Romag Fasteners, Inc. v. Fossil, Inc.
866 F.3d 1330 (Fed. Cir. 2017)
Authored by Amelia Spencer
Statement of Facts: Romag Fasteners owned U.S. Patent No. 5,722,126 (“the ’126 patent”) for magnetic snap fasteners, which it sold under its registered trademark, ROMAG, U.S. trademark Reg. No. 2,095,367 (“the ’367 trademark”). Romag licensed the patent and trademark to a Chinese manufacturer, which supplied the fasteners for use in handbags manufactured and distributed by a group of retailers (collectively referred to as “Fossil”). In 2010, a group of Fossil handbags arrived containing what appeared to be counterfeit ROMAG magnetic snaps.
Procedural History: Romag filed suit in the U.S. District Court for the District of Connecticut for patent infringement, trademark infringement, and violation of the Connecticut Unfair Trade Practices Act (“CUTPA”). A jury found Fossil liable for patent and trademark infringement and unfair trade practices under CUTPA. Fossil appealed the patent and trademark infringement verdicts to the Federal Circuit and the court affirmed both judgments of liability. See Romag Fasteners, Inc. v. Fossil, Inc., Nos. 2014-1896, 2014-1897, 2017 WL 1906904 (Fed. Cir. May 3, 2017) (“Romag II”).
Following the trial, Romag requested attorney’s fees under the Patent Act, 35 U.S.C. § 285, Lanham Act, 15 U.S.C. § 1117(a), and CUTPA. The district court granted the request under the Patent Act and CUTPA, but not under the Lanham Act. Fossil appealed the award of fees and Romag cross appealed the district court’s denial of fees under the Lanham Act. The Federal Circuit took jurisdiction of both appeals pursuant to 28 U.S.C. § 1295(a)(1).
Questions Presented: First, did the district court err in deciding that the Octane standard applies only to the Patent Act and not awarding attorney’s fees to Romag under the Lanham Act? Second, did the district court abuse its discretion in awarding attorney’s fees to Romag under the Patent Act?
Holdings: First, yes. The district court erred in holding the Octane standard only applies to the Patent Act. The Octane standard applies equally to the Patent Act and the Lanham Act. However, the Federal Circuit remanded to the lower court to determine whether to award attorney’s fees. Second, yes. The district court made several errors in awarding attorney’s fees to Romag under the Patent Act. The Federal Circuit remanded to the lower court to consider the issue free of the errors identified.
Reasoning: The Patent Act and the Lanham Act both provide that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285; 15 U.S.C. § 1117(a). There are two competing standards at issue in the present case. In 2012, the Second Circuit held in Louis Vuitton Malletier S.A. v. LY USA, Inc., that the Lanham Act “allows recovery of a reasonable attorney’s fee only on evidence of fraud or bad faith.” 676 F.3d 83, 111 (2d Cir. 2012). In a 2014 case involving the Patent Act, the Supreme Court held in Octane Fitness, LLC v. ICON Health & Fitness, Inc., that “an ‘exceptional’ case is simply one that stands out from the others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated . . . considering the totality of the circumstances.” 134 S. Ct. 1749, 1756 (2014).
In the present case, the district court decided that the standard announced in Octane was more lenient than the standard announced in Louis Vuitton and held that Fossil had not acted fraudulently or in bad faith, as is required by the Louis Vuitton standard. Nevertheless, the Louis Vuitton standard was announced two years prior to the Octane standard and the Second Circuit has not considered a case on this since the Supreme Court issued the holding in Octane. Since Octane, the Third, Fourth, Fifth, Sixth, and Ninth Circuits have all held that the Supreme Court’s definition of “exceptional” in Octane applied not only to the fee provision in the Patent Act, but also to the fee provision in the Lanham Act. Therefore, in light of Octane, the court held that the Lanham Act should be read as having the same standard for awarding attorney’s fees as the Patent Act.
Fossil attempted to argue that even if the lower court considered the question of attorney’s fees under the Octane standard, it would have chosen not to award them to Romag. However, the court held that this issue was best left to the district court upon remand.
