Legal departments sometimes get a bad reputation for saying “no” too often. A “no” from legal is particularly hard to stomach when you think the potential legal risk is farfetched. In this dispute, Wal-Mart must have decided that there was no way a competitor could own the basic word BACKYARD for grills and grilling accessories. However, after some discovery and a motion for summary judgment, Wal-Mart was left holding a tab for $34 million in damages, costs, and attorney’s fees. Thankfully for Wal-Mart, the Fourth Circuit just issued a decision vacating the award and the grant of summary judgment.

The plaintiff is Variety Stores, Inc., a regional retail chain in the southeast that sells lawn, garden, and grilling products. The company owns a registration for THE BACKYARD for tail store services and has also used variations of the mark such as BACKYARD and BACKYARD BBQ for grilling products. One of their advertisements is included below.

 

About 20 years after Variety’s first use, Wal-Mart decided to develop an in-house line of grilling products. During the clearance search for potential names like BACKYARD BARBECUE and BACKYARD BBQ, Wal-Mart’s in-house legal group identified Variety’s prior registration and advised the business team that Variety’s registration could pose a problem. Wal-Mart decided to go with BACKYARD GRILL, filed an application to register the mark with the US Patent and Trademark Office, and began selling products, like the ones below.

At the district court, Variety prevailed on for summary judgment. In evaluating the likelihood of confusion factors, the district court concluded :

  • Wal-Mart intended to create confusion because Wal-Mart moved forward with the name despite the legal department’s concerns;
  • Variety’s mark was strong because of large numbers of sales and advertising expense, the court declined to give any weight to Wal-Mart’s evidence of dozens of third-parties using variations of BACKYARD with grilling products;
  • The grilling products were competitive;
  • The two marks – BACKYARD GRILL and BACKYARD (or BACKYARD BBQ) – were nearly identical; and
  • That Wal-Mart’s consumer surveys regarding the absence of confusion were faulty and should be given little weight.

The court concluded that the infringement was willful and awarded $32.5 million in profits and $1.5 million in attorney’s fees.

The Fourth Circuit viewed the evidence differently. Because Wal-Mart did not appeal the district court’s findings with respect to all of the likelihood of confusion factors, the court affirmed the decision with respect to some of the factors. Instead, Wal-Mart appealed the court’s findings on the most important factors: the strength of the plaintiff’s mark (often considered “paramount” by the Fourth Circuit); the similarity of the marks; the defendant’s intent; and the presence or absence of actual confusion.

In reviewing the strength of the mark, the Fourth Circuit concluded that Variety’s BACKYARD marks were “conceptually weak,” but that there was a material dispute as to whether the mark had commercial strength.  The court also concluded that a jury could conclude that the marks were dissimilar in light of the design features and the greater visual emphasis on GRILL. With respect to intent, the court noted that the jury could conclude that Wal-Mart intended to avoid confusion by not pursuing the specific names rejected by the legal department (“Backyard Barbecue” and “Backyard BBQ”) and instead choosing “Backyard Grill.” Finally, the court concluded that the district court improperly rejected Wal-Mart’s survey evidence, noting the district court improperly weighed the evidence at the summary judgment stage. As a result, the court vacated the grant of summary judgment and the monetary awards.

Will Wal-Mart prevail at trial? The Fourth Circuit’s analysis certainly suggests Wal-Mart may have the conceptual weakness of Variety’s BACKYARD marks. It seems like the case is ripe for settlement, but it Variety may have an unreasonably high demand, given the district court previously awarded $34 million. Given that us Minneapolitans are going to hit the 70s today (just weeks from a historic April blizzard), I’m comfortable waiting this one out in my own backyard. Let’s just hope we get an answer before the snow returns.

Slowly but surely, the extension of the Supreme Court’s 2014 Octane Fitness v. LLC v. Icon Health and Fitness, Inc. decision to trademark claims is gaining traction among federal appellate courts. The Octane Fitness decision addressed the standard for determining whether a case is “exceptional” under the Patent Act and therefore eligible for an award of attorney fees. Earlier this week, the Fifth Circuit jumped on the bandwagon with its decision in Baker v. DeShong, Case No. 14-11157 (May 3, 2016)(available here).

Baker operates the HIV Innocence Group, which provides medical, legal, and investigative services for individuals in criminal and civil suits who have been accused of intentionally or recklessly infecting another person with HIV. Baker owns a trademark registration for the HIV INNOCENCE GROUP mark. He also does not like to be criticized. When Jeffrey DeShong created a website criticizing the HIV Innocence Group, Baker sued him for trademark infringement.

