United States District Court, W.D. Virginia, Roanoke Division
REPORT AND RECOMMENDATION
ROBERT S. BALLOU, Magistrate Judge.
In this trade dress litigation, Defendants Kimberly-Clark Corporation, Kimberly-Clark Worldwide, Inc., and Kimberly-Clark Global Sales, LLC (collectively "Kimberly-Clark") ask the court to award attorneys' fees and tax costs following the District Court's dismissal of all claims on summary judgment. Plaintiff, McAirlaids, Inc. ("McAirlaids"), opposes the motion for attorneys' fees and the amount sought in taxed costs and further requests that the court stay any ruling on the cost issue pending the outcome of its appeal of the summary judgment decision to the Fourth Circuit. These matters were referred to me to prepare a report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B), and having considered the record, the legal arguments submitted and the applicable law, I RECOMMEND that Kimberly Clark's Motion for Attorneys' Fees (Dkt. No. 139) be DENIED, McAirlaids' Motion to Stay or Retax Costs (Dkt. No. 150) be GRANTED in part and DENIED in part, Kimberly-Clark's Bill of Costs be GRANTED in the amount of $14, 551.79, and payment of the costs be STAYED pending final resolution of all appeals.
The facts of this case are fully set forth in the District Court's July 19, 2013 Memorandum Opinion and Order (Dkt. Nos. 120 & 121) granting Defendants' motion for summary judgment. In brief, McAirlaids manufactures absorbent pads, which during the manufacturing process pass through rollers that imprint the surface of the product with offset rows of evenly spaced dots. McAirlaids claimed that the embossing or imprinting of its absorbent pads is inherently distinctive and not a functional component of its product, and thus, McAirlaids sought and obtained federal trade-dress registration for the particular arrangement of dots on its absorbent pads. Kimberly-Clark manufactures incontinence pads that are also imprinted with rows of dots, which McAirlaids claims infringe its registered trade dress. McAirlaids sued Kimberly-Clark in this court contending that Kimberly-Clark's use of the dot pattern on its incontinence pads constitutes trade dress infringement and unfair competition in violation of the Lanham Act, 15 U.S.C. § 1051 et seq. (the "Lanham Act"), and Virginia common law. The court dismissed McAirlaids' claims on summary judgment finding that the McAirlaids dot design served a functional purpose and could not be trade dress. As such, the court canceled McAirlaids' trade-dress registration.
Kimberly-Clark now seeks over $1, 000, 000.00 in attorneys' fees and related expenses, arguing that the entire lawsuit was oppressive and thus "exceptional" under § 1117(a) of the Lanham Act, or alternatively, that it is entitled to recover attorneys' fees as sanctions under 28 U.S.C. § 1927 and Rule 37 of the Federal Rules of Civil Procedure.
II. ATTORNEYS' FEES UNDER THE LANHAM ACT
The Lanham Act permits the court to award reasonable attorney fees to the prevailing party in exceptional cases. 15 U.S.C. § 1117(a). The statute does not define what constitutes an "exceptional case, " but the Fourth Circuit has held that an "exceptional case" is one in which "the defendant's conduct was malicious, fraudulent, willful or deliberate in nature." Retail Services Inc. v. Freebies Publ'g , 364 F.3d 535, 550 (4th Cir. 2004); People for the Ethical Treatment of Animals ("PETA") v. Doughney, 263 F.3d 359, 370 (4th Cir. 2001). The prevailing party must prove the exceptional nature of the case by clear and convincing evidence. Outsidewall Tire Litig., 748 F.Supp.2d 557, 562 (E.D. Va. 2010)(citations omitted).
The Fourth Circuit established a dual standard to prove entitlement to attorneys' fees depending upon whether a plaintiff or defendant prevails in the underlying litigation. A prevailing plaintiff seeking attorney fees must demonstrate an exceptional case by showing that the defendant acted in bad faith. A prevailing defendant can satisfy its proof burden upon a showing of "something less than bad faith" by the plaintiff in bringing and prosecuting the action. Retail Services, Inc. , 364 F.3d at 550. Pertinent considerations for judging a plaintiff's conduct when the defendant prevails are "economic coercion, groundless arguments, and failure to cite controlling law." Id . (citing Ale House Mgmt. v. Raleigh Ale House, Inc. , 205 F.3d 137, 144 (4th Cir. 2000)). Additional factors to be considered include the closeness of the case, tactics of counsel, the conduct of the parties, and any other factors that may contribute to a fairer allocation of the burdens of litigation between the winner and loser. U.S. Gates Intern., LLC v. Light Star Travel Agency, Inc., No. 1:10cv32, 2010 WL 5300822, at *1 (E.D. Va. Dec. 22, 2010). "Thus, the focus tends to be on the plaintiff's litigation conduct or pre-litigation assertion of rights." Retail Services, Inc. , 364 F.3d at 550-51.
