The Third Circuit extends Octane Fitness's "exceptional" test to Lanham Act cases

Fair Winds Sailing, Inc. v. Dempster, __ F.3d __ (3d Cir. Sept. 4, 2014) (FUENTES, Rendell, Greenaway Jr.) (No. 11-cv-00055, D.V.I. (Gomez, J.))

The Third Circuit has loosened the standard for obtaining attorney fees in trademark cases. For over twenty years the Third Circuit utilized a two-step test that required a finding of culpability before assessing attorney fees in trademark suits. That test no longer applies. The appellate court has ruled that the lower threshold for fee-shifting in patent cases set out in Octane Fitness applies equally to Lanham Act actions.

The Third Circuit found that the Supreme Court clearly intended Octane to be applied to trademark cases as well as patent cases. Specifically, the appellate court referenced Octane's reliance on a Lanham Act case when defining "exceptional" as well as the Court's mention of the identical language between §35(a) and §285. Due to the Supreme Court's "clear message," the Third Circuit adopted the Octane test when granting attorney fees in Lanham Act cases.

In Octane, the Supreme Court rejected the rule requiring both subjective bad faith and objective baselessness be established before assessing attorney fees. It ruled instead that the case needed only to stand out from others based on either the strength of the parties' litigating positions or a party's unreasonable manner of litigation. In interpreting Octane, the Third Circuit concluded that a court has the discretion to determine if a case is exceptional in light of the governing law and facts of the case. Specifically, a district court may award attorney fees in a Lanham Act suit if (a) there are unusual discrepancies in the merits of the parties' positions or (b) if the losing party litigated in an unreasonable manner. Notably, while culpability may continue to play a role in deciding these questions, it will no longer serve as a threshold factor.