In April, in Octane Fitness, LLC v Icon Health &
Fitness, Inc, the US Supreme Court issued a decision that
established the parameters for when a district court may award
attorneys' fees to a prevailing party under Section 285 of the
Patent Act. In September, in Fair Wind Sailing, Inc v H
Dempster et al, the US Court of Appeals for the Third
Circuit became the first circuit court to apply the Octane
Fitness holding regarding fee shifting in a patent case to
a case involving claims under the Lanham Act.
Fair Wind Sailing had filed a law suit against Virgin Island
Sailing School and its co-founder alleging, among other things,
trade dress infringement and unjust enrichment. The District
Court determined that Fair Wind Sailing had failed to state
claims for either trade dress infringement or unjust enrichment
and, in turn, granted the defendant's motion to dismiss. In
addition, the District Court awarded the defendants the
entirety of their attorneys' fees. Fair Wind Sailing
subsequently took appeal to Third Circuit.
In applying the ruling in Octane Fitness to
Fair Wind Sailing, the Third Circuit took the position
that, despite the fact that the Octane Fitness case
dealt with a patent claim, the Supreme Court was sending a
"clear message" that it was defining the term "exceptional" in
the fee provision in both the Patent Act and the Lanham Act.
The Third Circuit reasoned that the language in the Patent Act
which provides that the Court may award reasonable attorney
fees to the prevailing party in "exceptional" cases was
identical to the language in the Lanham Act.
In Octane Fitness, the Court expanded the
definition of the term exceptional in the fee shifting
provision of the Patent Act. Prior to the ruling in Octane
Fitness, a case was only deemed exceptional in limited
circumstances, namely, 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 "objectively baseless".
In the Octane Fitness decision, an "exceptional
case" was defined to mean one that "stands 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". Therefore, as articulated by the Third Circuit,
Octane Fitness gave the district courts the
discretion, on a case-by-case basis, to determine whether a
case was exceptional and did not require that the losing
party's conduct suggest "bad faith, fraud, malice, [or] knowing
The Third Circuit affirmed the dismissal of Fair Wind
Sailing's claims of both trade dress infringement and unjust
enrichment. However, since the decision in Octane
Fitness was issued while the appeal was pending, the Third
Circuit remanded the decision on the payment of attorneys' fees
to the District Court to determine whether the Fair Wind
Sailing case was an "exceptional" one, applying the new
definition of the term as established by the Supreme Court.
It remains to be seen whether the remaining circuit courts
will follow the Third Circuit's lead in applying the Octane
Fitness holding to cases involving Lanham Act claims.
Nonetheless, the ruling serves as an important consideration to
take into account when considering whether to initiate a law
suit making allegations under the Lanham Act and in determining
the forum for such allegations to be heard.
Katten Muchin Rosenman LLP
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