The Lanham Act generally requires litigants to bear their own legal expenses under the traditional American Rule. However, Section 35(a) of the statute introduces a statutory shifting mechanism, allowing a court to award reasonable attorneys’ fees to the prevailing party in “exceptional cases” (15 U.S.C. Section 1117(a)). For decades, federal circuits applied disparate and often restrictive definitions to determine what conduct rose to this level. The landscape unified following a pivotal statutory interpretation by the Supreme Court of the United States.

The Post-Octane Fitness Standard

The modern framework governing fee-shifting under the Lanham Act stems directly from the patent law context. In Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 5454 (2014), the Supreme Court interpreted identical “exceptional case” language found in Section 285 of the Patent Act. The Court rejected the Federal Circuit’s previous rigid formulation, which required that a case either involve material inappropriate conduct or be both objectively baseless and brought in subjective bad faith, as shown by clear and convincing evidence.

Instead, the Supreme Court held that an exceptional case is 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. District courts must assess this determination on a case-by-case basis, considering the totality of the circumstances and applying the preponderance of the evidence standard.

Following Octane Fitness, federal courts systematically imported this flexible standard into Lanham Act jurisprudence. The US Court of Appeals for the Third Circuit was among the first to explicitly adopt this approach in Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303 (3d Circuit 2014), holding that a case is “exceptional” under Section 35(a) of the Lanham Act when there is an unusual discrepancy in the merits of the positions taken by the parties, or the losing party has litigated the case in an unreasonable manner.. Other circuits quickly conformed, effectively lowering the threshold required for prevailing plaintiffs and defendants to recover fees across trademark disputes. This shift increased the structural necessity of performing a rigorous trademark clearance assessment before entering a market, as launching an inherently weak or infringing mark can establish a foundation for later claims of objective unreasonableness.

Conduct Deemed Exceptional by Courts

Because the post-Octane standard relies on a totality-of-the-circumstances inquiry, no single factor dictates an exceptional finding. District courts typically look to several non-exclusive factors cited  by the Supreme Court in Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994),and originally articulated by the Third Circuit in Lieb v. Topstone Industries, Inc., 788 F.2d 151 (3d Cir. 1986). These considerations include frivolousness, motivation, objective unreasonableness, and the need, in particular circumstances, to advance considerations of compensation and deterrence.

In practice, a case may be found exceptional due to the weakness of a party’s underlying legal position. For example, pursuing an infringement claim when the plaintiff possesses no evidence of secondary meaning for a descriptive mark can constitute objective unreasonableness. Litigants who rely solely on common law rights often face this hurdle, as they lack the statutory presumptions of validity that accompany federal trademark registration.

Alternatively, a court may focus entirely on the unreasonable manner of the litigation. Conduct that frequently triggers fee awards includes intentionally delaying discovery schedules, withholding requested files, or filing repetitive, non-meritorious motions to escalate the opposition’s costs. Asserting secondary liability or unsupportable claims over visual product configurations to gain collateral commercial leverage can also lead to fee exposure.

Courts have applied this standard with equal weight to prevailing defendants facing coercive, bad-faith assertions of trademark rights, or what is often termed trademark bullying. For instance, when a plaintiff brings an infringement suit primarily to destroy a smaller competitor rather than protect a distinct source identifier, the subjective motivation weighs heavily toward an exceptional designation. In these instances, defendants frequently utilize administrative cancellation mechanisms through TTAB proceedings to neutralize the plaintiff’s underlying registrations.

Strategic Realities and Litigation Exposure

The lower barrier to fee-shifting alters risk calculations at every phase of a trademark dispute. Prior to filing suit, a potential plaintiff must evaluate the structural strength of its evidentiary foundation. Litigants can no longer assume that a voluntary dismissal under Federal Rule of Civil Procedure 41(a) will automatically shield them from fee exposure if the underlying action is deemed objectively baseless, though this consequence turns on the specific facts and circumstances of each matter.

For defendants, the expanded availability of Section 35(a) fees serves as a tool against overbroad enforcement actions. A well-substantiated defense coupled with a documented record of the plaintiff’s procedural misconduct can build the evidentiary path toward an award of costs. This exposure frequently drives earlier settlement discussions, as the accumulation of billable hours directly increases the financial stakes for the party maintaining an unreasonable position.

The risk remains highly relevant in specialized intellectual property disputes where a business asserts rights over the total visual image and presentation of a product rather than a standard brand name. The distinct evidentiary burdens required to establish ownership over non-functional, source-identifying design elements are examined in our analysis of trade dress infringement.

Grant Attorneys at Law advises clients on trademark portfolio enforcement and represents plaintiffs and defendants in federal court trademark infringement and dilution litigation.