Punching Bag or Counterpuncher Part II: Recouping Your Fees Under the Lanham Act

Congratulations—you’ve been sued again. This time it’s in federal court under the Lanham Act. You review the complaint, and while it’s not outrageously frivolous on its face (which we previously discussed here), it’s also not your run-of-the-mill Lanham Act case. You might assume that your only option is to fully litigate the claim, and wait for vindication from the Court on summary judgment or after trial. But the Lanham Act provides another remedy: fee-shifting to recoup your legal fees. If the Lanham Act claim you’ve defended against is “exceptional” under the “totality of the circumstances,” then you should vindicate your right to recover attorneys’ fees.

The Lanham Act provides that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” See 15 U.S.C. § 1117(a). In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Supreme Court analyzed what constitutes an “exceptional case” for fee-shifting purposes in the context of the identical fee-shifting provision in Section 285 of the Patent Act. 572 U.S. 545, 548 (citing 35 U.S.C. § 285). The Court, looking to the plain meaning of the word “exceptional,” concluded that an “exceptional case” is “simply one 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.” Id. at 554. The Court held that there is no “precise formula” for making this determination, but emphasized that district courts should consider the totality of the circumstances when deciding whether to award attorneys’ fees under the statute. Id. (citing Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994) for a non-exclusive list of factors to consider, including “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence”).

There does not have to be “misconduct” in the litigation in order for it to be “exceptional.” Instead, the Court adopted a more flexible “totality of the circumstances” standard, holding that an “exceptional case” under the Lanham Act for fee-shifting purposes was not limited to cases in which the losing party had acted in “bad faith” but rather meant a case that was “uncommon, not run-of-the-mill”. Id. at 554 (citing Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521, 526 (D.D.C. 1985)).

For Lanham Act cases within the Third Circuit, courts consider “exceptional” cases under two theories: “when (a) there is an unusual discrepancy in the merits of the position taken by the parties or (b) the losing party has litigated the case in an ‘unreasonable manner’.” See Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 315 (3d Cir. 2014). Under the “unusual discrepancy” theory, “a party’s position, to expose it to an award of attorneys’ fees, need not be wholly meritless or frivolous.” Renna v. County of Union, N.J., 11-CV-3328 (KM) (MAH), 2015 WL 1815498, at *3 (D.N.J. Apr. 21, 2015). In other words, the losing party may still be ordered to pay attorneys’ fees even if its position “might have some small amount of merit.” Id. However, “Octane Fitness does not stand for the proposition that a case is exceptional merely because a losing party advanced weak or contradictory arguments in support of its claims.” Engage Healthcare Communications, LLC v. Intellisphere, LLC, 12-CV-787, 2019 WL 1397387, at *5 (D.N.J. Mar. 28, 2019) (emphasis in original). “Rather, courts interpreting these cases have generally looked to the motivation behind the claims at the outset of the litigation, and whether the claims, when filed, are frivolous or objectively unreasonable.” Id. Under the alternative, “unreasonable manner of litigation” approach, “the conduct of both parties is relevant to the analysis.” Id. at *6. Contentious disputes in which the parties litigate aggressively do not necessarily give rise to a determination that the losing party has litigated the case in an unreasonable manner. Id. at *7.

In short, if you find yourself defending against an exceptional Lanham Act claim, you can do more than vigorously defend against it. You can make the counter-punch and avail yourself to the remedies afforded under the statute and recover your legal fees.