Considering attorney’s fees, the court looked to the Octane standard. Under Octane, the court can award attorney’s fees under the Patent Act if a party’s arguments are objectively unreasonable or the case is litigated in bad faith. Fossil initially presented invalidity defenses of anticipation and obviousness to Romag’s patent infringement suit. The district court decided that Fossil did not abandon these defenses until after the trial, and considered this a key factor in awarding attorney’s fees. However, the record established that Fossil withdrew those arguments before the trial, so the district court clearly erred in determining that Fossil did not formally withdraw those defenses until after the trial.
Fossil additionally presented the invalidity defense of indefiniteness in response to Romag’s patent infringement suit, arguing that the ’126 patent’s claim term “rotatable” was indefinite because the patent did not specify the degree of force necessary to cause rotation. The district court determined the term “rotatable” should be construed to mean capable of being rotated and granted summary judgment to Romag. The district court also determined that, based on the summary judgment record, Fossil’s argument was meritless and raised for improper purposes. However, the record merely states that a party moving for summary judgment “runs the risk that if it makes a woefully inadequate showing, not only might its own motion for summary judgment be denied, the court may grant summary judgment sua sponte against the movant.” This is simply a comment on the risks a party takes when moving for summary judgment and is not a comment directed specifically at Fossil’s argument. Summary judgment was not granted due to frivolity of Fossil’s argument, but rather because the definition of the term “rotatable” precluded the indefiniteness argument altogether. Therefore, the district court erred in holding that Fossil’s indefiniteness defense bordered on frivolous.
Earlier in the litigation, the district court sanctioned Romag. Romag knew about the infringement in May of 2010 but did not initiate the suit until November 2010. The district court concluded the reason for this delay was to take advantage of the holiday season and exercise as much leverage as possible over the defendants. Based upon this, the district court found the delay to be unreasonable. Additionally, Romag moved for a temporary restraining order (TRO) based upon reasoning the district court found inadequate and misleading. As a result, the district court sanctioned Romag for acting in bad faith. During the proceedings for attorney’s fees, the district court decided not to further sanction Romag by declining to award attorney’s fees. However, in deciding whether to award attorney’s fees, the court must take into consideration the totality of the circumstances. This includes Romag’s earlier misconduct during litigation. The Federal Circuit found that the district court erred in concluding that the failure to award attorney’s fees amounts to double-sanctioning Romag.
In response to Romag’s patent and trademark allegations, Fossil presented a non-infringement defense, alleging that the magnetic snaps were genuine ROMAG snaps. Romag moved for judgment on the matter as a matter of law, but the district court denied the motion and allowed the jury to decide the issue. During the attorney’s fees proceedings, the district court held that its denial of the motion for judgment as a matter of law precluded a finding that Fossil’s non-infringement argument was so frivolous as to award attorney’s fees. Denying judgment as a matter of law does not preclude a finding that Fossil’s non-infringement argument was frivolous, but the district court also found that Fossil’s argument was not entirely groundless. Although Fossil’s argument may have been weak, it did not rise to the level of being objectively unreasonable.
The district court awarded Romag attorney’s fees in connection to Fossil’s argument for indefiniteness. Due to the errors in the district court’s findings, the supplemental fees awarded for the application for attorney’s fees were also set aside.
Dissenting Opinion: Judge Newman concurred in part and dissented in part. Judge Newman agreed that the decision that the Octane standard applies to both the Patent Act and the Lanham Act is correct and remand is appropriate to determine whether attorney fees are warranted for the trademark infringement.
Judge Newman would have found that the district court did not abuse its discretion in awarding attorney fees pertaining to the patent issues. Fossil pursued its anticipation and obviousness arguments until the night before trial. Fossil also did not withdraw its invalidity defenses or counterclaims until after the trial had begun, when it withdrew them upon Romag’s motion for judgment as a matter of law. The district court reasonably saw the failure to withdraw these claims in a timely manner as too late to negate consideration for attorney fees. The majority is incorrect in stating that the invalidity defenses were withdrawn before the trial.
Judge Newman also believed that the majority places too much weight on the definition of an “exceptional” case provided in Octane and ignores previous guidance from the Supreme Court that the district court is in the best position to determine whether a case is exceptional. Abuse of discretion is an extremely deferential standard of review. The court should exercise restraint in substituting its own judgment for that of the district court judge because the trial court is in the best position to evaluate the conduct of the parties. Romag incurred significant expenditures preparing its patent validity argument and this could have been avoided if Fossil had been more proactive in withdrawing its defense. Therefore, the district court did not abuse its discretion in awarding attorney fees to Romag.