Awards of attorneys' fees under the Lanham Act are not made as a matter of course, but rather as a matter of the court's considered discretion. Ale House Mgmt , 205 F.3d at 144. As the Court noted in Retail Services, Inc., "[t]he question... is not whether snippets of the record or isolated arguments clearly lack merit." 364 F.3d at 551. Rather, the court must determine, in light of the entire case, whether plaintiff's claims and assertions were so lacking in merit that the action as a whole was "exceptional." Id . That is, the court must look at the case as a whole and the conduct and motivation of the plaintiff in its determination of whether this is an exceptional case sufficient to support an attorney fee award.
Kimberly-Clark asserts that this case qualifies for an award of attorneys' fees because (1) the suit was meritless and oppressive, (2) McAirlaids engaged in a "slash and burn" motions practice, and (3) McAirlaids pursued discovery that was irrelevant to the claims at issue. McAirlaids counters that this case is not exceptional for purposes of an award of attorney's fees because, (1) it presented substantial evidence in support of its claim, (2) it was obligated to enforce its federal trade dress registration or risk losing it, and (3) both parties engaged in extensive discovery on the issues relevant to the case.
A. Meritless Claims
Under the Lanham Act, a court may award attorney's fees against a party which engages in conduct beyond litigating a plausible, although ultimately unavailing, legal claim. See, e.g., San Francisco Oven, LLC v. Fransmart, Inc. , 222 F.Appx. 235, 237, 2007 WL 737399 (4th Cir. 2007)(awarding attorneys' fees where the losing party brought a Lanham Act claim solely to avoid a dismissal for lack of subject matter jurisdiction and pursued the claim without any factual or legal support); Outsidewall Tire Litig., 2010 WL 4263395, at *4 (awarding attorneys' fees where the infringing party planned to continue infringing with impunity because the prevailing party "would die or run out of money first"); Flexible Benefits Council v. Feltman, No. 1:08cv371 , 2009 WL 1351653, at *4 (E.D. Va. May 14, 2009)(awarding attorneys' fees where a party admitted that they created an infringing website address with an intent to obtain the plaintiff's profits).
Kimberly-Clark argues that this case is exceptional because McAirlaids presented scant evidence in support of its claim, and continued to pursue the claim after McAirlaids' expert testified that the dots at issue were functional. Dkt. No. 158, pp. 8-9. Reviewing the case as a whole, I find that McAirlaids litigated in good faith, and that while unsuccessful on the merits, its claims were not so lacking in merit that the action as a whole was "exceptional."
McAirlaids sued Kimberly-Clark armed with a federal trade-dress registration from the United States Patent and Trademark Office for the specific manner in which it imprinted the dots on its absorbent pads. This trade dress registration constitutes "prima facie evidence" of non-functionality, and supports McAirlaids' good faith belief in the propriety of its lawsuit. 15 U.S.C. § 1057(b). See Retail Services, Inc. , 364 F.3d at 542 ("Under the Lanham Act, the issuance of a certificate of registration arms the registrant with prima facie evidence of the validity of the registered mark and of the registration of the mark, of the registrant's ownership of the mark, and of the registrant's exclusive right to use the registered mark.'" (citation omitted)). Any failure by McAirlaids to protect its trademark against a purported infringer could be considered an "act of omission" under the Lanham Act and cause the trade dress to lose significance. Quality Inns, Int'l, Inc. v. McDonald's Corp. , 695 F.Supp. 198, 214 (D. Md. 1988); See also Fuji Photo Film Co. v. Shinohara Shoji Kabushiki Kaisha , 754 F.2d 591, 602 (5th Cir. 1985)("A trademark holder is required to police his mark; else, it may become generic, diluted, or otherwise lessened in value."). McAirlaids' ownership of a valid trade dress registration suggests, at a minimum, that it had a colorable claim for trade dress infringement, and a legitimate basis for filing a claim under the Lanham Act.
