Apple Denied Attorney’s Fees in Case Applying Supreme Court’s New Standard

Posted on September 24th, 2014 by Legal Fee Advisors

In a recent Supreme Court case, Octane Fitness, LLC v. Icon Health & Fitness, Inc.,[1] the United States Supreme Court held that a party that prevails under the Lanham Act (the major federal statute governing United States trademark law) is entitled to attorney’s fees in “exceptional cases.”  An exceptional 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.”

The Supreme Court’s interpretation was recently employed by a California District Court asked to decide whether Apple was entitled to attorney’s fees in its highly publicized suit against Samsung.[2] Apple argued that the jury’s finding that Samsung “willfully” infringed on Apple’s trade dress (the design and shape of Apple’s products) was sufficient to make its case “exceptional.”   In support of this argument, Apple cited Gracie v. Gracie,[3] a Ninth Circuit case, which upheld the determination of a case as “exceptional” based on a jury’s finding of willful infringement.  However, the California District court rejected this argument and distinguished Gracie, noting that the jury in Gracie was instructed that it could find willful infringement “if you find that th[e] [defendants] acted . . . deliberately and in bad faith.”  In Apple, Inc., the jury was not instructed as to the “bad faith” aspect of willfulness.  The California District Court also noted the Ninth Circuit’s “general rule” that a finding of willful infringement is not, in itself, sufficient to render a case “exceptional.”  Rather, “some aggravating circumstance or heightened level of culpability” is required.

Because willful infringement was not sufficient to make the case “exceptional,” the court could not then rule on the attorneys’ fees but had to weigh the evidence offered by both parties.  In conducting its analysis, the court relied on Blockbuster Videos, Inc. v. City of Tempe,[4] which stated, “an act ‘is not willful if the defendant might have reasonably thought its proposed usage was not barred by the statute.’”  Apple argued that Samsung “deliberately copied Apple’s iPhone,” and therefore could not have reasonably thought its use was legal.

Samsung raised two defenses to Apple’s argument based on the scope of the Lanham Act.  First, the Lanham Act prohibits the infringement of “famous” trade dresses, and Samsung argued that Apple’s trade dress was not “famous” at the time of the alleged infringement.  The court had previously considered the fame of Apple’s trade dresses in ruling on Samsung’s motion for summary judgment, and found that it was a “close question” as to whether a reasonable juror would find that Apple’s trade dresses were famous.  This suggested to the court that Samsung’s case was not so weak as to render it “exceptional,” because Samsung—like the reasonable juror—could have reasonably believed that Apple’s trade dresses were not “famous.”  Thus, by extension, Samsung could have reasonably believed its conduct was legal under the Lanham Act.

Second, the scope of the Lanham Act is also limited to “non-functional” trade dresses.  Samsung argued that Apple’s trade dresses served utilitarian functions.  For example, the phone’s rounded corners made it easy to remove from one’s pocket, and its large display screen is easier for users to interact with.  The court found that, based on the evidence presented at trial, Samsung could have reasonably believed that Apple’s trade dresses served utilitarian as well as aesthetic functions.   Samsung’s “reasonable defenses” led the court to conclude that this case was not “exceptional” under the terms of the Lanham Act, regardless of the jury’s finding that Apple’s infringement was willful.

In Octane Fitness, the Supreme Court rejected the Federal Circuit’s interpretation of an “exceptional case” as “one that either “involves ‘litigation-related misconduct of an independently sanctionable magnitude’ or is both ‘objectively baseless’ and ‘brought in subjective bad faith.’”  According to the Court, this standard was “unduly rigid.”  However, though such language implied that greater flexibility was necessary, Apple, Inc. suggests that any fears that the exceptionality requirement will be construed too broadly are—thus far—unwarranted.  Indeed, in its decision, the California District Court explicitly stated that the ‘“exceptional circumstances” requirement [is construed] narrowly.’”   Courts do not judge lightly whether to award attorneys’ fees, particularly when they are substantial in nature.  Just as the courts have not shirked their responsibility to fairly and equitably weigh the circumstances in determining whether to award attorney’s fees, so attorneys should not shirk their responsibility in determining the amount of the fees charged to a client.

E. Burgess

Legal Fee Advisors © 2014

[1]134 S. Ct. 1749 (2014).

[2]Apple, Inc. v. Samsung Elecs. Co., No. 11-CV-01846-LHK, 2014 WL 4145499 (N.D. Cal. Aug. 20, 2014).

[3}217 F.3d 1060 (9th Cir. 2000).

141 F.3d 1295 (9th Cir. 1998).