Rejoice: The 9th Circuit Fixed its Octane Fitness Problem

1117 OCTANEUnder the Lanham Act, a prevailing party can get its attorneys' fees from the losing party in "exceptional cases." 15 U.S.C. § 1117(a). While this is interesting enough in the trademark and false advertising litigation context, it also has some application to SLAPP suits — at least when the plaintiff tries to play games with the Lanham Act.

So lets start with the Lanham Act's fee provision — giving us fees in "exceptional" cases.

What does "exceptional" mean?

Well, that depends.

It used to be that "an exceptional case" was "one that can be characterized as malicious, fraudulent, deliberate and willful . . . or one in which evidence of fraud or bad faith exists." See, e.g., Tire Kingdom, Inc., v. Morgan Tire & Auto, Inc., 253 F.3d 1332, 1335 (11th Cir. 2001). However, it was an abuse of discretion standard, so whether a court granted you fees in a Lanham Act case or not, it was still up to the trial judge, and there wasn't much you could do about it on appeal. The court would often look at the degree of willfulness of any infringement, or if the defendant won, the plaintiff's conduct in bringing the lawsuit, and how the plaintiff comported itself during the case.

The Patent Act has a similar provision for fees (§285). Under that, the Federal Circuit held that patent litigants could only recover attorney's fees under § 285 if prove by clear and convincing evidence that there was (1) litigation-related misconduct that is independently sanctionable or (2) a suit brought in subjective bad faith that is objectively baseless. See Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). That is a pretty high standard, so most defendants were screwed.

In Octane Fitness, LLC v. Icon Health and Fitness, Inc., 134 S. Ct. 1749 (2014) the Supreme Court threw out that standard under the Patent Act. The Court held that "exceptional" was a much broader term than this. It held that the "standard articulated by the Federal Circuit was an inflexible framework superimposed onto statutory text that is inherently flexible." Baker v. DeShong, 821 F.3d 620, 622-623 (5th Cir. 2016) (citing Octane Fitness at 1756).

In crafting its view, the Supreme Court recycled some logic from how the D.C. Circuit interpreted the Lanham Act's fee provisions, since the Patent Act and Lanham Act fee shifting sections are identical, largely based upon each other, and thus should be interpreted the same way. It then held that "Something less than 'bad faith' suffices to mark a case as 'exceptional.'" Octane Fitness, 134 S. Ct. at 1757 (quoting Noxell Corp. v. Firehouse No. 1 Bar-B-Que Rest., 771 F.2d 521, 526 (D.C. Cir. 1985)).

Under the Octane standard (imported from Noxell) "exceptional" means a case 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." Octane Fitness at 1756.

With that new standard set for Patent cases, it was fairly obvious to most people who had their heads out of their asses that it equally applied to Lanham Act cases. District court after district court applied Octane's standard to Lanham Act cases, and the Third, Fourth, Fifth, and Sixth Circuits followed suit. See Baker v. DeShong, 821 F.3d 620, 621–25 (5th Cir. 2016) (handled by my partner, Gill Sperlein, and my hero, Paul Levy); Georgia- Pacific Consumer Prods. LP v. von Drehle Corp., 781 F.3d 710, 720 (4th Cir. 2015), as amended (Apr. 15, 2015); Slep-Tone Entm’t Corp. v. Karaoke Kandy Store, Inc., 782 F.3d 313, 317–18 (6th Cir. 2015); Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 313–15 (3d Cir. 2014). The 11th has not yet spoken on it, but a legion of its district courts have followed the Octane standard in Lanham Act cases. See, e.g., Donut Joe's, Inc. v. Interveston Food Servs., LLC, 116 F. Supp. 3d 1290 (N.D. Ala. 2015); ADT, LLC v. Alarm Prot. Tech. Fla., LLC, 2016 U.S. Dist. LEXIS 146226 (S.D.Fla. Oct 20, 2016).

Only the Second and Seventh Circuits have applied the earlier standard, but their cases didn't mention the Octane Fitness case. See Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 265–66 (2d Cir. 2014); Burford v. Accounting Practice Sales, Inc., 786 F.3d 582, 588 (7th Cir. 2015). So, either the parties failed to raise it, or the clerks weren't keeping up.

