POSTS TAGGED : attorney’s fees

A Bigger Exception to the Rule? Attorneys’ Fee Awards in Trademark Cases

Traditionally, attorneys’ fees were notoriously difficult for a prevailing party to recover in a trademark action.  The United States Supreme Court’s 2014 opinion in a patent case, Octane Fitness, LLC v. ICON Health & Fitness, Inc.,[1] relaxed the applicable standard in construing the Patent Act’s identical fee-shifting provision and will likely result in a lower bar to the recovery of fees in trademark disputes.  On October 24, 2016, the Ninth Circuit joined the Third, Fourth, Fifth and Sixth Circuits in extending Octane’s holding to a trademark fee application.[2]

Section 35 of the Lanham Act permits courts to award attorneys’ fees to a prevailing party in “exceptional cases,” at the discretion of the district court judge.[3] The legislative history, though sparse, reflects that Congress intended to afford the remedy in two situations: “First, the legislature envisioned ‘make whole’ compensation for certain victims of infringement; second, Congress endeavored to afford protection to defendants ‘against unfounded suits brought by trademark owners for harassment and the like.’”[4]

The Pre-Octane Hodgepodge

Before the Supreme Court’s decision in Octane, appellate courts did not interpret the “exceptional case” standard consistently, leading the Ninth Circuit to characterize “the line delineating ‘exceptional’ cases under the Lanham Act” as “murky” and “far from clear.”[5]  In the Eighth and Ninth Circuits, for example, a prevailing party could recover fees in cases deemed “groundless, unreasonable, vexatious, or pursued in bad faith.”[6]  The D.C. Circuit, in an opinion authored by then-Judge Ginsburg and joined by then-Judge Scalia, held that “‘exceptional,’ as Congress used the word in section 35 of the Lanham Act, is most reasonably read to mean what the word is generally understood to indicate—uncommon, not run-of-the-mill.”[7]  In the Tenth Circuit, a prevailing plaintiff could recover fees by showing that the defendant acted in bad faith, while a prevailing defendant had to show that (1) the plaintiff’s case lacked foundation; (2) the plaintiff brought suit in bad faith; (3) the plaintiff prosecuted the case in an “unusually vexatious and oppressive manner”; or (4) “perhaps for other reasons as well.”[8]  This fourth category led the Seventh Circuit to grumble that the Tenth Circuit “can hardly be said to have a test” at all.[9] The Seventh Circuit blamed “circuit drift” for what it complained was “this jumble.”[10]  It concluded that a case under the Lanham Act is “exceptional” if the losing party was the plaintiff and was guilty of abuse of process in suing, or if the losing party was the defendant and had no defense yet persisted in the trademark infringement or false advertising for which it was being sued, in order to impose costs on its opponent.[11]

Compounding these inconsistencies, some appellate courts applied a different standard to prevailing plaintiffs than to prevailing defendants.  In Fogerty v. Fantasy, Inc., the United States Supreme Court held that the Copyright Act’s attorneys’ fees provision must be applied evenhandedly to both prevailing plaintiffs and prevailing defendants.[12]  Following that decision, some appellate courts held that the same evenhanded rule must apply in construing §35 of the Lanham Act.[13]  The Tenth Circuit, by contrast, expressed skepticism that “there should be, or even could be, perfect harmony between the standard for awarding attorney fees to a prevailing plaintiff and a prevailing defendant.  The underlying conduct under scrutiny is different.”[14]

Federal Circuit Smackdown: Supreme Court Edition

Against the backdrop of this hodgepodge, the Supreme Court took up Octane, a patent case in which the Court interpreted §285 of the Patent Act.  Like its Lanham Act counterpart, §285 authorizes an award of fees to the prevailing party in “exceptional” cases.  Octane involved a dispute between competing manufacturers of fitness equipment.[15]  ICON, the plaintiff-respondent, sued Octane, the defendant-petitioner, alleging that certain of Octane’s elliptical machines infringed several claims of a patent owned by ICON.  The district court granted summary judgment in favor of Octane, finding multiple claim elements lacking as a matter of law, both literally and under the doctrine of equivalents.[16]  The court denied Octane’s motion for attorneys’ fees, relying on Federal Circuit authority, which held that “[a]bsent misconduct in conduct of the litigation or in securing the patent, sanctions maybe imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.”[17]  The Federal Circuit affirmed the denial of fees, and the Supreme Court reversed in a nearly unanimous[18] opinion authored by Justice Sotomayor.

