Verisign, Inc. v. Xyz.Com LLC

• Decision Date: 29 May 2018
• Docket Number: No. 17-1704,17-1704
• Citation: 891 F.3d 481
• Parties: VERISIGN, INCORPORATED, Plaintiff-Appellee, v. XYZ.COM LLC; Daniel Negari, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

891 F.3d 481

VERISIGN, INCORPORATED, Plaintiff-Appellee,

v.XYZ.COM LLC; Daniel Negari, Defendants-Appellants.

No. 17-1704

United States Court of Appeals, Fourth Circuit.

Argued: March 20, 2018

Decided: May 29, 2018

ARGUED: Derek Newman, NEWMAN DU WORS LLP, Seattle, Washington, for Appellants. Randall Karl Miller, VENABLE LLP, Tysons Corner, Virginia, for Appellee. ON BRIEF: Jason B. Sykes, NEWMAN DU WORS LLP, Seattle, Washington, for Appellants. Nicholas M. DePalma, VENABLE LLP, Tysons Corner, Virginia, for Appellee.

Before WYNN, FLOYD, and HARRIS, Circuit Judges.

Vacated and remanded by published opinion. Judge Floyd wrote the opinion in which Judge Wynn and Judge Harris joined.

FLOYD, Circuit Judge:

This case arises out of a denial of a motion for an award of attorney fees under the Lanham Act, 15 U.S.C. § 1117(a), which allows a court to award "reasonable attorney fees to the prevailing party" in "exceptional cases." For the reasons that follow, we hold that a prevailing party need only prove an exceptional case by a preponderance of the evidence, rather than by clear and convincing evidence, as the district court below required. We further clarify that a prevailing party need not establish that the losing party acted in bad faith in order to prove an exceptional case. Therefore, we vacate the district court's denial of the motion for attorney fees and remand for the district court's consideration of the motion under the appropriate legal and evidentiary standards.

I.

A.

The facts of this case and the underlying Lanham Act claims are described in detail in our previous opinion affirming the district court's grant of summary judgment to Appellant XYZ.COM LLC ("XYZ"). See Verisign, Inc. v. XYZ.COM LLC , 848 F.3d 292 (4th Cir. 2017). In short, XYZ and Appellee Verisign, Inc. ("Verisign") both sell internet domain names, and are competitors in the top-level domain industry.¹

Verisign operates the .com and .net domains, and in 2014, XYZ began registering domain names ending in .xyz. Verisign sued XYZ, a newcomer to the industry, and its Chief Executive Officer, Daniel Negari, for violations of the Lanham Act. Verisign alleged false advertising based on a false "gold rush" scheme, pursuant to which XYZ and Negari allegedly falsely and misleadingly inflated the number of customers who bought XYZ domain names on its launch day. Verisign alleged that XYZ and Negari falsely claimed that it had sold hundreds of thousands of domain names when, in fact, it had given them away for free. It also claimed that Negari disparaged Verisign by making false claims during an interview and on XYZ's blog about the unavailability of domain names on Verisign's registry.

On November 15, 2015, the district court granted summary judgment in favor of XYZ. With regard to the alleged "gold rush" scheme, the court concluded that the statements regarding XYZ's revenue and number of registrations were true statements and, even assuming they were false, they were not material to consumers. It also concluded that Negari's various statements about the unavailability of domain names were either opinions, statements of fact that had not been shown to be false, or mere puffery. Last, the court concluded that Verisign could not establish damages from the allegedly false statements.

After the district court entered summary judgment in favor of XYZ, XYZ moved for attorney fees under the Lanham Act, 15 U.S.C. § 1117(a). The court stayed consideration of the motion for attorney fees while this Court considered Verisign's appeal of the summary judgment award. We affirmed the district court's grant of summary judgment to XYZ, "agree[ing] with the district court that Verisign failed to present evidence sufficient to show that any of XYZ's challenged statements [regarding both the "gold rush" scheme and the alleged false statements about Verisign's domain name availability] violated the Lanham Act." Verisign , 848 F.3d at 299. With regard to the alleged "gold rush" scheme, we affirmed summary judgment on the sole ground that Verisign failed to establish that it suffered an injury "flowing directly from the challenged statements." Id . We affirmed summary judgment on the claim that XYZ falsely disparaged the availability of Verisign's domain names on the ground that the statements constituted "opinion or puffery, not statements of fact on which reasonable consumers could rely." Id. at 303.

B.

