Thursday, January 19, 2012

No fee award in 1-800 v.

1–800 Contacts, Inc. v., Inc., 2012 WL 113812 (D. Utah)

1-800, famously (for certain values of fame), sued for trademark infringement based on’s keyword advertising; it had demanded take measures to preclude ads from appearing whenever a searcher used “1-800 Contacts” (which would preclude broad-matching on “contacts”). even told its affliates not to buy 1-800 Contacts as a keyword, but 1-800 sued anyway. 1-800 made punitive demands in settlement negotiations (demanding a ban on the use of a long list of terms as keywords, and $10,000 or even $20,000 a day in liquidated damages if or one of its affiliates engaged in a prohibited act). won summary judgment and moved for attorneys’ fees. The court denied the motion. In support of its motion, argued that 1-800 regularly sues smaller competitors and extracts such agreements because the smaller competitors cannot bear the costs of litigation. 1-800 conceded the lawsuits but said they were necessary to protect its trademark, and that it agreed to be bound by the same settlement provisions it demanded from competitors.

One year after filing suit, 1-800 moved to amend to add secondary liability claims based on’s affiliates’ actions. As it had found, out of numerous keywords that had purchased, “only nine were variations or misspellings of the trademark. In total, derived $20.51 in profits off of those nine keywords.” Nonetheless, 1-800 continued to press its direct infringement claim. Meanwhile, learned that 1-800 had bought variations of’s trademarks as keywords, earning $219,314 in profits thereby. also argued that 1-800 engaged in improper discovery tactics to increase the burden of litigation, and pointed to stricken expert reports/surveys as evidence of bad faith. The court noted that “[d]iscovery problems existed throughout this litigation, but it is that was sanctioned for discovery abuses.” withheld discovery and provided false information, and was therefore sanctioned with a fee award and a ban on introducing certain evidence at trial, and also violated an order limiting the scope of a deposition. argued that its obstructive behavior was triggered by 1-800's overreaching demands, but the court had already rejected that argument in awarding sanctions.

Fees are available in Lanham Act cases under exceptional circumstances, which can happen if a suit was objectively unfounded or harassing in its execution. The court first found that the Lanham Act claims were not objectively unfounded:
The main legal issue in this case involves an unsettled area of law given the emerging and changing nature of Internet competition. The Tenth Circuit has never expressly addressed whether purchasing another's trademark as a keyword constitutes trademark infringement, and such cases have survived motions to dismiss in other jurisdictions. Consequently, 1–800 Contacts had a legitimate interest in clarifying its rights. Moreover, once 1–800 Contacts obtained discovery, the evidence showed that did purchase variations of 1–800 Contacts' trademark, even though such purchases were minuscule. 1–800 Contacts also had a larger claim based on secondary liability. Given the developing nature of the law in this area, and the fact that the case was proceeding on secondary liability, it was not unreasonable for 1–800 Contacts to continue pursuing its claim for direct infringement.
The court did agree that some of 1-800’s behavior was troubling, particularly its settlement demands and its hypocrisy in suing others for things it was doing. However, the court noted that has sued over 1-800’s allegedly anticompetitive and abusive litigation tactics in another case, and that was the proper forum to resolve those issues.

Given that had been sanctioned on more than one occasion in this case, and that the expert opinions offered by 1-800 were partially admitted and therefore not wholly without merit, the court was unwilling to award attorneys’ fees:
Viewing all the facts in totality, the court finds that neither party was fully candid with the court or its processes. The court further finds that 1-800 Contacts' actions raise questions about vexatious suits to defeat competition, but more facts would need to be developed than what have been presented to the court. Although 1-800 Contacts was aggressive in pursuing its claims in this case, and in hindsight the expense may have been greater than necessary to protect those rights, the court cannot conclude on this record that 1-800 Contacts' course of action was so unjustified to meet the requirements for an exceptional case. 
The state law claim for fees also failed; the standard was whether the action was without merit and not brought or asserted in good faith. argued that it should be awarded fees on the coordinate state-law claims because 1-800 expended no effort to develop them. The court was unpersuaded, because 1-800 argued that its unfair competition claim was based on the same facts that supported the Lanham Act claim. The only claim that 1-800 expended no effort to develop was its unfair practices claim, but likewise had to spend little time on it.

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