The Supreme Court found the Federal Circuit approach overly “rigid and mechanical.”[19]  The Federal Circuit defined subjective bad faith and objective baselessness narrowly, holding that “litigation is objectively baseless only if it is ‘so unreasonable that no reasonable litigant could believe it would succeed,’ and that litigation is brought in subjective bad faith only if the plaintiff ‘actually know[s]’ that it is objectively baseless.”[20] The Supreme Court found this “formulation … overly rigid” because it “superimposes an inflexible framework onto statutory text that is inherently flexible.”[21]  Requiring both objective baselessness and subjective bad faith on the part of the plaintiff was too restrictive, because conduct satisfying either one of these elements standing alone may be enough to merit fees.[22]

Thus, the Supreme Court held that the Federal Circuit’s test was contrary to the express language of §85, which (like its textually identical counterpart in the Lanham Act) provides: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”[23]  Because the Patent Act does not define what constitutes an “exceptional” case, the Court construed it “in accordance with its ordinary meaning.”[24]  “In 1952, when Congress used the word in § 285 (and today, for that matter), ‘[e]xceptional’ meant ‘uncommon,’ ‘rare,’ or ‘not ordinary.’”[25]  Accordingly, the Court 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 (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”[26]  In reaching its holding, the Court relied, in part, on the D.C. Circuit Court opinion in which then-Judge Ginsburg, joined by then-Judge Scalia, rejected a claim that fee-shifting awards must be supported by subjective bad faith, holding instead that the “exceptional case” standard should be construed according to its ordinary meaning—“uncommon, not run-of-the-mill.”[27]

Octane Takes Off: Application to Trademark Cases

The Third Circuit was the first to apply Octane in a trademark action, followed by several others, including, most recently, the Ninth Circuit on October 24, 2016.  This progression is consistent with the migration of other Supreme Court rules from one intellectual property field into another; for example, the application of the patent doctrine of willful blindness in copyright cases,[28] and the extension of eBay’s[29] rule regarding irreparable harm in patent permanent injunction applications to preliminary injunctions in both trademark and copyright cases.[30]

Although trademark litigants should not expect awards of attorneys’ fees to become “an ordinary thing,”[31] the Supreme Court’s relaxation of the standard for fee awards in patent cases should result in a corresponding lowering of the bar in trademark cases.

 

 

 

[1] 134 S. Ct. 1749 (2014).

[2] SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., Ninth Circuit Case Nos. 13-17622, 15-16906, slip op. (Oct. 24, 2016).

[3] 15 U.S.C. § 117(a).

[4] Noxell Corp. v. Firehouse No. 1 Bar-B-Que Rest., 771 F.2d 521, 524 (D.C. Cir. 1985) (citing S. REP. NO. 93-1400 at 5, 6 (1974), reprinted in 1974 U.S.C.C.A.N. 7132, 7136).

[5] Secalt S.A. v. Wuxi Shenxi Constr. Mach. Co., Ltd., 668 F.3d 677, 681, 687 (9th Cir. 2012).

[6] See, e.g., Mattel Inc. v. Walking Mountain Prods., 353 F.3d 792, 816 (9th Cir. 2003) (vacating denial of attorneys’ fees to defendant and remanding where plaintiff’s case may have been either groundless or unreasonable); Cairns v. Franklin Mint Co., 292 F.3d 1139, 1156 (9th Cir. 2002) (affirming award of $2,308,000 in attorneys’ fees to defendant where plaintiff asserted groundless false advertising claim); Hartman v. Hallmark Cards, Inc., 833 F.2d 117, 123 (8th Cir. 1987) (affirming denial of fees where plaintiff’s claims were weak but “not baseless”).

[7] Noxell, 771 F.2d at 526.

[8] Nat’l Ass’n of Prof’l Baseball Leagues, Inc. v. Very Minor Leagues, Inc., 223 F.3d 1143, 1147–48 (10th Cir. 2000).

[9] Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, 626 F.3d 958, 960 (7th Cir. 2010).

[10] Id. at 961–62. 10.

[11] Id. at 963-964.

[12] 510 U.S. 517, 534 (1994).

[13] See, e.g., Stephen W. Boney, Inc. v. Boney Servs., Inc., 127 F.3d 821, 826 (9th Cir. 1997).

[14] Nat’l Ass’n of Prof’l Baseball Leagues, Inc. v. Very Minor Leagues, Inc., 223 F.3d 1143, 1148 (10th Cir. 2000).

[15] Octane, 134 S. Ct. at 1754.

[16] ICON Health & Fitness, Inc. v. Octane Fitness, LLC, No. 09-319 ADM/SER, 2011 WL 2457914 (D. Minn. June 17, 2011).

[17] Id. (quoting Brooks Furniture Mfgr., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005).

[18] Justice Scalia joined in the opinion except as to footnotes 1–3, which discuss the legislative history of § 285. 26.

[19] Octane, 134 S.Ct. at 1754.

[20] Id. (quoting Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1382 (Fed. Cir. 2005))

[21] Id. at 1756.

[22] Id. at 1757.

[23] 35 U.S.C. § 285.

[24] Octane, 134 S. Ct. at 1756 (internal quotations marks omitted).

