VERISIGN, INCORPORATED v. XYZ.COM LLC; DANIEL NEGARI
No. 17-1704
United States Court of Appeals for the Fourth Circuit
May 29, 2018
PUBLISHED
Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Claude M. Hilton, Senior District Judge. (1:14-cv-01749-CMH-MSN)
Argued: March 20, 2018 Decided: May 29, 2018
Before WYNN, FLOYD, and HARRIS, Circuit Judges.
Vacated and remanded by published opinion. Judge Floyd wrote the opinion in which Judge Wynn and Judge Harris joined.
ARGUED: Derek Newman, NEWMAN DU WORS LLP, Seattle, Washington, for Appellants. Randall Karl Miller, VENABLE LLP, Tysons Corner, Virginia, for Appellee. ON BRIEF: Jason B. Sykes, NEWMAN DU WORS LLP, Seattle, Washington, for Appellants. Nicholas M. DePalma, VENABLE LLP, Tysons Corner, Virginia, for Appellee.
This case arisеs out of a denial of a motion for an award of attorney fees under the Lanham Act,
I.
A.
The facts of this case and the underlying Lanham Act claims are described in detail in our previous opinion affirming the district court‘s grant of summary judgment to Appellant XYZ.COM LLC (“XYZ“). See Verisign, Inc. v. XYZ.COM LLC, 848 F.3d 292 (4th Cir. 2017). In short, XYZ and Appellee Verisign, Inc. (“Verisign“) both sell internet domain names, and are competitors in the top-level domain industry.1
On November 15, 2015, the district court granted summary judgment in favor of XYZ. With regard to the alleged “gold rush” scheme, the court concluded that the statements regarding XYZ‘s revenue and number of registrations were true statements and, even assuming they were false, they were not material to consumers. It also concluded that Negari‘s various statements about the unavailability of domain names were either opinions, statements of fact that had not been shown to be false, or mere puffery. Last, the court concluded that Verisign could not establish damages from the allegedly false statements.
After the district court entered summary judgment in favor of XYZ, XYZ moved for attorney fees under the Lanham Act,
B.
After we affirmed the award of summary judgment to XYZ, the district court considered XYZ‘s motion for attorney fees under the Lanham Act. Under the Lanham Act,
a district court may find a case ‘exceptional’ and therefore award attorneys fees to the prevailing party under
§ 1117(a) when it determines, in light of the totality of the circumstances, that (1) there is an unusual discrеpancy in themerits of the positions taken by the parties, based on the non-prevailing party‘s position as either frivolous or objectively unreasonable; (2) the non-prevailing party has litigated the case in an unreasonable manner; or (3) there is otherwise the need in particular circumstances to advance considerations of compensation and deterrence.
Georgia-Pacific, 781 F.3d at 721 (internal citations & quotation marks omitted).
On May 3, 2017, the district court denied XYZ‘s motion. In so doing, it hеld that under the Lanham Act, a prevailing party seeking attorney fees must prove its entitlement to fees with clear and convincing evidence. It then went through the Georgia-Pacific factors to analyze whether XYZ had proven that the case was “exceptional,” and concluded that XYZ had failed to establish its case with clear and convincing evidence. See J.A. 1486 (“Defendants must prove its [sic] claims with clear and convincing evidence. Defendants failed to meet that standard of proof on this factor.“); J.A. 1487 (“Again, Defendants have not met their burden to prove with clear and convincing evidence that Plaintiff‘s case was exceptional.“); J.A. 1486–87 (“Defendants argue that Plaintiff abused discovery, but the evidence does not overwhelmingly support this claim.” (emphasis added)). The court suggested that evidence of bad faith or independently sanctionable conduct was required in order to prove аn exceptional case. J.A. 1485 (stating that a “case is exceptional if the non-prevailing party‘s conduct was malicious, fraudulent, willful, or deliberate.” (citation omitted)). It also stated that under the first Georgia-Pacific factor, “[u]nless a claim or defense is so unreasonable that no reasonable litigant would make it, an award of attorney fees is not warranted . . . .” J.A. 1486. XYZ now appeals, arguing that the district court erred in applying a clear and convincing evidentiary standard and in requiring that XYZ prove that Verisign acted in bad faith in order for an award of attorney fees to be warranted.2
II.
A.