After we affirmed the award of summary judgment to XYZ, the district court considered XYZ's motion for attorney fees under the Lanham Act. Under the Lanham Act, 15 U.S.C. § 1117(a), the "court in exceptional cases may award reasonable attorney fees to the prevailing party." In Georgia-Pacific Consumer Products LP v. von Drehle Corp. , 781 F.3d 710, 719–21 (4th Cir. 2015), involving a motion for attorney fees under the Lanham Act, we adopted the Supreme Court's interpretation of an "exceptional case" in an identical provision of the Patent Act in Octane Fitness, LLC v. ICON Health & Fitness, Inc. , ––– U.S. ––––, 134 S.Ct. 1749, 188 L.Ed.2d 816 (2014). Relying on Octane Fitness , we concluded that

a district court may find a case ‘exceptional’ and therefore award attorneys fees to the prevailing party under § 1117(a) when it determines, in light of the totality of the circumstances, that (1) there is an unusual discrepancy in the merits of the positions taken by the parties, based on the non-prevailing party's position as either frivolous or objectively unreasonable; (2) the non-prevailing party has litigated the case in an unreasonable manner; or (3) there is otherwise the need in particular circumstances to advance considerations of compensation and deterrence.

Georgia-Pacific , 781 F.3d at 721 (internal citations & quotation marks omitted).

On May 3, 2017, the district court denied XYZ's motion. In so doing, it held that under the Lanham Act, a prevailing party seeking attorney fees must prove its entitlement to fees with clear and convincing evidence. It then went through the Georgia-Pacific factors to analyze whether XYZ had proven that the case was "exceptional," and concluded that XYZ had failed to establish its case with clear and convincing evidence. See J.A. 1486 ("Defendants must prove its [sic] claims with clear and convincing evidence. Defendants failed to meet that standard of proof on this factor."); J.A. 1487 ("Again, Defendants have not met their burden to prove with clear and convincing evidence that Plaintiff's case was exceptional."); J.A. 1486–87 ("Defendants argue that Plaintiff abused discovery, but the evidence does not overwhelmingly support this claim." (emphasis added)). The court suggested that evidence of bad faith or independently sanctionable conduct was required in order to prove an exceptional case. J.A. 1485 (stating that a "case is exceptional if the non-prevailing party's conduct was malicious, fraudulent, willful, or deliberate." (citation omitted)). It also stated that under the first Georgia-Pacific factor, "[u]nless a claim or defense is so unreasonable that no reasonable litigant would make it, an award of attorney fees is not warranted...." J.A. 1486. XYZ now appeals, arguing that the district court erred in applying a clear and convincing evidentiary standard and in requiring that XYZ prove that Verisign acted in bad faith in order for an award of attorney fees to be warranted.²

II.

A.

We review the grant or denial of attorney fees under the Lanham Act under an abuse of discretion standard. Shell Oil Co. v. Commercial Petroleum , 928 F.2d 104, 108 n.6 (4th Cir. 1991). "A district court abuses its discretion if it relies on an error of law or a clearly erroneous factual finding." SAS Inst., Inc. v. World Programming Ltd. , 874 F.3d 370, 384 (4th Cir. 2017) (quoting Equal Emp't Opportunity Cmm'n. v. Freeman , 778 F.3d 463, 466 (4th Cir. 2015) ). XYZ argues that the district court relied on an error of law because, under Octane Fitness , a prevailing party need only prove that a case is exceptional under the Lanham Act by a preponderance of the evidence, and not, as the district court required, clear and convincing evidence. We agree.

We are persuaded that Georgia-Pacific and Octane Fitness together require a party to prove that a case is an "exceptional case" under § 1117(a) of the Lanham Act by a preponderance of the evidence, using the factors identified in Georgia-Pacific . Though we did not address the burden of proof for proving a Lanham Act "exceptional case" in Georgia-Pacific , we specifically noted that the language in the Patent Act was identical to the language in § 1117(a), and thus "conclude[d] that there is no reason not to apply the Octane Fitness standard when considering the award of attorneys fees under § 1117(a)." 781 F.3d at 721 ; see also Fair Wind Sailing, Inc. v. Dempster , 764 F.3d 303, 314–15 (3d Cir. 2014) (holding that Octane Fitness 's interpretation of an "exceptional" case under the Patent Act controls its interpretation under § 1117(a) because the language is identical and because Congress referenced the Patent Act in passing § 1117(a) ). Because we have already adopted the Octane Fitness standard for awarding these fees, we see no reason not to adopt the Octane Fitness burden of proof as well. And in Octane Fitness , the Supreme Court explicitly rejected a clear and convincing evidentiary standard for Patent Act cases in favor of a preponderance of the evidence standard. 134 S.Ct. at 1758. Thus, Georgia-Pacific and Octane Fitness require a party to prove an "exceptional case" by a preponderance of the evidence.

Although we find the language in Georgia-Pacific sufficient to require the adoption of the preponderance of the evidence standard here, we are also convinced that this burden of proof is the correct one. This is especially so because we are convinced that the Supreme Court's reasoning for adopting a preponderance of the evidence standard in the Patent Act provision also applies to the fee provision in...