CAFC Says District Court Abused Its Discretion in Granting Attorney’s Fees Under Sections 285 and 1117(a)

The U.S. Court of Appeals for the Federal Circuit today reversed a district court decision awarding attorney’s fees to Luv n’ Care Ltd. (LNC) against Munchkin, Inc. The Federal Circuit held that the district court abused its discretion in granting LNC’s motion for attorney’s fees as “LNC’s fee motion insufficiently presented the required facts and analysis needed to establish that Munchkin’s patent, trademark, and trade dress infringement claims were so substantively meritless to render the case exceptional.” The Court also pointed to its recent ruling in Amneal Pharmaceuticals v. Almirall regarding attorney’s fees with respect to Patent Trial and Appeal Board (PTAB) proceedings, though it did not reach that issue in the present case. The opinion was authored by Judge Chen.

Spillproof Cups

The lawsuit originated with Munchkin’s suit against LNC for trademark and unfair competition claims based on a version of Munchkin’s CLICK LOCK logo for spillproof cups, which Munchkin said LNC’s CLIK IT! brand of spillproof cups infringed. In an amended complaint, Munchkin added trade dress infringement claims and replaced the original CLICK LOCK logo with an updated logo that was pending registration, as the basis for its suit. The amended complaint also added patent infringement claims based on its U.S. Patent No. 8,739,993, which had recently issued at the time of the amended complaint. Munchkin subsequently dropped all of the non-patent claims and streamlined the case to focus solely on the patent infringement claim. However, LNC in the meantime filed an inter partes review with the PAtnet Trial and Appeal Board (PTAB), which adopted LNC’s preferred broader claim construction and ultimately found the ’993 patent’s claims unpatentable. LNC then filed for attorney’s fees under 35 U.S.C. § 285 (for the patent infringement claim) and 15 U.S.C. § 1117(a) (for the trademark and trade dress claims).

More Information Required

The Federal Circuit said that the case did not meet the criteria set forth in Octane Fitness, LLC v. ICON Health & Fitness, Inc.,  572 U.S. 545 (2014) that an exceptional case under Section 285 is “‘one that 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 Court added:

While we generally give great deference to a district court’s exceptional-case determination, a district court nonetheless must “provide a concise but clear explanation of its reasons for the fee award.” Hensley v. Eckerhart, 461 U.S. 424, 437 (1983)…

This case represents “an unusual basis for fees,” in that the district court’s exceptional-case determination rests on an examination of issues—trademark infringement, trade dress validity, and patent validity—that were not fully litigated before the court.

Although that fact alone did not create the basis to deny a fee motion, “when the bases of an attorney’s fee motion rest on issues that had not been meaningfully considered by the district court, as is the case here, ‘a fuller explanation of the court’s assessment of a litigant’s position may well be needed when a district court focuses on a freshly considered issue than one that has already been fully litigated,’” said the Federal Circuit.

Stats Alone Will Not Suffice

The Court continued that the district court never adequately explained why Munchkin’s validity position was unreasonable when, in the original suit, “the district court’s claim construction ruling favored Munchkin and erected a serious hurdle to LNC’s invalidity challenge,” and that the finding of unpatentability at the PTAB could not alone translate to a finding that Munchkin’s defense of the patent was unreasonable. LNC had presented statistics showing that the PTAB cancels some of a patent’s instituted claims 85% of the time and cancels all of the instituted claims 68% of the time, and had argued that the PTAB’s final decision found all of the ’993 patent’s claims unpatentable and that the Federal Circuit had summarily affirmed that decision, all of which LNC said made Munchkin’s decision to maintain its patent infringement lawsuit. The Court opined:

The upshot of LNC’s statistics and outcome-based argument would be to subject every patent owner to paying a § 285 fee award in a patent suit anytime its patent is canceled in a co-pending IPR proceeding, without any consideration of the relative strength of the patent owner’s legal theories, claim construction arguments, or proffered evidence in defense of the patent. That form of shortcut thinking is wholly incompatible with Octane Fitness’s fact-dependent, “case-by-case” requirement, and we reject it.”

As to the district court’s finding that the trademark claims were “exceptional” under § 1117(a), the CAFC found that the main problem was that finding conflicted with the court’s earlier order allowing Munchkin to amend its complaint. As to the trade dress claims, the district court’s holding that they were weak lacked adequate support. “Again, the district court allowed Munchkin to amend its complaint to include these claims. LNC never filed a motion to dismiss, and the merits of Munchkin’s trade dress allegations were never adjudicated,” said the Court.

Attorney’s Fees for PTAB Proceedings

In a footnote, the Court also addressed its recent analysis of attorney’s fee awards for USPTO proceedings:

We recognize that the district court granted LNC its attorney’s fees attributable to both the district court proceeding and the related IPR proceeding, but in light of reversing the award of fees, we do not reach this issue of whether in the circumstances of this case § 285 permits recovery of attorney’s fees for parallel USPTO proceedings. See generally Order, Amneal Pharms. LLC v. Almirall, LLC, ___ F.3d ___ (Fed. Cir. 2020) (No. 2020-1106)

The district court’s grant of attorney’s fees to LNC was thus reversed.