In TNS Media Research, LLC v. TiVo Research & Analytics, Inc., 2014 U.S. Dist. LEXIS 155914 (S.D.N.Y. Nov. 4, 2014), the Southern District of New York applied the Supreme Court’s recent Octane Fitness decision in awarding attorney fees to patent defendant Kantar. Octane Fitness v. ICON Health & Fitness 134 S. Ct. 1749 (2014); http://www.seyfarth.com/publications/OMM050114-IP.
The district court also awarded Kantar fees it incurred in successfully defending trade secret misappropriation claims. Did Octane Fitness influence the court’s fee award for the trade secret claim, notwithstanding the different standards for fee shifting between the Patent Act and state trade secret laws?
1. Fee Shifting in Patent and Trademark Cases Under Octane Fitness.
Fee shifting in patent cases is governed by 35 U.S.C. § 285 which reads, in its entirety: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Octane Fitness seemingly made it easier for patent defendants to obtain fees by setting forth a flexible framework for determining if a case is “exceptional” under 35 U.S.C. § 285:
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.
Id. 1756. In announcing this more flexible interpretation of “exceptional,” the Supreme Court emphasized considering the “substantive strength” of the parties’ claims and defenses, and dispensed with a prior formulation that generally required the defendant to show, by clear and convincing evidence, that infringement allegations were baseless and brought in bad faith. The prior formulation, the Supreme Court reasoned, was “so demanding that it would appear to render § 285 largely superfluous,” given that district courts already possess the inherent power to award fees in cases involving misconduct or bad faith.
Fee shifting in trademark cases is governed by 15 U.S.C. §1117 which reads: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” In other words, the Lanham Act and Patent Act recite the same “exceptional” language, and courts have already proceeded to apply Octane Fitness in trademark cases. See e.g. Fair Wind Sailing, Inc. v. Dempster, Case Nos. 13-3305, 14-1572 (3d Cir., Sept. 4, 2014).
2. Fee Shifting in Trade Secret Cases.
State trade secret statutes do not contain the “exceptional” case language found in the Patent Act and Lanham Act. Instead, trade secret defendants in most states seek fees under Section 4 of the Uniform Trade Secrets Act (“UTSA”), which reads, in relevant part: “[i]f … a claim of misappropriation is made in bad faith … the court may award reasonable attorney’s fees to the prevailing party.” Interestingly, the comment to UTSA Section 4 references following “patent law” in considering fee awards: “patent law is followed in allowing the judge to determine whether attorney’s fees should be awarded even if there is a jury, compare 35 U.S.C. Section 285.”
While New York has not adopted the UTSA, Federal Courts applying New York law can rely on their inherent power to award fees to the defendant. Ransmeier v. Mariani, 718 F.3d 64, 68 (2d Cir. 2013) (“[a] court may exercise its inherent power to sanction a party or an attorney who has acted in bad faith, vexatiously, wantonly, or for oppressive reasons) (quotations omitted). Such inherent power is generally available to federal courts in connection with any type of lawsuit, and is not unlike the UTSA fee shifting language requiring bad faith by the plaintiff.
3. The S.D.N.Y’s fee awards in the TNS Media Case.
The TNS Media case is a technology dispute relating to collecting data on television viewing. The plaintiff (“TRA”) claimed that defendant Kantar engaged in acts of patent infringement and trade secret misappropriation (under New York Law). The district court entered summary judgment in favor of Kantar on both claims and Kantar sought fees from TRA.
In granting Kantar’s motion for fees in connection with the patent infringement allegations, the district court applied Octane Fitness and found the case to be “exceptional” under Section 285, based in large part on the substantive weakness of the patent claims TRA maintained. For example, the court found certain TRA arguments on patent claim construction to be not only wrong, but also sanctionable.
TRA’s proposed construction “does violence to the ordinary grammatical understanding of the past tense.” No correct application of the rules of grammar could have supported TRA’s proposed construction. Thus, TRA’s proposed construction lacked merit and was frivolous. See e.g. Id. at * 24.
The district court continued by awarding Kantar fees in connection with the trade secret misappropriation claims based on its inherent power:
TRA’s analysis lacked critical elements of a claim for trade secret misappropriation. For that reason, TRA’s claims were frivolous. In fact, I find here that bad faith may be inferred because TRA’s claims were “so completely without merit as to require the conclusion that they must have been undertaken for some improper purpose[.]” Id. at *37.
The district court explicitly recognized the difference in legal standards for fee shifting between the patent and trade secret claims — the later requiring bad faith. Yet, similarities in the analyses suggest that the Octane Fitness patent fee shifting standard was influential in the trade secret fee award. For example, both fee awards were driven in large part by TRA’s maintaining claims perceived to be substantively weak:
Kantar, in order to collect any attorneys’ fees or costs for its defense of the patent-related claims, must demonstrate it incurred those fees and expenses as a direct result of TRA’s litigation misconduct or frivolous arguments (as described in this Opinion and Order).
Similarly, with respect to the non-patent-related attorneys’ fees awarded under the Court’s inherent power, Kantar must demonstrate that the fees it seeks to collect are only those fees that directly resulted from its defense against the five trade secret claims that were adjudicated at summary judgment. No fees or costs will be awarded as a result of the trade secret claims dropped subsequent to the April 23, 2013 status conference.
Id. at *39. Also, fee awards in favor of trade secret defendants have not been very common. In fact, a brief survey of the case law proffered by both sides in their briefing did not reveal any examples of a fee award being awarded to a trade secret defendant. Thus, the TNS Media’s decision to award fees on the trade secret count appears to be fairly unique.
4. Octane Fitness’ Impact on Trade Secret Litigation Going Forward.
Given the differences in legal standards, Octane Fitness is not likely to impact trade secret litigation as much as it has impacted patent and trademark litigation. Yet, some impact would not be surprising. For example, prevailing trade secret defendants in non-UTSA states, such as New York, may rely on TNS Media in seeking fees. Trade secret defendants in UTSA states may even consider relying directly on Octane Fitness based on the UTSA’s comment referring to courts following “patent law” for fee shifting guidance.