Octane Fitness Applies to Trademark Cases

On September 4, 2014, the Third Circuit issued its decision in Fair Wind Sailing, Inc. v. Dempster. In Fair Wind Sailing, the Third Circuit held that the Supreme Court’s interpretation of an exceptional case under § 285 of the Patent Act applies to § 35 of the Lanham Act because, among other things, the two statutes are identical and the Supreme Court referenced the Lanham Act’s fee provision in its Octane Fitness decision. This led the Third Circuit to apply Octane Fitness to trademark cases:

We therefore import Octane Fitness‘s definition of “exceptionality” into our interpretation of § 35(a) of the Lanham Act. Under Octane Fitness, a district court may find a case “exceptional,” and therefore award fees to the prevailing party when (a) there is an unusual discrepancy in the merits of the positions taken by the parties or (b) the losing party has litigated the case in an “unreasonable manner.” Whether litigation positions or litigation tactics are “exceptional” enough to merit attorneys’ fees must be determined by the district courts “in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Importantly, that discretion is not cabined by a threshold requirement that the losing party acted culpably. The 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 test for awarding fees under § 35(a) of the Lanham Act.

Following the Third Circuit’s lead, the Fourth Circuit came to the same conclusion on March 30, 2015 when it issued its decision in Georgia-Pacific Consumer Products LP v. Von Drehle Corp.:

To be sure, the Octane Fitness Court did not interpret the attorneys fees provision of § 1117(a). But the language of § 1117(a) and § 285 is identical, and we conclude that there is no reason not to apply the Octane Fitness standard when considering the award of attorneys fees under § 1117(a). See Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 314–15, 61 V.I. 797 (3d Cir. 2014) (“While Octane Fitness directly concerns the scope of a district court’s discretion to award fees for [an] ”exceptional“ case under § 285 of the Patent Act, the case controls our interpretation of [§ 1117(a)]. Not only is § 285 identical to [§ 1117(a)], but Congress referenced § 285 in passing [§ 1117(a)]”).

Likewise, the Sixth Circuit appears to have come to the same conclusion—although less explicitly than the Third and Fourth Circuits. On April 6, 2015, the Sixth Circuit issued its decision in Slep-Tone Entertainment Corp. v. Karaoke Kandy Store, Inc. In Slep-Tone, the Sixth Circuit remanded a case to the Northern District of Ohio to consider the Octane Fitness case as it relates to the exceptional cases under the Lanham Act:

The fee-shifting provisions in § 285 and § 1117(a) are identical. Compare 15 U.S.C. § 1117(a) with 35 U.S.C. § 285. And statutes using the same language should generally be interpreted consistently… . Accordingly, on remand the district court should … assess the applicability of Octane Fitness before determining whether it is necessary to reassess if this case qualifies as extraordinary under § 1117(a).

District Courts Differ on the Applicability of Octane Fitness to Trademark Cases

Most district courts are holding that Octane Fitness does apply to the interpretation of exceptional cases under the Lanham Act. However, there are some district courts that continue to apply both their controlling circuit’s law on exceptional cases and Octane Fitness. For example, in Apple, Inc. v. Samsung Electronics Co., Ltd., the Northern District decided that the Ninth Circuit’s law on exceptional cases still applied because it is not as rigid as the Federal Circuit’s interpretation of an exceptional case under the Patent Act:

The Supreme Court’s decision in Octane Fitness is best interpreted as overturning the Federal Circuit’s “overly rigid formulation” of a test for awarding attorneys’ fees in Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378, 1391 (Fed. Cir. 2005). Brooks Furniture held that an “exceptional case” is one which involves “litigation-related misconduct of an independently sanctionable magnitude” or is both “objectively baseless” and “brought in subjective bad faith.” Octane Fitness, 134 S. Ct. at 1756. As discussed above, the Supreme Court in Octane Fitness referred to the Lanham Act’s and Patent Act’s attorneys’ fees provisions as “identical.” The Supreme Court also cited a Lanham Act case to support its holding “that an ‘exceptional’ case is 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.” Id. (citing Noxell, 771 F.2d at 526). Accordingly, the Ninth Circuit’s more flexible formulation of determining what constitutes an “exceptional case” in Lanham Act cases still applies after Octane Fitness.
This conclusion is far from clear, however, since pre-Octane Fitness Ninth Circuit law cautioned that the exceptional case requirement should be construed narrowly and usually involves infringement that is malicious, fraudulent, deliberate, or willful. Such language seems more rigid than that set forth in Octane Fitness.

And other district courts are rejecting Octane Fitness outright even though everything points to the applicability of Octane Fitness to the interpretation of the Lanham Act’s fee-shifting provision for exceptional cases. Not surprisingly, the rationale for not applying Octane Fitness is simple, namely, that the U.S. Supreme Court was interpreting 35 U.S.C § 285, not 15 U.S.C. § 1117. In Romag Fasterners, Inc. v. Fossil, Inc., the District of Connecticut insisted on applying pre-Octane Fitness Second Circuit law that exceptional cases must involve fraud, bad faith, or willful infringement. The sum total of the court’s reasoning is less than persuasive:

However, as Defendants correctly note, the Supreme Court was interpreting only the Patent Act and not the Lanham Act in Octane Fitness. As such, the Second Circuit cases interpreting the fee provision of the Lanham Act remain good law and represent binding precedent on this Court.

Tactics Moving Forward

Until each circuit explicitly adopts Octane Fitness for trademark cases or until the Supreme Court explicitly holds that it applies to trademark cases, your position will depend on whether you are the prevailing party or not (in those circuits where the law is unclear). If you have prevailed and want attorneys’ fees, you’ll want to argue that the lower hurdle of Octane Fitness applies and any pre-existing circuit law requiring a higher standard has been overruled by Octane Fitness. If you lost and are defending against a request for fees, you’ll want to argue that your circuit’s higher threshold for exceptional cases is still good law and applies.

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Bruno Tarabichi

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