Anticompetitive suit leads to fees even if that bankrupts plaintiff

American Optometric Soc., Inc. v. American Bd. of Optometry, Inc., 2012 WL 6012861 (C.D. Cal.)

Defendant ABO sought attorneys’ fees of over $460,000 from losing Lanham Act plaintiff AOS.  AOS didn’t object to the hours or rates billed except to assert that the amount would put it into bankruptcy.  The court found the amount reasonable.

The question was whether this was an exceptional case, which in the 9th Circuit means whether the case (or, presumably, defense) was groundless, unreasonable, vexatious, or pursued in bad faith.  These are narrowly construed, though the line between exceptional and non-exceptional is fuzzy, especially when the defendant wins because the plaintiff failed to prove its case.  If the plaintiff had no reasonable or legal basis to believe it would succeed on the merits, the case is exceptional.  The mere absence of bad faith isn’t dispositive.  But failure to produce any legitimate evidence supporting a claim can show exceptionality.  And anti-competitive motive can also be a factor weighing in favor of exceptionality.  The key reasons for finding non-exceptionality in the past have been that a plaintiff raised debatable issues and had a legitimate reason to sue.

AOS argued that, though it wasn’t the prevailing party on the §43(a) claims, the court should take into account that it had also issued an injunction prohibiting ABO from making six particular statements about board certification.  But the injunction was based on ABO’s agreement by consent decree, without admitting liability, and not based on a merits adjudication.

AOS then argued that since its claim survived summary judgment, the case was at least debatable, not unreasonable or groundless.  But the court found that was insufficient: a case isn’t exceptional just because a court grants summary judgment, and likewise it’s not unexceptional just because a court denied summary judgment.  In addition, certain evidence undermining AOS’s claim wasn’t presented until later in the litigation—by AOS itself.  This included “preposterous” testimony by AOS’s president about the purported difference between the terms “board certified” and “certified by the board,” as well as the AOS's endorsement of another organization's essentially identical “board certification” credential, “both of which pieces of evidence had a significant impact on the Court's ultimate decision in finding for ABO.” 

At the bench trial, the court found that AOS “failed completely” to present evidence in support of most elements of its claim, and often presented evidence that “actually negated” elements of its claim.  AOS failed to show falsity; it failed to show injury because it got “panicky even before ABO was formed” and was “so quick to burst from the gate that it forgot the benefit of waiting to see what the impact of ABO would be, and absent the impact, AOS has totally failed to prove the required element of injury.”  Plus, though the court didn’t rely on AOS’s consumer survey at summary judgment because of an admissibility dispute, the court’s later findings about the unreliability of the survey added support to ABO’s argument that the summary judgment denial didn’t indicate that the lawsuit raised debatable issues.  “Although in the abstract and based on the limited evidence presented at the summary judgment stage, the term ‘board certified’ might have been false or misleading and could potentially have presented a debatable issue, there was significant evidence at trial that AOS's primary complaint was not with the use of the term, but with the use of the term by ABO, and also not with the concept of being certified by a board.”

AOS argued that failing to present evidence on an element of a claim, without more, is not exceptional.  But here, AOS completely failed to present evidence on the four key elements of its claim, its own witnesses undermined its claims, and it had a potential anti-competitive motive.  Thus, the Lanham Act claim was groundless and unreasonable, and fees were warranted.

Generally, fees must be apportioned between Lanham Act and non-Lanham Act claims, unless it’s impossible to differentiate the work done on claims.  Some attempt at apportionment is required unless the claims are so inextricably intertwined that an attempted division would be meaningless.  ABO argued that it was entitled to all its fees because the state law claims against it arose from the same factual theory and the legal standard was “substantially congruent” with the Lanham Act.  Because the claims were governed by the same legal standard and factual theory, and because the parties only argued about the Lanham Act, treating the state claims as mere appendices, ABO was entitled to an award of all its fees.