[25] Id. (alteration in original).

[26] Id.

[27] Noxell,  771 F.2d at 526.

[28] Viacom Int’l, Inc. v. YouTube, Inc., 676 F.3d 19 (2d Cir. 2012) (applying willful blindness rule from Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011), to copyright claim in context of Digital Millennium Copyright Act).

[29] eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

[30] See, e.g., Herb Reed Enters., LLC v. Fla. Entm’t Mgmt., Inc., 736 F.3d 1239 (9th Cir. 2013) (following eBay, no presumption of irreparable harm on preliminary injunction motion in trademark case); Salinger v. Colting, 607 F.3d 68 (2d Cir. 2010) (following eBay, finding of likelihood of success on the merits in copyright infringement case does not give rise to presumption of irreparable harm on preliminary injunction motion).

[31] Octane, 134 S. Ct. at 1753 n.1 (quoting S. REP. NO. 79-1503, at 2 (1946)).

One Award to Rule Them All – Second Circuit Addresses What Constitutes a “Work” For Statutory Damages Purposes

Section 504(c) of the Copyright Act allows a plaintiff to elect statutory damages instead of actual damages and profits “for all infringements involved in the action, with respect to any one work . . .” For purposes of that subsection, “all the parts of a compilation or derivative work constitute one work.” The Copyright Act does not define “work,” though it defines a “compilation” as a “work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship.” In litigation involving a work with multiple components, then, the question arises whether it is a single “work” or multiple “works” for purposes of assessing statutory damages.

A recent Second Circuit opinion illustrates the problem. Bryant v. Media Right Prodns., __ F.3d __ (2d Cir. 2010). In Bryant, two songwriters created and produced two albums – “Songs for Dogs” and “Songs for Cats” – and registered both the albums and, separately, at least some of the individual songs with the Copyright Office. They then authorized defendant Media Right to market the albums. Media Right in turn granted co-defendant Orchard Enterprises the right to distribute the albums “by any and all means and media,” including by digital download. Initially, Orchard only sold physical copies of the albums. In early 2004, however, Orchard began making the albums and the individual songs available for sale through Internet retailers like iTunes. Orchard recognized $578.91 from downloads of digital copies of the albums and the individual songs on the albums. The songwriters sued, alleging that their initial agreement with Media Right did not include the right to make copies of the albums, which Orchard did in order to enable digital sales.

The district court (ruling on competing summary judgments motions which the parties agreed to treat as a case stated, thus allowing the court rather than a jury to determine statutory damages) held that each album was a compilation and constituted a single work for purposes of computing statutory damages. The court found that Orchard’s infringement was innocent and imposed the minimum amount of statutory damages on Orchard, $200 per album for a total of $400. The court found that Media Right’s conduct was neither innocent nor willful, and imposed statutory damages on the company and its president, jointly and severally, for $1000 per album for a total of $2000. The plaintiffs’ entire award thus amounted to $2400. The court denied the plaintiffs’ request for attorney’s fees.

The Second Circuit affirmed, finding that the plain language of the Act established that the albums were compilations since each album is a “collection of preexisting materials – songs – that are selected and arranged by the author in a way that results in an original work of authorship – the album.” It concluded that the fact that certain songs had been registered separately was irrelevant, relying on the Conference Report that accompanied the final Copyright Act, which explains many of its provisions. The Report states that a “compilation” “results from a process of selecting, bringing together, organizing, and arranging previously existing material of all kinds, regardless of whether . . . the individual items in the material have been or ever could have been subject to copyright.”

Bryant represents the third occasion upon which the Second Circuit has construed Section 504’s one-award restriction. In Twin Peaks Prodns., Inc. v Publ’ns, Int’l Ltd., 996 F.2d 1366 (2d Cir. 1993), the court awarded the plaintiff one statutory damages award for each of 8 episodes of a television series. Rather than explaining why each episode constituted a single work, the court stated its conclusion in the converse: “The author of eight scripts for eight television episodes is not limited to one award of statutory damages just because he or she can continue the plot line from one episode to the next and hold the viewers’ interest without furnishing a resolution. . . . [O]urs is the easy case of infringement of eight separate works that warrants eight statutory awards, whether the registrations apply to the teleplays or the televised episodes.” Though the opinion did not explicitly say so, it appeared to turn on the fact that each television episode aired independently. In WB Music Corp. v. TRV Communication Group, Inc., 445 F.3d 538 (2d Cir. 2006), the court awarded thirteen statutory damages awards for thirteen infringed songs because the songs themselves had been released separately and not as part of an album. The Bryant court thus found its opinion in harmony with both Twin Peaks and WB Music because the plaintiffs’ songs were issued as part of CD compilations and not individually, like the Twin Peaks episodes but unlike the songs in WB Music.

