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Ninth Circuit: $1.7M Fee Award Proper in Trademark Case

April 30, 2018 | Posted in : Fee Issues on Appeal

A recent Metropolitan News story, “$1.7 Million Attorney Fee Award Proper in Trademark Case,” reports that the Ninth U.S. Circuit Court of Appeals has affirmed an award of more than $1.7 million in attorney fees and $500,000 in costs in favor of the electronic file transfer company whose ownership of the trademark “Dropbox” was contested by a competitor.

The memorandum opinion, filed Wednesday, upholds the determination by District Court Judge Edward Chen of the Northern District of California that defendant/cross-claimant Thru, Inc. “engaged in bad faith conduct both prior to and during this litigation.” Citing a statute applicable to trademark cases, he declared on March 8, 2017:

“This is an ‘exceptional case’ justifying an award of fees.”  Dropbox, Inc. sought fees in the amount of $1,957,535, Chen said: “The Court… finds Dropbox’s fee request reasonable, although it will reduce the amount by 10 percent to account for some degree of billing inefficiency.”  The award was for $1,761,781.50.

Dropbox, Inc. sued for declaratory relief as to its exclusive right to the trademark “Dropbox” and Thru, Inc. cross complained for trademark infringement. Chen ruled on Nov. 15, 2016 in favor of Dropbox, partially on the basis of laches, declaring:

“Thru purposefully delayed bringing suit in an attempt to increase its leverage over Dropbox and thus the value of its claims....If a trial resulted in a determination that Thru owned superior rights to the “dropbox” trademark, the costs to Dropbox would be massively greater today than they would have been years ago, because of Dropbox’s continued investment in its brand.”  Attorney fees were granted subsequently.

Thru’s conduct rendering the case “exceptional,” Chen found, included a frivolous motion to dismiss based on a supposed lack of controversy between the parties. He ascribed this to a strategy of delay on its part.

It was known that Dropbox intended to file an “SI”—an SEC filing preparatory to an initial public offering of shares, which would increase the company’s value. Chen cited an email from its CEO, Lee Harrison, saying:

“Time is on our side not theirs, slow-walking this to the S1 filing is all that is important. The closer we get to that the better. This action was part of the slow walk.”

In its memorandum opinion, a three-judge Ninth Circuit panel said (referring to Dropbox as “DBX”):

“[T]he district court did not abuse its discretion in awarding DBX attorneys’ fees and costs. The Lanham Act provides that ‘[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.’…Here, Thru filed a frivolous motion to dismiss and gave inaccurate responses to discovery requests. Thru’s counterclaims are also wholly lacking in merit, given the undisputed evidence that Thru tried to strategically ‘slow walk[]’ its dispute with DBX to take advantage of DBX’s initial public offering. On the basis of this conduct, the district court did not abuse its discretion hi finding this case an ‘exceptional case’ and awarding attorneys’ fees and costs.”

The opinion upholds judgment in favor of Dropbox, saying:

“The district court did not abuse its discretion in concluding that laches barred Thru’s counterclaims. There was no genuine dispute of fact that Thru had actual and constructive knowledge of DBX’s potentially infringing activity as early as June 2009. Nevertheless, Thru did not commence any action against DBX until August 2015, well beyond the four-year statutory limitations period applicable to California trademark infringement disputes.”

The opinion goes on to say:

“The district court also correctly concluded, in the alternative, that DBX’s rights to the trademark are senior to Thru’s. DBX acquired trademark rights from non-party Officeware. Officeware first used the term ‘Dropbox’ in January 2004, prior to Thru’s alleged first use in March 2004. Officeware properly assigned its trademark rights and associated goodwill in the mark to DBX in April 2013, after years of litigation between the two companies….Therefore, DBX stepped into Officeware’s shoes and has priority in the mark.”

The case is Dropbox, Inc. v. Thru, Inc., Nos.  17-15078. 17-15526.