Contrary to Kimberly-Clark's assertion, this case is distinguishable from Yankee Candle Co. v. Bridgewater Candle Co., where the court found that the plaintiff, Yankee Candle Co., presented "absolutely no evidence" in support of its theory that the overall look and feel of its candles was a protectable trademark. 140 F.Supp.2d 111 (D. Mass. 2001)(abrogated on different legal grounds). In this case, McAirlaids obtained trade dress protection of its dot pattern, and thus protection of that trade dress was not frivolous on its face. Additionally, unlike the plaintiff in Yankee Candle, McAirlaids presented evidence in support of its theory through deposition testimony, declarations and expert reports. Dkt. No. 130. Although Kimberly-Clark asserted and the court ultimately found, that the evidence of functionality was compelling, "[a] court's rejection of [a] plaintiff's arguments does not automatically constitute an oppressive lawsuit which lacks merit." Georgia-Pacific Consumer Products L.P. v. Kimberly-Clark Corp., No. 1:09-cv-02263, 2011 WL 3651304, at *2 (N.D. Ill. Aug. 15, 2011).
Likewise, the court's reliance upon the testimony of McAirlaids' expert, Dr. Murray, in its finding that the dots were functional, does not transform the claim into a malicious, fraudulent, or willfully meritless action. The court stated that the answer in this case was "straightforward;" however, it also acknowledged that the parties were "deeply at odds over the issue and have filed more than a thousand pages in support of their arguments." Dkt. No. 120, p. 4. It takes something more than pursuing a "straightforward" or "simple" case to merit an award of attorneys' fees under the Lanham Act.
The other factors that courts are to consider in evaluating a prevailing defendant's fee petition, such as fraud, economic coercion, groundless arguments, and failure to cite controlling law, are not present here. There is no suggestion that McAirlaids obtained its trade dress registration improperly or through fraud or other failure to disclose full information about its product. Likewise, Kimberly-Clark is a large multi-national corporation and did not face serious economic coercion in defending this case.
The district court did not find that McAirlaids presented groundless claims or that it failed to support its position with legal authority. The decision to grant summary judgment did indeed rely upon the evidence in McAirlaids' filings to conclude that the dot design at issue is a "careful balance between strength, absorbency and manufacturing practicality." Nevertheless, the record showed that McAirlaids had a good faith belief that its dots were non-functional and presented evidence to support its position. While that evidence did not persuade the court, this case does not fall into out of the realm of "exceptional" cases that are malicious, fraudulent, or willfully meritless which merit an attorney fee award.
B. Litigation Conduct
Kimberly-Clark also argues that attorneys' fees are warranted because McAirlaids engaged in oppressive and vexatious litigation conduct, a "slash and burn" motions practice, and took several depositions that were irrelevant to the issues before the court. Kimberly-Clark uses charged terms to describe McAirlaids' litigation conduct, including "scorched earth tactics, " "needlessly aggressive manner, " "oppressive motions practice, " and "excessive and facially irrelevant discovery." Dkt. Nos. 156 & 158. The underlying conduct cited by Kimberly-Clark to support these allegations are: 1) multiple discovery motions filed by McAirlaids and later denied or deemed moot by the court; and, 2) McAirlaids' pursuance of discovery relating to Kimberly-Clark's product.
Without doubt, this case involved an excessive amount of discovery motions, many of which were filed by McAirlaids and were ultimately denied or deemed moot by the court. Kimberly-Clark argues that McAirlaids filed the motions unnecessarily, without engaging in the required meet and confer process, and for the purpose of harassment. Conversely, McAirlaids asserts that such motions were necessitated by Kimberly-Clark's obstructionist behavior and belated representations that rendered many of the motions moot. It is impossible for the court to know which party was responsible for the overall difficulty in communication and cooperation in this case, and thus whether the discovery motions were filed out of necessity or to harass and complicate the lawsuit. Consequently, the volume and lack of success of McAirlaids' discovery motions, without more, does not constitute oppressive or ...