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En banc 9th Circuit further unbalances circuit split on attorneys’ fees for exceptional case under the Lanham Act.

Posted on October 27, 2016

An en banc decision by the 9th Circuit this week further tilted the balance on a split among the circuits regarding the meaning of “exceptional case” for purposes of awarding attorneys’ fees in trademark, false advertising, and other claims under the Lanham Act.  That split may avoid any need for review of the issue by the Supreme Court, which already reviewed a corresponding provision in the Patent Act in 2014.

Prior to 2014, an “exceptional case” was generally considered one that could be characterized as (a) either malicious or fraudulent, and also deliberate and willful, or (b) one in which evidence of fraud or bad faith exists.  An award was reviewed for abuse of discretion, which in theory left courts free to look to the defendant’s degree of willfulness or the plaintiff’s conduct in bringing or maintaining claims.  In practice under the Patent Act, however, the Federal Circuit limited recovery of attorneys’ fees to proof by clear and convincing evidence of one of independently sanctionable litigation misconduct or an objectively baseless suit filed in bad faith.

Those shackles on attorneys’ fees awards in patent cases were struck by the Supreme Court in 2014.  Rejecting the “inflexible framework superimposed onto statutory text that is inherently flexible,” the Supreme Court held that “exceptional case” is a broad term and that “[s]omething less than ‘bad faith’ suffices to mark a case as ‘exceptional.’”  Relying on the fact that the fee shifting provisions in both the Patent Act and the Lanham Act are identical and largely based upon each other, the Supreme Court decided that the two provisions should be interpreted the same and applied a Lanham Act articulation by the D.C. Circuit of the exceptional case standard.   “Exceptional,” under that standard, simply meant that a case “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.”

Following the Supreme Court’s 2014 decision regarding “exceptional case” under the Patent Act, four circuits began applying the same standard under the Lanham Act and were joined this week by the 9th Circuit.  Only two circuits have applied older standards since the 2014 Supreme Court decision, both without mentioning that decision.  One circuit has not yet had opportunity to review the issue on appeal.

With the 9th Circuit joining the majority of circuits in applying the same standard in both patent and Lanham Act litigation, the likelihood that a Supreme Court decision will be required to reconcile the current split had dramatically dropped. Lanham Act cases are most likely to now be evaluated under the same standard as governs Patent Act cases for determining attorneys’ fee awards for an exceptional case.