IP Law Daily Octane standard governs attorney fee claims under Lanham Act
Wednesday, August 9, 2017

Octane standard governs attorney fee claims under Lanham Act

By Peter Reap, J.D., LL.M.

Because the Second Circuit would hold that the Supreme Court’s Octane standard for awarding attorney fees governed claims for attorney fees under the Lanham Act, a federal district court in New Haven, Connecticut, erred in applying the prevailing Second Circuit precedent that required a showing of fraud or bad faith in denying Romag Fasteners’ claim for attorney fees on its Lanham Act claim against Fossil and various other retailers (Fossil), the U.S. Court of Appeals for the Federal Circuit has ruled. In addition, the district court made several errors in awarding attorney fees to Romag on its claims under the Patent Act. Thus, the case was remanded to the district court to consider the Lanham Act and the Patent Act attorney fees and the claimed expert fees under the correct standard (Romag Fasteners, Inc. v. Fossil, Inc., August 9, 2017, Dyk, T.).

Romag owns U.S. Patent No. 5,722,126 ("’126 patent") on magnetic snap fasteners, which it sells under its registered trademark, ROMAG, U.S. Trademark Reg. No. 2,095,367 ("the ’367 trademark"). Romag sued Fossil for, inter alia, patent infringement, trademark infringement, and violation of the Connecticut Unfair Trade Practices Act (CUTPA). A jury found that Fossil engaged in patent and trademark infringement and in unfair trade practices. The Federal Circuit previously affirmed the judgment of patent and trademark infringement; other aspects of the judgment were not appealed.

Romag sought attorney fees under the Patent Act, Lanham Act, and CUTPA. The district court granted fees under the Patent Act and CUTPA, but not under the Lanham Act. Fossil appealed and Romag cross-appealed.

Octane standard. Under the Patent Act and the Lanham Act, "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." In Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), the Supreme Court held that under 35 U.S.C. §285, "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 ..., considering the totality of the circumstances." 134 S. Ct. at 1756.

Lanham Act. With respect to the Lanham Act, the district court applied the prevailing Second Circuit precedent with respect to 15 U.S.C. §1117(a) that "allows recovery of a reasonable attorney’s fee only on evidence of fraud or bad faith." Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 111 (2d Cir. 2012). The district court concluded that although this "case is ‘exceptional’ under the more lenient Patent Act standard announced in Octane Fitness, it d[id] not find that Defendant acted fraudulently or in bad faith [under the Louis Vuitton standard] … with respect to trademark infringement … to recover its reasonable attorney’s fees under" the Lanham Act. The district court erred because the Octane standard applies to the Lanham Act, the Federal circuit decided.

Since Octane was decided, the Third, Fourth, Fifth, Sixth, and Ninth Circuits have all held that the Octane "Court was sending a clear message that it was defining ‘exceptional’ not just for the fee provision in the Patent Act, but for the fee provision in the Lanham Act as well." Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 315 (3d Cir. 2014). Indeed, no circuit has specifically considered Octane and then declined to apply it to the Lanham Act.

The language of the Patent Act and the Lanham Act for attorney fees is identical, the court noted. Both statutes provide that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." The legislative history of 15 U.S.C. §1117(a) further supported using the same standard. Thus, the Second Circuit would hold that, in light of Octane, the Lanham Act should have the same standard for recovering attorney fees as the Patent Act.

Fossil contended that the district court would not have awarded attorney fees under the Lanham Act even if it had applied the Octane standard. However, this issue was best left to the district court in the first instance on remand.

Patent Act. In response to Romag’s patent infringement allegation, Fossil initially presented invalidity defenses of anticipation and obviousness. Fossil subsequently decided not to continue to pursue these defenses, as the patent infringement claim amount was relatively small. However, the district court concluded that Fossil declined to abandon these defenses until after the trial, and considered this to be a key factor for awarding fees to Romag.

The record established that these defenses were withdrawn before trial, the appellate court held. Significantly, Fossil also made no reference to anticipation and obviousness in the preliminary jury instructions, opening statement, witness testimony, proposed verdict form, and final jury instructions. There appeared to be full awareness between the parties and the district court that the patent invalidity defenses were withdrawn before trial, and the Rule 50 motion only reaffirmed that common understanding. Thus, the district court clearly erred in concluding that Fossil "did not formally withdraw these defenses with prejudice until after [the] trial."

The district court also concluded that "[b]ased on the tenor of Judge Young’s [summary judgment] opinion, it [was] clear … that Defendants’ argument with respect to their patent invalidity defense of indefiniteness bordered on frivolous." The district court also found that "[i]n light of Judge Young’s ruling, … [the] Defendants’ indefiniteness defense was entirely meritless and was raised for improper purposes." These findings were erroneous assessments of the record, the Federal Circuit determined.

First, the district court erred in concluding that Judge Young had found Fossil’s indefiniteness evidence to be "woefully inadequate." Second, it was Fossil, not Romag, who moved for summary judgment on the indefiniteness issue. Although not dispositive, this suggested that Romag did not always view Fossil’s indefiniteness argument as frivolous, the Federal Circuit opined. For these reasons, the district court, relying on Judge Young’s ruling, erred in holding that Fossil’s indefiniteness defense bordered on frivolous.

In awarding attorney fees under the Patent Act, the district court declined to consider Romag’s conduct earlier during the litigation that the district court had sanctioned. The district court erred in so concluding, the Federal Circuit reasoned. In determining whether a case is exceptional for 35 U.S.C. §285 fees, a district court must "consider[] the totality of the circumstances." Octane, 134 S. Ct. at 1756. The district court therefore erred in declining to consider, in connection with its totality of circumstances analysis, Romag’s earlier litigation misconduct. Romag’s misconduct could not be disregarded on the theory that failure to award fees is equivalent to double-sanctioning Romag.

On appeal, Romag contended that the district court erred in concluding that the refusal to grant a Rule 50(a) motion precludes awarding attorney’s fees. However, there was no error in the district court’s refusal to consider this issue as an adverse factor in the totality of circumstances, the appellate court held.

The district court awarded Romag the portion of its expert witness fees incurred in connection with Fossil’s motion for summary judgment on indefiniteness. This was based on the finding that Fossil’s indefiniteness argument was without merit according to Judge Young’s decision. Because the appellate court set aside that finding, it also set aside the expert witness fee award. The supplemental fees awarded in connection with the application for attorney fees were also set aside in light of the court’s conclusions.

Concurring/dissenting opinion. In a concurring in part and dissenting in part opinion, Judge Newman stated that remand was appropriate for determination by the district court of whether, on the Octane Fitness standard, attorney fees were warranted for the trademark infringement here found. Judge Newman did not, however, share the court’s view that the district court abused its discretion in awarding attorney fees with respect to the patent issues.

The case is Nos. 2016-1115, 2016-1116, and 2016-1842.

Attorneys: Jonathan Freiman (Wiggin and Dana LLP) and Tonia A. Sayour (Cooper & Dunham LLP) for Romag Fasteners, Inc. Jeffrey E. Dupler (Gibney, Anthony, & Flaherty, LLP) and Lawrence Brocchini (Reavis Parent LLP) for Fossil, Inc., Fossil Stores I, Inc., Macy's, Inc. and Macy's Retail Holdings, Inc.

Companies: Romag Fasteners, Inc.; Fossil, Inc.; Fossil Stores I, Inc.; Macy's, Inc.; Macy's Retail Holdings, Inc.

MainStory: TopStory Patent Trademark FedCirNews

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