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April 22, 2015

Creeping Doctrines / Shifting Fees

Too often the catch-all term “intellectual property”— useful in describing practitioner specialty areas, law school courses, and text books, among other things— serves a subtly insidious function. It suggests that those discrete bodies of law which it encompasses—roughly, copyright, trademark, patent, and trade secret law—have fundamental commonality. Not only, it implies, do those legal areas overlap, but more critically that those overlaps somehow count for more than any divergences.

This has a real effect on the development of the law. Courts are quick to presume that a rule applicable to one area of intellectual property ought to apply to all. The burden, it seems, is on one challenging such an extension to show why a given area of law, say trademark law, is distinct enough from another, such as patent law, so that a rule for one should not apply to another. The courts, for instance, over the past decade worked to extend a rule from a 2006 patent case that denies prevailing patent infringement plaintiffs entitlement to injunctive relief (eBay Inc v. MercExchange) to copyright and trademark law. We are now seeing that process inexorably repeat itself with respect to statutory fee-shifting.

To be sure, there is a clear, natural and forceful argument as to why the fee-shifting rules for patent law ought to be the same as those in trademark law. To start with, federal trademark law’s Lanham Act and the U.S. Patent Act contain identical statutory fee-shifting language. Namely, “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” When the Lanham Act was amended in the 1970s to add this provision, moreover, the Senate committee proposing the change made clear that it was intending to make trademark law more like patent law (which had operated under such language since the 1950s).

This apparently deliberate act of statutory duplication has led two appellate courts recently to conclude, with relative ease, that the two provisions should be interpreted in the same way. More specifically, both suggested (one in a holding last fall and one in dicta a little over two weeks ago) that the U.S. Supreme Court’s recent clarification of the meaning of the statutory language in the Patent Act in Octane Fitness, LLC v. INCO Health & Fitness, Inc., ought to apply with equal force to the Lanham Act. See, respectively, Fair Wind Sailing, Inc. v. Dempster and Slep-Tone Entertainment Corp. v. Karaoke Kandy Store, Inc. The Supreme Court itself appeared to telegraph the propriety of such as result when it cited, in its Octane opinion, a trademark case and noted the “identical” nature of the two provisions.

The issue, though, is hardly as straightforward as these courts make it seem. There remain strong contrary arguments against conflating the two standards. Although it is of course a rule of statutory interpretation that similar language should be construed in a similar way, “pari passu,” that rule is usually coupled with the limitation that it applies to statutes enacted “for the same purpose.” The primary purposes of the Lanham Act are to make consumer purchasing decisions easier and safer by insuring the integrity of brand information in the marketplace and to protect brand good-will from misappropriation (i.e., to protect consumers and brands). The primary purpose of the Patent Act, by stark contrast, is to encourage the creation and disclosure of new inventions by granting exclusive rights for limited times to inventors (i.e., to incentivize innovative activity). As a direct consequence of these differing purposes, for well over a century the U.S. Supreme Court has held that the foundational Patent and Copyright Clause of the U.S. Constitution, Article I, Section 8, Clause 8, does not apply to trademark law.

Second, Octane was decided in an atmosphere steeped in the purported problem of patent trolls—those much-maligned entities alleged to assert frivolous patent claims without actually making or selling patented products, while often engaging in litigation misconduct. In rejecting the stingy objective baselessness and frivolity standards previously used by the Federal Circuit for awarding attorney’s fees, the Octane decision opened the door to more opportunities for prevailing defendants to receive attorney’s fees. This should, in the words of Octane, deter a patent plaintiff from bringing a borderline case that “stands out from others with respect to the substantive strength of a party’s litigating position” or litigating them in an “unreasonable manner.” Octane itself, for instance, was a case where a prevailing defendant claimed a right to attorney’s fees against a losing patent-owning plaintiff that had asserted a weak patent infringement claim.

Trademark law, though, has had nothing close to the “troll” problems faced by patent or even copyright law because it contains built-in checks against trolling. A trademark infringement plaintiff must actually use its trademark to have rights in it, and must show a likelihood of confusion in a real marketplace to prevail on its claim.

Consistent with this view, the (remarkably terse) legislative history of the fee-shifting amendments to the Lanham Act makes clear that they were designed firstly to aid prevailing plaintiffs seeking attorney’s fees against counterfeiting defendants. In fact, the Senate Report contains a definition of “exceptional cases” that defines the term using language only relevant to losing defendants (“i.e., in infringement cases where the acts of infringement can be characterized as ‘malicious,’ ‘fraudulent,’ ‘deliberate,’ or ‘willful.’”). Although the statutory language clearly applies to prevailing parties of either stripe, this legislative emphasis on preventing counterfeiting by trademark defendants at a minimum counsels against knee-jerk extensions of a rule designed to reign in patent plaintiffs.

All of this is not meant to suggest that there aren’t good reasons for applying the Octane standard to trademark cases. Some might even suggest that general civil litigation in the U.S. would benefit from giving district courts more discretion to award attorney’s fees to all prevailing parties. But it does counsel against an all-to-easy rush to superimpose patent or copyright law rules onto trademark law. All three may be forms of “intellectual property,” but hopefully courts considering the issue (such as the United States District Court for the Northern District of Ohio as it picks up the Slep-Tone case on remand) will not make the mistake of presuming that what is good law for one must be so for the others.

Peter Karol

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