North Carolina Lawyers Weekly
As in the Patent Act, a party prevailing on a Lanham Act claim need only prove an “exceptional” case meriting a fee award by a preponderance of the evidence. And no showing of bad faith is required.
Background
Appellant XYZ.com and Appellee Verisign Inc. both sell internet domain names. Verisign operates the .com and .net domains. In 2014, XYZ began registering domain names ending in xyz. Verisign sued XYZ and its CEO for violations of the Lanham Act, alleging it inflated the number of customers who bought XYZ domain names on its launch day. Verisign also claimed that XYZ’s CEO made false claims about Verisign during an interview and on XYZ’s blog about the unavailability of domain names on Verisign’s registry.
The district court granted summary judgment for XYZ but denied its request for attorneys’ fees under 15 U.S.C. § 1117(a), holding that a prevailing party under the Lanham Act must prove entitlement to fees by clear and convincing evidence. The district court also suggested that evidence of bad faith or independently sanctionable conduct was required in order to prove an exceptional case. XYZ now appeals.
Preponderance standard
Under Octane Fitness LLC v. ICON Health & Fitness Inc., 134 S. Ct. 1749 (2014), and Ga.-Pac. Consumer Prods. LP v. von Drehle Corp., 781 F.3d 710 (4th Cir. 2015), a prevailing party need only prove that a case is exceptional under the Lanham Act by a preponderance of the evidence.
Although Georgia-Pacific didn’t address the burden of proof for proving a Lanham Act “exceptional case,” the court adopted the Octane Fitness standard for awarding fees and now sees no reason not to adopt its burden of proof as well. The Supreme Court’s reasoning for adopting the preponderance standard in the Patent Act provision was that it had not interpreted comparable statutes to require proof of entitlement to fees by clear and convincing evidence, and the plain language didn’t justify that burden – the statute imposed no specific evidentiary burden, much less such a high one.
Here, the plain language of the Lanham Act is identical to the Patent Act provision interpreted in Octane Fitness and similarly demands a simple discretionary inquiry with no high evidentiary burden. There is no reason to depart from this generally applicable standard in cases seeking attorney fees under the Lanham Act. This holding also comports with the trend in other circuits.
Because the court now holds that an award of attorney fees under § 1117(a) requires that a party prove an “exceptional case” by a preponderance of the evidence, the district court abused its discretion in requiring XYZ to prove its case with clear and convincing evidence. The trial court should evaluate the record evidence under the correct legal standard, so this court declines Verisign’s suggestion to affirm based on harmless error. To be clear, this court expresses no opinion on the merits of XYZ’s motion for attorney fees and whether it would satisfy the preponderance standard.
“Bad faith” showing
Under the Lanham Act, the losing party’s conduct need not have been independently sanctionable or taken in bad faith in order to merit an award of attorney fees to the prevailing party. Octane Fitness instructed that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position … or the unreasonable manner in which the case was litigated.” That case made clear that “sanctionable conduct is not the appropriate benchmark.”
Therefore, this court takes this opportunity to clarify that Retail Servs. Inc. v. Freebies Publ’g, 364 F.3d 535 (4th Cir. 2004), and the “dual standard” it articulated is no longer sound law after Octane Fitness and Georgia-Pacific, insofar as it requires a prevailing plaintiff to prove that the defendant acted in bad faith in order to merit attorneys’ fees.
In light of Octane Fitness’s rejection of the bad-faith standard, a prevailing party need not establish bad faith or independently sanctionable conduct on the part of the non-prevailing party in order to be entitled to attorneys’ fees under the Lanham Act. To the extent that the district court required otherwise, it abused its discretion.
Vacated and remanded.
Verisign Inc. v. XYZ.com LLC (Lawyers Weekly No. 001-090-18, 16 pp.) (Floyd, J.) No. 17-1704; May 29, 2018; from EDVA at Alexandria (Hilton, J.) Derek Newman for Appellants; Randall Karl Miller for Appellee. 4th Cir.
