Intellectual property litigation is expensive for both the plaintiff and defendant. However, because defendants are required to defend themselves in a lawsuit—in comparison to a plaintiff who has the choice to file and maintain a lawsuit—they are usually caught between a rock and a hard place.
This is especially true when the defendant is a smaller company—or an individual, for that matter—fighting against a large plaintiff with deep pockets. The system is built to enable plaintiffs to bring lawsuits seriously lacking in merit, with the hope of outspending the defendants.
Up until recently, at least in the context of patents and trademarks, the standard for a defendant to be paid its reasonable attorneys’ fees was too restrictive to reach. However, trademark experts are hoping that the tides are turning and small defendants will be able to more easily obtain reasonable attorneys’ fees and guard against meritless trademark lawsuits.
In April of 2014, the Supreme Court made it considerably easier for courts to impose sanctions—including an award of reasonable attorneys’ fees—on plaintiffs for bringing “meritless patent suits.” Octane Fitness, LLC v. Icon Health Fitness, Inc., No. 12-1184, 572 U.S. ____ (2014).
Prior to the Octane Fitness decision, the standard for invoking the Patent Act’s fee shifting provision was incredibly restrictive. For a defendant to prevail in obtaining its reasonable attorney’s fees, it would have to prove a two-fold standard, showing a case was both “objectively baseless” and “brought in subjective bad faith.” As you can guess, there is a plethora of case law attempting to understand what types of cases meet this standard. One thing is certain: this two-prong standard was simply too restrictive.
However, the Supreme Court in Octane Fitness lowered this standard to allow judges to award attorney’s fees in a case that “merely stands out from others.” Of course, what it means for a case to “merely stand[s] out from others” is also unclear and abstract and will require litigation to truly understand what this new standard means.
The Lanham Act’s—the federal act governing trademark law—mandate to award attorney’s fees in exceptional cases is identical to the Patent Act’s fee provision. Thus, many experts wondered whether the Octane Fitness ruling would be applied to trademark cases as well as patent cases.
In April of this year, the Sixth Circuit hinted that it might, sending a case back to the lower court to assess whether Octane Fitness should apply to extraordinary cases under the Lanham Act. The Sixth Circuit’s ruling came after the Third Circuit stated Octane Fitness should be applied to trademark law. However, in a different ruling, the Second Circuit held the exact opposite, finding that the Lanham Act’s fee shifting provision and cases interpreting this remain good law. Because circuits have disagreed on how to apply Octane Fitness in cases coming up under the Lanham Act, it is possible the Supreme Court will weigh in on the issue as it relates specifically to the Lanham Act.
Why Courts Are Lowering Standards for Attorney’s Fees
The costs of intellectual property litigation are skyrocketing. A hot news topic in recent months is the abusive practices of so-called “patent trolls.” Otherwise known to some as non-practicing entities (“NPEs”), patent-trolls are companies that buy up (usually invalid and worthless) patents and set out on an aggressive campaign to “enforce” bogus patents against other companies.
In the typical scenario, the patent troll goes after a small company, or in some cases, an individual, who simply cannot afford to battle the issue out in litigation. There have been many proposed laws and other measures taken to provide victims of abusive litigation practices some sort of remedy. The Octane Fitness ruling, whether or not it was intended to, provides some solace from these abusive practices.
In the trademark context, it’s hard to imagine a world of “trademark trolls” in the same context as a patent-troll. This is due to the fact that in the United States, trademark rights are based on use. However, it’s not unheard of for a competitor to launch an expensive trademark infringement lawsuit against a smaller company for anti-competitive means.
In light of Octane Fitness, trademark owners must be careful to assess their cases and conduct proper due diligence before bringing a suit. For defendants who feel they’re a target of a baseless lawsuit for anti-competitive means, there are new hopes for their ability to be compensated for having to fight a meritless lawsuit.
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