The District Court granted DeShong’s Motion to Dismiss on the ground that the allegations failed to support a claim of likelihood of confusion (discussed in more detail here). Following that ruling, DeShong requested an award of attorney’s fees, arguing that the case was “exceptional”. However, the District Court denied the motion, citing prevailing precedent that to qualify as “exceptional,” a case must be brought in bad faith.

The Fifth Circuit reversed the decision, ruling that the Octane Fitness Court “provided clear guidance” that to be exceptional does not require a claim to be brought in “bad faith.” Instead, an exceptional case is a case that “stands out from the others with respect to the substantive strength of a party’s litigation position” or with respect to “the unreasonable manner” of a party’s actions in litigation.

Although DeShong requested that the Fifth Circuit also find that the claims qualified as an exception for an award of attorney fees, the Fifth Circuit remanded to the District Court to decide the issue. With this ruling, the Fifth Circuit joins the Third Circuit (Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014)) and the Fourth Circuit (Georgia-Pac. Consumer Prods. LP v. von Drehle Corp., 781 F.3d 710 (4th Cir. 2015). The Sixth Circuit has not squarely addressed the issued, but remanded a case to the District Court to “assess the applicability” of Octane Fitness to the request for attorney fees (Slep-Tone Entertainment Corp. v. Karaoke Kandy Store, Inc., 782 F.3d 313 (6th Cir. 2015)).

While no circuit court has reached a contrary decision, there has been disagreement among district courts. Most district courts have applied Octane Fitness to trademark infringement claims, but at least one district court has rejected the applicability of Octane Fitness to non-patent claims (Romag Fasteners, Inc. v. Fossil, Inc., 2014 WL 4073204 (D. Conn. Aug. 14, 2014)). There the court concluded that Second Circuit precedent requiring “bad faith” was still good law and therefore binding upon the court.

Although it is possible other courts may choose to reject the applicability of Octane Fitness to trademark infringement claims, this seems unlikely in light of the trend among the circuits. The Fifth Circuit’s decision lends further support to this notion.

Of course, the standard adopted in Octane Fitness does not guarantee that it will be easier to obtain an award of attorney’s fees. We previously discussed a Washington district court decision refusing to grant an award of fees under the Octane Fitness standard.

At a minimum, however, these decisions caution trademark infringement plaintiffs to objectively examine the strength of their claim. They also provide victims of unreasonable or meritless claims of infringement with some potential leverage: the threat of forcing the plaintiff to write a check for the defendant’s legal fees.

Earlier this month the Southern District of New York granted the defendant’s Motion for Summary in Louis Vuitton Malletier, S.A. v. My Other Bag , Inc. The fashion giant had brought suit against a California company over its sales of a canvas tote bag that included an image that “evoked” Louis Vuitton’s classic handbag design. An image of the Defendant’s products is shown below and you can read more about the Motion for Summary Judgment here.

 

Fresh off their victory, the Defendant My Other Bag (“MOB”) filed a Motion for Attorney’s fees just last week. MOB claims that the facts of the case render it an “exceptional” case under the Lanham Act and therefore request an award of $398,821.

In its Memorandum, MOB acknowledges that the Second Circuit normally requires a showing of “bad faith” before awarding attorney fees. However, the Supreme Court’s ruling in Octane Fitness v. Icon Health & Fitness, 134 S. Ct. 1749, 1758 (2014) rejected this interpretation of the term “exceptional,” instead finding that an exceptional case is merely one that stands out from others due to the relative merits of the claims or the litigation conduct of the parties. Although the case involved a claim of patent infringement, much of the language in the Patent Act mirrors the language of the Lanham Act and, as a result, courts regularly rely on decisions interpreting provisions of one act to interpret the other. Indeed, the Third, Fourth, and Sixth Circuits (and numerous district courts) have all recognized the applicability of Octane Fitness to requests for attorney fees under the Lanham Act.

Does MOB have a winning claim? MOB won on summary judgment on all three claims. That’s helpful, but does not mean that Louis Vuitton’s claims were weak enough to justify an award of attorney fees. Moreover, defenses of fair use or parody are particularly difficult to evaluate as courts frequently reach different conclusions on similar facts. In fact, Louis Vuitton successfully sued Hyundai Motor Co. in the same district under arguably less favorable facts (as MOB points out in its motion, though, Hyundai Motors undermined its own case with some poorly worded testimony).

