Patterson Intellectual Property Law

Firm Update

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Sunk costs: Attorneys’ fees in Lanham Act cases

In Fair Wind Sailing, Inc. v. Dempster, the U.S. Court of Appeals for the Third Circuit delivered some important news for any party that might contest attorneys’ fee claims in trademark infringement and other similar cases. That is, the U.S. Supreme Court’s recently articulated standard for awarding attorneys’ fees in patent infringement decisions also applies to Lanham Act cases.

Competing interests

Fair Wind Sailing owns a sailing school in St. Thomas, Virgin Islands, that exclusively uses catamarans. In 2007, it hired a new sailing instructor. In 2010, the sailing instructor and another former Fair Wind employee opened Virgin Island Sailing School (VISS), also in St. Thomas.

VISS copied Fair Wind’s school in several respects. For example, VISS uses the same type of boats, teaching curriculum, itineraries and procedures for student feedback. The marketing content on the VISS website was also identical to Fair Wind’s and contains a photo of a Fair Wind catamaran.

Fair Wind sued VISS for trade dress infringement under the Lanham Act — the same law that prohibits trademark infringement and false advertising. The district court dismissed the claims and awarded the defendant attorneys’ fees. Fair Wind appealed.

Dead in the water

On that appeal, the appellate court considered whether VISS could recover fees spent defending the trade dress claim. Section 35 of the Lanham Act permits the recovery of reasonable attorneys’ fees only in “exceptional cases.” Likewise, U.S. patent statutes allow attorneys’ fees only in such instances.

Neither statute defines “exceptional case.” But the appellate court noted that, for more than two decades, it had required a showing of culpability on the opposing party’s part before awarding attorneys’ fees under the Lanham Act.

In 2014, however, the Supreme Court ruled in Octane Fitness LLC v. Icon Health & Fitness Inc. that an “exceptional case” is simply one that stands out with respect to the:

  1. Strength of a party’s litigation position in light of the relevant law and facts, or
  2. Unreasonable manner in which the case was litigated.

Octane Fitness was a patent case, but the appellate court concluded that the ruling was equally applicable to trade dress cases.

Choppy waters ahead?

This decision is a good example of how concepts pertaining to one area of intellectual property law (in this instance, patents) can eventually extend into others (trade dress cases). What’s more, the appellate court’s ruling here significantly reduces the burden for recovering attorneys’ fees under the Lanham Act. So we could see more claims for attorneys’ fees in the future.