The Second Circuit also rejected the “independent economic value” approach adopted by the First, Ninth, Eleventh and D.C. Circuits. This approach looks at whether each element of a work has “independent economic value” and can live its own copyright life. Following this approach, the First Circuit, for example, allowed multiple statutory damages awards for individual television episodes that were released collectively on videotape as part of a complete series. Gamma Audio & Video, Inc. v. Each-Chea, 11 F.3d 1106 (1st Cir. 1993).

Practice tip: statutory damages and the plaintiff’s choice of forum

Now that the Second Circuit has squarely rejected the “independent economic value” approach, plaintiffs have an additional consideration when deciding where to sue for infringement. If a plaintiff issued the components of a multi-part work as part of a collection and not singly, and is considering seeking statutory damages rather than actual damages and profits, it may be better off suing in a circuit that will look at whether those parts have independent economic value rather than in the Second Circuit.

Attorney’s fees and offers of judgment

An interesting side note to the case involves the court’s denial of the plaintiffs’ request for attorney’s fees. Copyright Act Section 505 allows a court, in its discretion, to award a “reasonable attorney’s fee to the prevailing party” in a copyright case. Though some commentators argue that such awards seem virtually guaranteed to prevailing parties, here the court exercised its discretion to deny the award to the prevailing plaintiffs.

The denial boiled down to the reasonableness of the parties’ conduct in the litigation. The Second Circuit found that the defendants’ arguments were objectively reasonable, and the defendants prevailed on several important issues. Moreover, the defendants “also were reasonable in trying to resolve the case short of trial: [Defendants] made an Offer of Judgment in the amount of $3000, which [Plainitffs] rejected, in favor of continuing to demand over $1 million in damages, notwithstanding the evidence that [Defendants] had received less than $600 in revenues from infringing sales.”

This portion of the opinion, tacked on to the end in just a few sentences, is interesting for a couple of reasons. First, it illustrates that the prevailing party’s conduct in the course of the litigation retains relevance in the attorney’s fees analysis. Second, it highlights a thorny question at the intersection of civil procedure and copyright that remains unresolved.

Federal Rule of Civil Procedure 68 governs offers of judgment, and provides that a party defending against a claim may offer to the opposing party to allow judgment on specified terms. If the opposing party fails to accept the offer within 14 days, and later obtains a judgment that is less favorable than the offer, then “the offeree must pay the [offeror’s] costs incurred after the offer was made.” But “costs,” at least in the sense of true, out-of-pocket costs, are dwarfed by attorney’s fees in typical litigation. Do Rule 68 “costs” include attorney’s fees? In Marek v. Chesney, 473 U.S. 1 (1985), the Supreme Court held that Rule 68 “costs” include attorney’s fees if the underlying statute so prescribes. Because attorney’s fees can amount to substantial sums, the offer of judgment can be a powerful tool in a defendant’s arsenal in settlement negotiations where such fees are included as costs.

If there is no settlement and the parties proceed to judgment in a copyright case, how do Rule 68 and Section 505 interact? Section 505 defines costs as including attorney’s fees, thus bringing Rule 68 into play. The rules differ from each other in important ways, however. While Section 505 allows an award of attorney’s fees to any prevailing party, whether plaintiff or defendant, Rule 68 only shifts costs to a party “defending against a claim” – usually the defendant, though the rule would seem to apply equally to a counterclaim defendant. Moreover, Section 505 gives the court discretion to award attorney’s fees, while Rule 68 is phrased in mandatory terms. Relying on Rule 68’s mandatory language, the Eleventh Circuit, in Jordan v. Time, Inc., 111 F.3d 102 (11th Cir. 1997), awarded costs (including attorney’s fees) to the defendant even though the plaintiff prevailed, because the plaintiff recovered less than the amount of the offer of judgment – a traditional application of Rule 68. In contrast, the Seventh Circuit, in Harbor Motor Co. v. Arnell, 265 F.3d 638 (7th Cir. 2001), held that in copyright cases, only prevailing parties can receive attorney’s fees under Rule 68 because the Supreme Court in Marek tied the award of Rule 68 fees to those costs that are “properly awardable under the substantive statute at issue,” and Section 505 only awards fees to prevailing parties. The Seventh Circuit thus reads Section 505 as a limitation on Rule 68.

The Bryant court makes no reference to a request for attorney’s fees by the defendants. Presumably, the defendants made no such request, and there is nothing in the opinion suggesting how the court might have ruled had they done so. I believe the Eleventh Circuit view is the better one. Marek v. Chesney instructs us to look to the underlying statute to determine whether it defines costs as including fees, not the circumstances under which fees are to be awarded: “where the underlying statute defines ‘costs’ to include attorney’s fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.” Moreover, the Eleventh Circuit approach is consistent with the policy, emphasized by the Supreme Court in Marek, in favor of encouraging settlement of disputes. It will be interesting to see how case law develops in this area.