Predictably, MOB also throws out the “bully” label.  This is by far the first time the label has been thrown at Louis Vuitton.  MOB argues that Louis Vuitton has pursued numerous “weak” claims, including a law school symposium’s use of the LV design on a promotional poster, a “Chewy Vuitton” dog toy, a Danish artist who placed a photograph of a child refugee holding a Louis Vuitton bag on a t-shirt (and then the painting of that photograph), other art exhibits, and the appearance of a character named “Lewis Vuitton” in the movie The Hangover II.  It certainly can’t help that Louis Vuitton appears to wear these tactics as a badge of honor, alleging in its own pleadings that it “actively and aggressively” enforces its trademark rights.

The chances of the court not adopting Octane Fitness are low, but the better question is whether the court considers the facts of the case to justify an award. It will also be interesting to see what consideration the court gives to Louis Vuitton’s perceived “bullying” tactics. When granting the Motion for Summary Judgment, the court did not seem particularly impressed with Louis Vuitton’s claims as it wondered whether the company “just cannot take a joke.” Maybe a $400,000 bill would be the perfect punchline.

It’s no secret, lawsuits can be expensive. That’s why parties frequently consider the availability of recovering attorney’s fees when deciding whether to pursue (or defend) a lawsuit. While attorney’s fees have been available in trademark infringement lawsuits for many years, the standard for granting awards of such fees has shifted in light of recent Supreme Court precedent. Just this week, Whole Foods learned that, at least in one Washington court, not much actually changed.

Whole Foods Market, Inc. (“Whole Foods”) is a national grocery store chain specializing in organic foods. Eat Right produces organic foods under the EAT RIGHT mark. Whole Foods even sold Eat Right’s products for nearly a decade. The relationship soured, however, when Whole Foods began a promotion in 2009 called “Eat Right America” that encouraged consumers to (you guessed it) eat right.

Eat Right reached out to Whole Foods and graciously offered to sell its brand. After three years of not taking any action, Eat Right demanded that Whole Foods stop using the “Eat Right America” phrase. Eat Right took another year to file a lawsuit. On May 14, 2015, the District Court of Washington granted Whole Foods’ Motion for Summary Judgment, ruling that the affirmative defenses of laches and acquiescence barred Eat Right’s claims.

Whole Foods filed a Motion for attorney’s fees on July 6, bringing us back to where we started.

The Lanham Act grants courts discretion to award attorney’s fees in “exceptional” cases. 15 U.S.C. § 1117(a)(3). However, “exceptional” has carried different meaning from circuit to circuit. The ambiguity was partially intentional, allowing courts to truly exercise their discretion in whether a party should be required to pay the fees of the other.

Many circuits required “willful infringement” or “bad faith” conduct on the part of the losing party before awarding fees. The conduct could involve the parties’ legal position, such as pursuing “objectively baseless” claims or defenses. The conduct could involve “vexatious litigation conduct.”

However, in Octane Fitness v. Icon Health & Fitness, the Supreme Court rejected these heightened standards. 134 S.Ct. 1749 (2014). The court found that the meaning of “exceptional” was not subject to any formula, but instead simply means that the 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.”

Although Octane Fitness interpreted a provision of the Patent Act, the language is identical and courts frequently rely on interpretation of the Patent Act to interpret provisions of the Lanham Act. The Third Circuit applied Octane Fitness to trademark claims in Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Cir. 2014).

Here, the court acknowledged the shift in standards under Octane Fitness:

Although the Lanham Act may not require subjective bad faith, a defendant seeking attorney’s fees under the Lanham Act must demonstrate, at minimum, that ‘the plaintiff has no reasonable or legal basis to believe in success on the merits.’

The court then concluded that Eat Right’s claims “were not groundless, unreasonable, or vexatious . . . or pursued in bad faith.” Accordingly, it denied Whole Foods’ motion for attorney’s fees.

While the court retains wide discretion to award attorney’s fees, the reasoning appears to disregard the Supreme Court’s ruling in Octane Fitness. The Supreme Court rejected the requirement of bad faith. Instead, it required only that the strength of the claims “stand out.” While there isn’t a clear way to quantify these with numbers, “standing out” certainly seems to be a lower threshold than “groundless” or “unreasonable.”

A number of practitioners (myself included) believed that Octane Fitness would make attorney’s fees more available to prevailing plaintiffs and defendants. The language of the Octane Fitness certainly enables this. However, it appears old habits die hard, and it may take some time for  courts to kick the old habit of requiring “bad faith.”