We review the grant or denial of attorney fees under the Lanham Act under an abuse of discretion standard. Shell Oil Co. v. Commercial Petroleum, 928 F.2d 104, 108 n.6 (4th Cir. 1991). “A district court abuses its discretion if it relies on an error of law or a clearly erroneous factual finding.” SAS Inst., Inc. v. World Programming Ltd., 874 F.3d 370, 384 (4th Cir. 2017) (quoting Equal Emp‘t Opportunity Cmm‘n. v. Freeman, 778 F.3d 463, 466 (4th Cir. 2015)). XYZ argues that the district court relied on an error of law because, under Octane Fitness, a prevailing party need only prove that a case is exceptional under the Lanham Act by a preponderance of the evidence, and not, as the district court required, clear and convincing evidence. We agree.
We are persuaded that Georgia-Pacific and Octane Fitness together require a party to prove that a case is an “exceptional case” under
Although we find the language in Georgia-Pacific sufficient to require the adoption of the preponderance of the evidence standard herе, we are also convinced that this burden of proof is the correct one. This is especially so because we are convinced that the Supreme Court‘s reasoning for adopting a preponderance of the evidence standard in the Patent Act provision also applies to the fee provision in the Lanham Act. The Supreme Court explained that it had “not interpreted comparable fee-shifting statutes to require proof of entitlement to fees by clear and convincing evidence,” and the plain language did not justify such a burden because the statute “demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.” Id. Here, the plain language of the Lanham Act is identical to that of the statute interpreted in Octane Fitness, and also “demands a simple discretionary inquiry” with no high evidentiary burden. The Supreme Court alsо noted that the preponderance of the evidence standard “is the ‘standard generally applicable in civil actions,’ because it ‘allows both parties to share the risk of error in roughly equal fashion.‘” Id. (quoting Herman & MacLean v. Huddleston, 459 U.S. 375, 390 (1983)). We likewise see no reason to depart from this generally applicable standard in cases seeking attorney fees under the Lanham Act.
Our holding that a preponderance of the evidence standard aрplies to the “exceptional case” analysis under the Lanham Act also comports with the trend in other circuits to apply Octane Fitness to motions for attorney fees under the Lanham Act. The Fifth and Ninth Circuits have explicitly held that Octane Fitness‘s preponderance of the evidence standard applies when establishing an exceptional case under the Lanham Act. See SunEarth, Inc. v. Sun Earth Solar Power Co., Ltd., 839 F.3d 1179, 1181 (9th Cir. 2016) (en banc); Baker v. DeShong, 821 F.3d 620, 624 (5th Cir. 2016). Although the Third, Sixth, Eleventh, and Federal Circuits have not explicitly embraced the preponderance of the evidence standard, they have also concluded that Octane Fitness applies to Lanham Act cases without applying a different standard. See Tobinick v. Novella, 884 F.3d 1110, 1117–18 (11th Cir. 2018) (noting that Octane Fitness applied a preponderance of the evidence standard to Patent Act cases); Romag Fasteners, Inc. v. Fossil, Inc., 866 F.3d 1330, 1334–36 (Fed. Cir. 2017); Slep-Tone Entm‘t Corp. v. Karaoke Kandy Store, Inc., 782 F.3d 313, 317–318 (6th Cir. 2015); Fair Wind Sailing,764 at 313–315.3 We now take this occasion to join our sister circuits that have adopted Octane Fitness‘s preponderance of the evidence standard in Lanham Act attorney fee cases.
Because we now hold that an award of attorney fees under
B.
Verisign does not contest that a preponderance of the evidence standard applies to this inquiry. Rather, it argues that XYZ‘s motion fails under any standard, and thus the district court‘s error was at most harmless and should be affirmed. Verisign argues that because the district court found that XYZ‘s evidence was nothing more than “speculation,” this would fail any standard of proof because speculation is inadmissible, and thus remand is not warranted. Because the trial court should evaluate the record evidence under the correct legal standard in the first instance, we decline to affirm the denial of XYZ‘s motiоn on the ground that it constituted harmless error.
“Generally, when a trial court applies the incorrect burden of proof in a civil case, appellate courts remand the case for a determination under the appropriate standard.” Humphrey v. Humphrey, 434 F.3d 243, 247 (4th Cir. 2006); see also id. (noting that an error in applying an improperly heightened burden of proof is a “serious one because ‘the proper allocation of the burden of proof is an impоrtant procedural right.‘” (quoting Bruner v. Office of Pers. Mgmt., 996 F.2d 290, 292 (Fed. Cir. 1993))). “Remand seems especially prudent when, as here, the district court may have employed too high a burden of proof” and the “best course” is generally “to require the trier of fact to re-examine the record in light of the proper legal standard.” Id. at 248 (citations & quotation marks omitted). However, “when a trial court applies the wrong legal test or quantum of proof, an appellate court may resolve the case without remanding if the evidence would inevitably produce the same outcome under the correct standard.” Id.
