The Northern District of California Denies Fitbit Its Attorneys’ Fees Despite Fitbug’s Baseless Disgorgement Theory

On June 5, 2015, the Northern District of California denied Fitbit, Inc.’s motion for attorneys’ fees and costs against plaintiff Fitbug Ltd. Both parties make and sell portable electronic fitness tracking devices, and Fitbug had alleged that Fitbit’s marketing and sale of similar devices under a similar name and logo infringed Fitbug’s trademarks. However, this past January, the court granted Fitbit’s motion for summary judgment, finding that Fitbug’s trademark infringement claims were barred by laches. Fitbit subsequently moved for its attorneys’ fees under 15 U.S.C.§ 1117(a), which authorizes fee-shifting in “exceptional cases.”

The court recognized the applicability to Section 1117(a) of the Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., which outlines the standard for finding a case “exceptional” in patent cases. Under that standard, if a case stands out from others with respect to either (1) “the substantive strength of a party’s litigating position,” or (2) “the unreasonable manner in which the case was litigated,” a prevailing party’s attorneys’ fees may be awarded. Fitbit asserted that this case was exceptional under both prongs. First, Fitbit argued that Fitbug’s litigating position was weak because it knew or should have known that laches barred its claims prior to filing suit, and Fitbug had no factual or legal basis to argue against Fitbit’s laches defense. Second, Fitbit argued that Fitbug pursued its claims unreasonably by seeking legally and factually unsupported damages theories. Reviewing the totality of the circumstances, the court disagreed that the case was exceptional.

To determine whether the delay was unreasonable, the court looked to the statute of limitations for the most analogous state law cause of action and noted that the Ninth Circuit and California district courts have almost uniformly assumed that four years is the relevant period. Therefore, as long as it delayed no more than four years, Fitbug reasonably could have believed its claims would be timely. According to the court, Fitbug could have reasonably have concluded its delay was less than four years when it filed suit. In its summary judgment ruling, the court concluded that the laches period began in September 2008 when Fitbit first announced its products, but concluded that Fitbug’s argument that the laches period should not have begun until September 2009 when Fitbit first shipped its allegedly infringing goods was at least legally colorable. Accordingly, Fitbug’s decision to bring suit in March 2013 (within that four-year period) was neither legally, nor factually unreasonable.

On the second prong—the unreasonable manner of litigation—Fitbug’s damages claims included a demand both for disgorgement of Fitbit’s profits and for lost royalties. The court first noted that a disgorgement theory requires a showing of an intent to “exploit the advantage of an established mark” and “gain the value of an established name of another.” Fitbug offered no evidence to support same. The court might not have been troubled by this had Fitbug asserted its theory at the start of litigation—i.e., without the benefit of discovery. However, when Fitbug finally asserted this theory, the action had been pending for over a year and fact discovery was almost closed. Moreover, Fitbug did not drop its factually unsupported theory until twenty days prior to trial. The court therefore concluded that Fitbug’s decision to seek disgorgement of Fitbit’s profits lacked an objectively reasonable basis.

Regarding Fitbug’s lost royalties theory, the court noted that reasonable royalties are most often granted in trademark infringement cases where the parties had a prior licensing arrangement or where the plaintiff had a history of licensing its mark to third parties. Though neither of these circumstances were present here, Fitbug identified at least one case that allowed a reasonable royalty theory to proceed despite the absence of these circumstances. Thus, even if it was unlikely to succeed, the court concluded that Fitbug’s lost royalties theory was not groundless or pursued in bad faith. Accordingly, considering the totality of the circumstances, the court held that Fitbug’s baseless disgorgement theory alone was not sufficient to render the case “exceptional.”