Leapers, Inc. v. SMTS, LLC

LEAPERS, INC., Plaintiff, v. SMTS, LLC d/b/a TUFF ZONE, et al., Defendants.

Case No. 14-12290

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

July 20, 2017

OPINION AND ORDER FINDING THE CASE TO HAVE BEEN "EXCEPTIONAL" UNDER THE LANHAM ACT, DENYING REQUEST FOR PREJUDGMENT INTEREST, AND DIRECTING SUPPLEMENTAL BRIEFING

This is a trademark case. Plaintiff Leapers, Inc. initiated this litigation on June 10, 2014, claiming that Defendant Trarms, Inc. and several of its customers had infringed on Leapers' "common law trade dress rights" by selling rifle scopes that with the same "scalloping" grip design found on Leapers' scopes. (Dkt. # 1.) In a March 26, 2016 opinion and order, the court granted summary judgment to Defendants, holding that Leapers' grip designs were not protected because of their "obvious functionality." (Dkt. # 109, Pg. ID 4787.) The court also denied Leapers' subsequent motion for reconsideration, (Dkt. # 112), explaining that "Plaintiff's arguments largely misapprehend[ed] the court's analysis and discussion of the record and fail[ed] to address the court's reason for granting summary judgment in the first place: Plaintiff [had] proffered only a series of conclusory opinions that [were] insufficient to create a genuine dispute of material fact." (Dkt. # 119, Pg. ID 5221-22.) Leapers' appeal of the court's rulings is currently pending.

Defendants Trarms and SMTS, LLC (d/b/a "Tuff Zone") had filed counterclaims, adding Counterclaimant Chuanwen "Charlie" Shi and Counter-defendant Continental Incorporated, Inc. ("Continental"). (Dkt. # 43.) Shi is the founder and owner of Trarms, and had previously been partners in a Chinese sporting goods manufacturer with principals of Leapers. Tuff Zone is a customer of Trarms'. (See id.) Continental is an Indianapolis, Indiana based consulting firm that markets itself as employing "asymmetrical warfare" to protect its client's intellectual property rights from "counterfeiters and infringers who do not avail [sic] themselves to traditional enforcement processes[.]" (Dkt. # 126-3.) In describing its "asymmetrical warfare," Continental's website states:

Our attorneys promote the creative use of state civil statutes like the Indiana Crime Victims Act [Ind. Code 34-24-3-1, ("ICVA")], which provides enhanced civil penalties for various crimes against property regardless of whether the root crime has been prosecuted. We assist state and local police agencies in enforcing state criminal statutes (i.e. forgery) as opposed to relying solely on federal law enforcement.

(Id.) Until her withdrawal by stipulated order on January 6, 2016, Darlene R. Seymour, a Continental employee, appeared as lead counsel for Leapers in this proceeding.

The counterclaims seek to recover under a variety of theories for Shi's public arrest at a Las Vegas trade show in January of 2014, his extradition to Evansville, Indiana, and his subsequent prosecution under an Indiana counterfeiting statute, all allegedly engineered by Leapers and Continental. (See Dkt. # 43.) This court stayed the counterclaims by stipulated order on February 26, 2015. (Dkt. # 57.) Judge Pigman of the Vanderburgh County Indiana Superior Court dismissed all criminal counts against Shi on November 19, 2015. (Dkt. # 104-2.) Leapers then filed a civil complaint against Trarms under the ICVA, currently pending in the Southern District of Indiana. SeeLeapers, Inc. v. Trarms, Inc., Case No. 15-01539, (the "Indiana Litigation") Dkt. # 1 (filed September 11, 2015). The Indiana Litigation is ongoing. See 203 F. Supp.3d 969 (S.D. Ind. 2016) (denying motion to dismiss).

Now before the court is a motion filed by Trarms requesting the court find this to have been an "exceptional case" and award Trarms reasonable attorney fees and costs under the Lanham Act, 15 U.S.C. § 1117(a). (Dkt. # 126.) In a February 28, 2017 opinion and order, the court determined that the standard set out in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014), for an identically worded provision in the Patent Act, 35 U.S.C. § 285, governed this inquiry. (Dkt. # 140.) The court directed the parties to address at oral argument whether this case was exceptional under the Octane Fitness standard and what impact, if any, a finding on this matter would have on related proceedings before both this court and the Southern District of Indiana. (See id.)