Similarly, the 9th Circuit seemed stuck on the old standard in SunEarth, Inc. v. Sun Earth Solar Power Co., 650 Fed. Appx. 473 (9th Cir. 2016). However, in that case, again, they just didn't mention Octane Fitness at all. Therefore, it did not appear that they were disagreeing with applying Octane to Lanham Act claims, but just that the briefing was done when Octane came out, so nobody bothered to mention it. Meanwhile, lower courts in the 9th Circuit did the obvious thing, and applied it. See, e.g., Apple Inc. v. Samsung Electronics Co., No. 11-CV-01846 (N.D. Cal. Aug. 20, 2014); Perfect 10, Inc. v. Giganews, Inc., No. CV 11-07098-AB (C.D. Cal. Mar. 24, 2015); Albrecht v. Tkachenko, No. 14-cv-05442-VC (N.D. Cal. May 11, 2015).

But, the SunEarth decision left it open, at least in the minds of some, that the 9th Circuit implicitly rejected Octane in the Lanham Act context.

Well, the 9th finally cleared that up in an en banc decision issued yesterday. Sunearth, Inc. v. Sun Earth Solar Power Co., 2016 U.S. App. LEXIS 19083 (9th Cir. 24 Oct. 2016).

This is great news for trademark litigators in the 9th, since we can all breathe a sigh of relief that the 9th wasn't simply ignoring Octane Fitness. But, this decision (along with all of the cases adopting Octane in the Lanham context) is a good thing for free speech advocates.

Why?

Because some lawyers think they've found a clever way around First Amendment protections by repackaging defamation claims as Lanham Act claims. In fact, I've worked on one recently. In Tobinick v. Novella, 142 F.Supp.3d 1275 (SD Fla. 2015) the court didn't buy the theory that scientific debate equals commercial speech. Then, the Court granted our fee request under the Lanham Act, applying the Octane standard. Tobinick has appealed both of those rulings (as well as an order where the Court applied the California Anti-SLAPP law to the California plaintiff's claims). So, we may have an Octane/Lanham ruling out of the 11th Circuit soon enough.

Therefore, while we still don't have a nationwide Anti-SLAPP law (although I have written about the need for one), we can (and should) use 15 U.S.C. § 1117's fee shifting provision when plaintiffs try to use the Lanham Act as a tool of censorship.

Last 5 posts by Randazza

Comments

  1. says

    This looks like an excellent ruling, thank you for highlighting it.

    As you point out, this is no substitute for proper anti-SLAPP laws. While there are certainly legitimate defamation cases, defamation laws are used far too often to silence criticisms.

  2. Rosenfeldt says

    Similarly, the 9th Circuit seemed stuck on the old standard in SunEarth, Inc. v. Sun Earth Solar Power Co., 650 Fed. Appx. 473 (9th Cir. 2016). However, in that case, again, they just didn't mention Octane Fitness at all. Therefore, it did not appear that they were disagreeing with applying Octane to Lanham Act claims, but just that the briefing was done when Octane came out, so nobody bothered to mention it.

    Since the 9th Circuit puts all their oral arguments on YouTube, it was trivial to find out that the panel brought up Octane Fitness and the changed standard themselves.
    https://www.youtube.com/watch?v=NFdnk1lB7yU
    Fees argument starts at 31:53.

  3. En Passant says

    Thanks for posting this clear analysis, as arcane as it may first appear to some readers who are not lawyers. You have noted a trend which could have profound effects for defense against defamation claims masquerading as trademark claims.

    You also note, w.r.t. application of California's anti-SLAPP statute:

    Tobinick has appealed both of those rulings (as well as an order where the Court applied the California Anti-SLAPP law to the California plaintiff's claims).

    I hope that the the California anti-SLAPP ruling is as blinding obvious to an appellate court as it appears to me. In that ruling the Southern District of Florida court notes:

    Novella’s anti-SLAPP motion is brought solely against the California entity, Tobinick M.D. Tobinick M.D. is a California corporation with its principal place of business in California. To the extent that Tobinick M.D. was injured, most—if not all—of its injury undoubtedly occurred in California, given that the corporation is based in that state.

    What niggling arguments could make that fact anything but dispositive would be a wonder to behold.

    But, I never practiced federal law (or even civil law) in the few years I did practice. So choice of law is very much terra incognita to me.

  4. Nop says

    @Rosenfeldt says
    After viewing that part of the video, the impression I – a layperson – got was that the judges weren't dismissing Octane, but wanted to pass the buck back to the previous judge instead of dealing with it themselves. It seems to me that that was out of laziness or cowardliness (not wanting to make a precedent in their Circuit?). I'd be very interested to hear the thoughts on this from someone more experienced with American courts.

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