On October 24, 2016, the U.S. Court of Appeals for the Ninth Circuit after an en banc rehearing in Sunearth, Inc. v. Sun Earth Solar Power Co., LTD., adopted the Octane Fitness standard for determining whether a case is “exceptional” under the Lanham Act’s attorneys’ fees provision. The Sunearth decision, endorsing a broader definition of “exceptional,” requires district courts to apply a totality of the circumstances approach in determining fee awards. The Ninth Circuit is the latest court to apply Octane Fitness to Lanham Act cases, and it joins the Third, Fourth, Fifth, and Six Circuits in endorsing this approach. The Sunearth court also held that an abuse of discretion standard must be applied to the review of fee awards by appellate courts.
Section 35(a) of the Lanham Act and Section 285 of the Patent Act have identical fee-shifting provisions. These provisions permit courts to award attorneys’ fees to prevailing parties in “exceptional cases.” But neither statue defines “exceptional.”
The task of defining an “exceptional” case was left to the United States Supreme Court in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1751 (2014), a patent infringement case. In Octane Fitness, the Supreme Court held that an exceptional case was “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 Supreme Court then endorsed a broad “totality of the circumstances” approach, permitting courts in their discretion to consider several factors not limited to a litigant’s bad faith or misconduct. In forming this broader test, the Supreme Court cited its decision in Fogerty v. Fantasy, 510 U.S. 517 (1994), a copyright infringement case, which identifies non-exclusive factors courts should consider in determining an attorneys’ fees award. These include “frivolousness, motivation, objective unreasonableness . . . and the need in particular circumstances to advance considerations of compensations and deterrence.” Given the identical language in the fee-shifting provisions of the U.S. Patent Act and the Lanham Act, application of the Octane Fitness standard for awarding fees in Lanham Act cases is the dominant trend.
At the district court, the Sunearth plaintiff sought its attorneys’ fees under Section 35(a) of the Lanham Act, arguing that the case was exceptional because the defendant made material misrepresentations to the court and had been sanctioned for litigation misconduct, including “disrespect for the judicial process” and “lack of cooperation.” The district court in the Northern District of California disagreed and denied the plaintiff’s fees motion, noting that the defendant’s actions “appear to have been the result of mistake and carelessness, rather than an intentional attempt to deceive.” Case No. 4-11-cv-04991-CW, Dkt. No. 163.
The plaintiff appealed, and the Ninth Circuit in May affirmed the district court’s denial of attorneys’ fees in a three-judge panel decision. The Ninth Circuit panel held that it was bound by its post-Octane Fitness decision in Fifty-Six Hope Rd. Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d 1059, 1078 (9th Cir. 2015). In Fifty-Six, the Ninth Circuit applied the traditional framework for exceptionality, requiring a showing of “malicious, fraudulent, deliberate, or willful” conduct in determining a Lanham Act fees award.
After an en banc rehearing of the panel decision, the Ninth Circuit on October 24, 2016, issued an en banc opinion explicitly holding that the Octane Fitness standard applies to Lanham Act attorneys’ fees awards and overruling precedent to the contrary. Noting that the fee-shifting provisions of the Patent Act and Lanham Act are “parallel and identical,” the Sunearth court held that the interpretation of one act should “guide our interpretation of the parallel provision in the other.” Under Sunearth, “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 Fogerty.’” The Ninth Circuit en banc opinion also held that an abuse of discretion standard applies to the review of attorneys’ fees awards under the Lanham Act.
The Ninth Circuit is the latest appellate court to weigh in on the “exceptionality” standard under the Lanham Act, and it joins the Third, Fourth, Fifth, and Six Circuits by affirming a totality of the circumstances approach to attorneys’ fees awards.
Following Sunearth, attorneys’ fees are now more available in Lanham cases in Ninth Circuit courts. A prevailing plaintiff seeking attorneys’ fees will no longer be required to show that the defendant engaged in “malicious, fraudulent, deliberate or willful” infringement. Similarly, a prevailing defendant will no longer be held to the standard of demonstrating that a plaintiff’s case was groundless, unreasonable, vexatious, or pursued in bad faith. And because attorneys’ fees under the Lanham Act are subject to an abuse of discretion standard of review, any awards will be more difficult to challenge on appeal.
Litigants in courts within the Ninth Circuit should be mindful of the less stringent “totality of the circumstances” approach for awarding attorneys’ fees. Taken together with Fogerty v. Fantasy, courts may also consider “frivolousness, motivation, objective unreasonableness… and the need in particular circumstances to advance considerations of compensations and deterrence.”
While there is no precise rule or formula for determining an exceptional case, examples of courts finding cases exceptional and awarding fees under Octane Fitness are:
Sunearth further solidifies the dominant trend of applying the holding of Octane Fitness, a Patent Act case, to Lanham Act cases. The decision also increases the likelihood that other courts of appeal will follow suit in considering “exceptionality” under the Lanham Act, and lends certainty and uniformity to Lanham Act jurisprudence.