Fair Wind Sailing, Inc. v. Dempster

Addressing for the first time the application of the Supreme Court decision in Octane Fitness to trademark cases, the U.S. Court of Appeals for the Third Circuit held that a finding of culpable behavior was no longer a prerequisite to awarding fees under the Lanham Act and that Octane Fitness set the standard for awarding fees not only in patent cases, but in trademark cases as well.  Fair Wind Sailing, Inc. v. Dempster, Case Nos. 13-3305, 14-1572 (3d Cir., Sept. 4, 2014) (Fuentes, J.).

Fair Wind is a Michigan corporation that owns sailing schools throughout the United States, including one in St. Thomas, Virgin Islands.  Fair Wind St. Thomas uses exclusively catamarans.  In July 2007 Fair Wind hired Larry Bouffard as a captain and sailing instructor.  Bouffard’s contract included a non-compete restricting him from working for a competitor within 20 miles of the St. Thomas school for two years after his employment terminated.  In 2010, Bouffard and another former Fair Wind employee, H. Scott Dempster, opened a sailing school in St. Thomas, Virgin Island Sailing School (VISS).  VISS copied Fair Wind in multiple ways, including using catamarans, using the identical curriculum and itineraries and employing the same mechanism for student feedback.

Fair Wind sued for trade dress infringement pursuant to Section 43(a) of the Lanham Act and common law claims for tortious interference and unjust enrichment.  The district court granted Dempster’s motion to dismiss all claims, finding that Fair Wind failed to allege facts about its business that amounted to its trade dress.  Dempster then moved for attorneys’ fees pursuant to Section 35(a) of the Lanham Act and the Virgin Islands Code.  The district court granted Dempster full recovery of his fees under the Virgin Islands Code.  Fair Winds appealed.

The 3d Circuit affirmed the dismissal of all claims.  It went on to note that the district court failed to make a finding that the fees incurred defending the territorial law and federal law claims were “inextricably intertwined,” rendering full recovery of fees improper.  The 3d Circuit remanded for an analysis of the fee request under both the Lanham Act and Virgin Islands Code.

The 3d Circuit also provided guidance as to Octane Fitness’s application to the Lanham Act, noting that the § 285 exceptional case language at issue in Octane Fitness (IP Update, Vol. 17, No. 5) was identical to the exceptional case language I the Lanham Act and that the Supreme Court sent “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.”  The 3d Circuit remanded the fee determination to the district court to determine whether the case was “exceptional” under the Lanham Act.  If found to be exceptional, the district court can award fees under the Lanham Act for the entire litigation; if not found to be exceptional, the district court must subtract the Lanham Act fees from the fees to defend against the Virgin Islands claims.