In September 2014, the US Court of Appeals for the Third Circuit became the first circuit court to apply parameters for attorneys’ fee shifting in patent cases to claims under the Lanham Act. 

In Fair Wind Sailing, Inc. v. Dempster, Fair Wind Sailing, Inc. sued Virgin Island Sailing School and its co-founder, alleging, among other things, trade dress infringement and unjust enrichment. The District Court of the Virgin Islands dismissed the case, finding that Fair Wind Sailing failed to properly state a claim for trade dress infringement or unjust enrichment. In addition, the District Court awarded Virgin Island Sailing School all of its attorneys’ fees. Fair Wind Sailing appealed this decision to the Third Circuit Court of Appeals.

In reviewing the District Court’s award of attorneys’ fees, the Third Circuit applied the Supreme Court’s recent decision in Octane Fitness, LLC v. Icon Health & Fitness, Inc., a case involving an award of attorneys’ fees under the Patent Act.

Under both the Patent Act and the Lanham Act, a court may award reasonable attorneys’ fees to the prevailing party only in “exceptional” cases.

Prior to Octane Fitness, a patent case was only deemed “exceptional” in limited circumstances where a district court either found “litigation-related misconduct of an independently sanctionable magnitude” or determined that the litigation was both “brought in subjective bad faith” and was “objectively baseless.” In Octane Fitness, the Supreme Court expanded the definition of “exceptional” to include cases that “[stand] out from others with respect to the substantive strength of a party’s litigation position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Under this expanded definition, a losing party’s conduct does not need to include “bad faith, fraud, malice, [or] knowing infringement” for a case to be “exceptional” under the Patent Act. Instead, whether a case is “exceptional” under the Patent Act is within the discretion of the District Court, on a case-by-case basis.  

Even though Octane Fitness was purely a patent case, the Supreme Court noted in Octane Fitness that the Lanham Act’s requirement that courts only award attorneys’ fees in “exceptional” cases is identical to the corresponding fee provision in the Patent Act. As a result, the Third Circuit concluded that the Supreme Court sent a “clear message” in Octane Fitness that the term “exceptional” should be defined in the same way in the fee provisions of the Lanham Act as it is in the Patent Act, and, therefore, applied to claims under the Lanham Act in the same way as it is applied to claims under the Patent Act.

The Third Circuit affirmed the District Court’s dismissal of Fair Wind Sailing’s trade dress infringement and unjust enrichment claims, but did not rule on the payment of attorneys’ fees because the Supreme Court issued the Octane Fitness decision while the Fair Wind Sailing case was pending. The Third Circuit remanded the issue of attorneys’ fees to the District Court for it to determine whether the Fair Wind Sailing case was “exceptional” under the Supreme Court’s expanded definition.

While the Third Circuit is currently the only circuit to apply the Octane Fitness decision’s definition of “exceptional” to Lanham Act claims, other circuits may follow. Therefore, trademark owners may be wise to consider the Third Circuit’s ruling when deciding whether to initiate a lawsuit under the Lanham Act and in which forum to bring such a suit.