IP Law Daily, TRADEMARK—S.D. Cal.: Prevailing defendant in trade dress infringement case not entitled to attorney fees, (Oct 18, 2013)

By Cheryl Beise, J.D.

Drug testing and medication monitoring service Ameritox, Ltd. was not entitled to attorney’s fees as the prevailing defendant in a trade dress infringement action brought by Millennium Laboratories, Inc. (“Millennium”) because the case did not qualify as “exceptional” under the Lanham Act, the federal district court in San Diego has ruled (Millennium Laboratories, Inc. v. Ameritox, Ltd., October 17, 2013, Anello, M.).

Millennium sued Ameritox for trade dress infringement and violation of California’s unfair competition law. Millennium contended that it provided physicians with lab tests reports in a format that included a specific combination of graphs and charts that constituted protected trade dress. Ameritox allegedly sold confusingly similar lab reports that copied Millennium’s trade dress. Following the court’s grant of summary judgment in its favor, Ameritox filed a motion pursuant to the Lanham Act for attorneys’ fees and costs in the amount of $551,300.93.

The Lanham Act provides that a district court may award attorneys’ fees to a prevailing party, but only in “exceptional cases.” 15 U.S.C. § 1117(a). A case is exceptional “when the non-prevailing party’s case is groundless, unreasonable, vexatious, or pursued in bad faith,” the court noted.

Ameritox argued that Millennium’s case was groundless and unreasonable from inception because Millennium knew before filing the action that it could not establish the nonfunctionality of its alleged trade dress. Ameritox asserted that Millennium presented no admissible evidence to support nonfunctionality in opposing summary judgment. Ameritox also argued that Millennium’s purpose in bringing the trade dress infringement claim against Defendant was to run up the costs of its chief competitor.

Groundless or Unreasonable. The court determined that Millennium’s case was not groundless or unreasonable for purposes of finding the action “exceptional” under the Lanham Act. A claim is groundless or unreasonable if it fails to raise “debatable issues of law and fact.”

In this case, the court noted that Millennium stated a cognizable claim for trade dress infringement. In denying Ameritox’s motion to dismiss Millennium’s complaint, the court found that Millennium alleged facts to support a plausible inference that its claimed trade dress was nonfunctional, that it had acquired distinctiveness through secondary meaning, and that there existed a likelihood of consumer confusion.

Second, the fact that a court awards summary judgment in a defendant’s favor does not by itself render the case “exceptional,” the court noted. Further, though the court ultimately determined that Millennium’s alleged trade dress was functional, Millennium’s assertions to the contrary were not groundless. Millennium had relied on a series of cases holding that separately unprotectable functional elements can be combined to form a protectable trade dress. Millennium similarly argued, though its graphs were functional in isolation, in combination they constituted a protectable trade dress. While Millennium’s argument was not ultimately meritorious, it nonetheless raised “debatable issues of law and fact,” the court said.

Ameritox’s argument that this case was exceptional because Millennium conceded its trade dress was nonfunctional prior to filing the case was not persuasive, according to the court, because there was no evidence that Millennium knew it could not establish a trade dress claim.

Lastly, the facts of this case were distinguishable from the cases cited by Ameritox. Millennium was not previously made aware by another court that its alleged trade dress was unprotectable. Nor was its claim for trade dress protection “absurd.” Rather, Millennium proceeded on a trade dress theory which was ultimately found incongruent to the facts of this case.

Vexatious or Bad Faith. Ameritox further contended that Millennium brought this case for an anti-competitive reason. While Millennium’s decision to prosecute the case was perhaps influenced by the fact that Ameritox is its chief competitor in the market for drug testing and medication monitoring services, Ameritox failed to provide compelling proof that Millennium acted unjustifiably in seeking to protect its test report, the court determined. “Thus, while the parties’ contentious relationship is unfortunate, the record does not reveal a basis for declaring the case ‘exceptional,’” the court said.

The case is No. 12CV1063-MMA (JMA).

Attorneys: Guylyn Remmenga Cummins (Sheppard Mullin Richter and Hampton) for Millennium Laboratories, Inc. Matthew Carmody (Perkins Coie, LLP) for Ameritox, Ltd.

Companies: Millennium Laboratories, Inc; Ameritox, Ltd.

Cases: Trademark CaliforniaNews