In this case, we cannot say that the evidence would inevitably produce the same outcome under the correct standard. Given the district court‘s lack of analysis of the evidence presented by XYZ, its repeated emphasis that XYZ had not proven its case with clear and convincing evidence, аnd the requirement that it must make its decision on a “case-by-case exercise of [its] discretion, considering the totality of the circumstances,” Octane Fitness, 134 S. Ct. at 1756, we decline to hold that it would inevitably reach the same conclusion applying a lesser evidentiary standard, particularly when considering any possible motives Verisign might have had, like
To be clear, we express no opinion on the merits of XYZ‘s motion for attorney fees; we simply conclude that there is no reason to depart from the general practice of allowing the trier of fact to examine the record under the correct legal standard and make the determination in the first instance. See Lovelace v. Lee, 472 F.3d 174, 203 (4th Cir. 2006) (“[W]e are a court of review, not of first view.“) (quoting Cutter v. Wilkinson, 544 U.S. 709, 718 n.7 (2005)). Therefore, we vacate the district court‘s decision and remand for consideration under the preponderance of the evidence standard.
III.
We next turn to XYZ‘s argument that the district court erroneously imposed a “bad faith” requirement in order to prove that a case is exceptional. Although it is unclear from the district court‘s opinion whether it did in fact impose a bad faith requirement, we now clarify that 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 under the Lanham Act.
In Octane Fitness, the Supreme Court made clear that “an ‘exceptional’ case is simply one that stands out frоm 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,” and that “[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” 134 S. Ct. at 1756. It explicitly rejected the Federal Circuit‘s narrow interpretation that “a case is ‘exceptional’ only if a district court either finds litigation-related misconduct of an independently sanctionable magnitude or determines that the litigation was both ‘brought in subjective bad faith’ and ‘objectively baseless,’ ” concluding that “[t]his formulation superimposes an inflexible framework onto statutory text that is inherently flexible.” Id. at 1756.
Although this Court looks to the Georgia-Pacific factors to determine whether a case is “exceptional,” Georgia-Pacific did not make explicit that evidence of bad faith or independently sanctionable сonduct is not required for a prevailing party to prove an exceptional case, and thus we take the opportunity to do so here. The Supreme Court made clear that “sanctionable conduct is not the appropriate benchmark,” and that a “district court may award fees in the rare case in which a party‘s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so ‘exceptional’ as to justify an award of fees.” Id. at 1756–57. It also held that “a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award.” Id. at 1757 (emphasis added); see also Fair Wind Sailing, Inc., 764 F.3d at 315 (concluding that under Octane Fitness, a district court‘s discretion in determining exceptionality under the Lanham Act “is not cabined by a threshold requirement that the losing party acted culpably“).
The district court here began its analysis by quoting Retail Services and stating that a “case is exceptional if the non-prevailing party‘s conduct was malicious, fraudulent, willful, or deliberate.” J.A. 1485 (quoting Retail Servs., 364 F.3d at 550). The district court then analyzed the Georgia-Pacific factors, but largely concluded only that under each factor, XYZ had failed to establish that Verisign acted in bad faith or with improper motive, or had engaged in sаnctionable conduct. See J.A. 1486 (stating that “[u]nless a claim or defense is so unreasonable that no reasonable litigant would make it, an award of attorney fees is not warranted under the first [Georgia-Pacific] factor“);4
(stating that “Defendants have speculated that Plaintiff filed this suit to harass and deter competition“); id. (explaining that under the second Georgia-Pacific factor, “the prevailing part[y] must show egregious conduct such as a false declaration“); J.A. 1487 (concluding that on the third fаctor, “Defendants offer speculation as to Plaintiffs motive in filing this case, but that is not sufficient proof to obtain an award of attorney fees“).
In light of Octane Fitness‘s rejection of the bad faith standard, we now hold that 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 attorney fees under the Lanham Act. To the extent that the district court requirеd otherwise, we hold that it abused its discretion.
IV.
For the foregoing reasons, the decision of the district court denying XYZ‘s motion for attorney fees is
VACATED AND REMANDED.