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What constitutes an “exceptional case”? - Court adopts new standard for attorneys’ fees in trademark cases

Year End 2021 IP Newsletter

The U.S. Court of Appeals for the Tenth Circuit has for the first time addressed whether the U.S. Supreme Court’s standard for awarding attorneys’ fees under the Patent Act also applies to such awards under federal trademark law’s Lanham Act. In doing so, the court took the same position as three other federal appellate courts.

A fee for all

In Derma Pen, LLC v. 4EverYoung Limited, the plaintiff obtained a permanent injunction prohibiting several companies and “their officers, agents, servants, employees, attorneys, licensees, and anyone in active concert or participation with, aiding, assisting, or enabling [the companies]” from using its trademark. It subsequently sought an order of contempt against one of the defendants, alleging that the defendant, with the help of related parties, had violated the injunction.

The trial court found the defendant in contempt but that the related parties hadn’t participated in the violations. The defendants then asked the court to order the plaintiff to pay their attorneys’ fees under the Lanham Act, which allows a court to award fees to a prevailing party in an “exceptional case.”

The court awarded fees, relying on a provision of the Patent Act, as interpreted by the Supreme Court in a separate case. Derma Pen appealed, arguing the exceptional case standard wasn’t satisfied.

Contemptible behavior

On review, the appellate court cited its earlier decision in King v. PA Consulting Grp., Inc., where it held that a case may be deemed exceptional because of:

Generally, a court considers both the objective strength of the Lanham Act claim and the plaintiff’s subjective motivations.

The appellate court highlighted several of the lower court’s findings, including that 1) the plaintiff presented no evidence of damages, 2) the trademark was abandoned, and 3) the plaintiff was entitled to no relief against the related parties. These findings indicated the claim that the related parties had violated the injunction lacked objective strength. And the plaintiff’s misconduct and delay during discovery constituted evidence of a lack of good faith.

Thus, the fees were justified under Tenth Circuit case law. But the trial court’s ruling hinged on the Supreme Court’s holding that an exceptional case under the Patent Act can stand out because of the substantive strength of a party’s position or for the unreasonable tactics used in litigation.

The fee provisions in the Patent Act and the Lanham Act are identical. The court therefore concluded that the standard also applies to the Lanham Act.

Guidance on two fronts

Notably, the Tenth Circuit didn’t overturn its earlier decision. It said that both its earlier decision and the Supreme Court case provide guidance on whether attorneys’ fees are warranted in Lanham Act cases.

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