The matter has been extensively briefed and a hearing was held on March 8, 2017. The court finds no reason to delay resolution of the motion, and will hold this case to have been an exceptional one under 15 U.S.C. § 1117(a) and Octane Fitness. However, Leapers has not had sufficient opportunity to respond to some aspects of Trarms' requested fee award. Accordingly, the court will direct additional briefing before determining the proper fee award.

I. STANDARD

Under the Lanham Act, "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." 15 U.S.C. § 1117(a). Either party may be awarded fees under the exceptional case provision. See Eagles, Ltd. v. American EagleFoundation, 356 F.3d 724, 728 (6th Cir. 2004) ("[M]ost of the cases involving 15 U.S.C. § 1117(a) have applied the 'exceptional' case analysis to prevailing plaintiffs. It is clear, however, that Congress intended to include prevailing defendants as well."). Trarms is a prevailing party, as the court granted it summary judgment on Leapers' claims.

In 2014, the Supreme Court clarified that "an exceptional case is simply one that stands out from 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." Octane Fitness, 134 S. Ct. at 1756 (internal quotation marks omitted) (citations omitted). The Supreme Court goes on to explain that district courts should determine whether a particular case is exceptional "in the case-by-case exercise of their discretion, considering the totality of the circumstances[,]" id., and to reject the clear-and-convincing standard in favor of proof by the preponderance of the evidence, id. at 1758.

The Supreme Court expressly rejected the existing standard, which had held that a case was 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.'" Id. (quoting Brooks Furniture Mfg., Inc. v. Dutailier Intern., Inc., 393 F.3d, 1378, 1381 (Fed. Cir. 2005)). The Supreme Court explained that this formulation—nearly identical to the earlier standard set by the Sixth Circuit in Eagles—is "overly rigid" and "superimposes an inflexible framework onto statutory text that is inherently flexible." Id. Instead, the Supreme Court emphasized that district courts should consider the totality of the circumstances, drawing an analogy to "nonexclusive" factors considered under a similar provision in the Copyright Act such as"frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence." Id. at 1756, n.6 (quoting Fogerty v. Fantasy Inc., 510 U.S. 517, 534, n.19 (1994)).

II. DISCUSSION

While litigants generally should not be punished merely for diligently pursuing their legal rights, the Lanham Act empowers courts to use their discretion to award fees to prevailing parties in cases that stand out from the others based on weak—though not necessarily baseless—claims, apparent motive, and the need for compensation and deterrence. Id. Leapers brought this unmistakably weak trade dress case as part of a broader, hyper-aggressive strategy targeting its competitor across multiple forums—including through successfully pursuing public arrest and criminal prosecution in another state—at great expense to itself and Defendants. This case is highly unusual, perhaps even unique, and the court finds it to have been "exceptional" under the meaning of the Lanham Act, 15 U.S.C. § 1117(a). Accordingly, the court will grant Trarms' motion and award reasonable fees.

A. Substantive Strength of Litigating Position

There can be no serious debate that Leapers' unregistered trade dress case was weak. To prevail on a claim for the infringement of an unregistered product-design trade dress, a plaintiff must prove that its allegedly infringed product design (1) is nonfunctional, (2) has acquired secondary meaning, and (3) is confusingly similar to the allegedly infringing product design." Groeneveld Transp. Efficiency, Inc. v. Lubecore Int'l., Inc., 730 F.3d 494, 503 (6th Cir. 2013) (citing Wal-Mart Stores, Inc. v. SamaraBros., 529 U.S. 205, 209 (2000)). Defendants' motion for summary judgment argued that Leapers could show neither secondary meaning nor nonfunctionality. (Dkt. # 67.) The court stated that it was "inclined to find that Plaintiff has furnished enough evidence—barely—to survive summary judgment on [secondary meaning,]" but did not rule on the issue, as Leapers could not show its alleged trade dress was nonfunctional. (Dkt. # 109, Pg. ID 4781-82.) The court did not address the likelihood of confusion prong in its opinion.

1. Secondary Meaning

To establish secondary meaning, the evidence must show that "in the minds of the public, the primary significance of the trade dress is to identify the source of the product rather than the product itself." Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 851 (1982). While Leapers produced some evidence of secondary meaning, the court explained that "whether any of Plaintiff's evidence, individually or collectively, amounts to more than a scintilla is difficult to determine." (Dkt. # 109, Pg. ID 4781.) This was in part due to the "intangible and ephemeral nature of secondary meaning," (I...