Opinion ID: 622358
Heading Depth: 2
Heading Rank: 2

Heading: exceptionality and attorney's fees

Text: Section 35(a) of the Lanham Act provides that [t]he court in exceptional cases may award reasonable attorney fees to the prevailing party. 15 U.S.C. § 1117(a). An action may be considered exceptional [w]hen a plaintiff's case is groundless, unreasonable, vexatious, or pursued in bad faith. Stephen W. Boney, Inc. v. Boney Servs., 127 F.3d 821, 827 (9th Cir.1997) (internal citation and quotation marks omitted). The district court concluded that the plaintiffs were unable to provide the court with any evidence to support their assertion that the trade dress was not functional. It further found that: [T]he mere absence of bad faith on [Tractel's] part does not render it ineligible for attorney's fees. [Tractel does] not provide the court with any evidence that there were debatable issues of law and fact with regards to the trade dress. They assert rights in the design patent to rebut the defendant's `unreasonable' argument, yet fail to produce evidence that they own the design patent or that the true owner assigned the rights to them. In light of these factors, Tractel's continued prosecution of its claims was held by the district court to be unreasonable. We review de novo the district court's legal determination that an action is exceptional under the Lanham Act; however, once an action is determined to be exceptional, the district court's decision to award attorney's fees is reviewed for an abuse of discretion. Earthquake Sound Corp. v. Bumper Indus., 352 F.3d 1210, 1216 (9th Cir.2003). The line distinguishing exceptional cases from non-exceptional cases is far from clear. It is especially fuzzy where the defendant prevails due to plaintiff's failure of proof. We have previously held that an action is exceptional under the Lanham Act if the plaintiff has no reasonable or legal basis to believe in success on the merits. See Cairns v. Franklin Mint Co., 292 F.3d 1139, 1156 (9th Cir.2002) (The false advertisement claim was groundless and unreasonable because the statements in the advertisements at issue were true and [plaintiff] had no reasonable basis to believe they were false.); id. (the dilution of trademark claim was groundless and unreasonable because it had no legal basis). In other words, exceptional cases include instances where plaintiff's case is frivolous or completely lacking in merit. Although Tractel does not ultimately prevail, were it able to provide some legitimate evidence of nonfunctionality, this case would likely fall on the unexceptional side of the dividing line. When summary judgment motions were heard, the parties had been in discovery for almost two years, taken multiple depositions, and compiled substantial documents. Yet, Tractel could not identify the aesthetic value of the exterior design, and was reduced to arguing that it was pursuing a cubist look and feel even though its own witnesses undercut this argument. In addition, months before the summary judgment proceedings, the Northern District of Georgia, in a separate action regarding the same claimed trade dress, denied Tractel's motion for a preliminary injunction because there's nothing about [Tractel's] design that is arbitrary, incidental or ornamental. The court went even further: Each of the features of the alleged trade dress, based on the evidence that I've heard, serve a function in the operation of the hoist.... There's an utter failure of evidence.... Although the Georgia decision was made at the preliminary injunction stage, Tractel was on notice that even on its own motion for relief, there was an utter failure of proof. Given that evidence of nonfunctionality would be primarily in Tractel's possession, its inability to demonstrate nonfunctionality in the Georgia case seriously undercuts its arguments that it was raising debatable issues of law and fact in this action. Stephen W. Boney, Inc., 127 F.3d at 827. As it turned out, the testimony at summary judgment in Nevada played out just like in Georgiathere was an utter failure of proof. Tractel failed to provide the court with any evidence that there were `debatable issues of law and fact' with regards to the trade dress. From its own witnesses, Tractel at best offered either unsupported or conclusory claims about the design. Fatal to its claim was the testimony of its own witnesses who honestly laid out the functional nature of the design. Lacking was any evidence, like engineering notebooks or testimony from the designers, about design or aesthetics. Even more devastating was the testimony of third-party witnesses called by Tractel who laid bare the claim of nonfunctionality. For example, they testified that the fins play an important function of dissipating heat and are not for aesthetics. Likewise, the shape of the hoist is practical because it fits in confined construction sites and it is more efficient and more compact than some of the other hoists on the market. One of Tractel's distributors, who was also a hoist industry professional, summed up the functional reality of the Tractel hoist: [T]he entire design is predicated on function from what I've seen, and again as with most hoist manufacturers, every element on there is critical to the design otherwise they wouldn't waste the money or the weight which again comes back to the weight is the key component. So in my opinion every element on there is important to the function. Faced with this evidence, the slim reed offered by Tractel is a design patent for a hoist that does not mirror the Tractel hoist. Tellingly, Tractel does not offer evidence that it has any claim or rights in the patent or even that it is a valid patent. Although we do not favor a mini patent trial within the trade dress context, Tractel cannot simply raise the specter of a third-party patent and hope it will serve to support nonfunctionality. We need not decide whether, under different circumstances, a trade dress claimant could rely on its own identical design patent to overcome the lack of any other evidence of nonfunctionality, though the case law suggests otherwise. Nonetheless, Tractel cannot even make that claim. Simply pointing to a design patent with similarities (and differences) to its claimed trade dress is insufficient to raise a debatable issue of law or fact. Although the timing of Tractel's suit could be considered suspicious, such preemptive suits are not uncommon in intellectual property matters. Even if Tractel had an ulterior anti-competitive motive, had it made a colorable claim, that factor would weigh in our analysis. See Mennen Co. v. Gillette Co., 565 F.Supp. 648, 657 (S.D.N.Y.1983), aff'd, 742 F.2d 1437 (2d Cir.1984) (attorney's fees justified where suit was filed as a competitive ploy). Instead, Tractel's action appears to be a conscious, albeit misguided, attempt to assert trade dress rights in a non-protectable machine configuration. We affirm the district court's finding that this is an exceptional case meriting attorney's fees under 15 U.S.C. § 1117(a).