In the United States, the “American Rule” governs who pay for litigation costs and expenses. Basically, the rule is that each side to a lawsuit is obligated to pay the legal bills of their own attorney regardless of whether they have won or lost. There are certain factors, usually governed by contract or statute, when the fees shift and the losing party may be required to pay the prevailing party's reasonable attorney's fees and costs.
On April 29, 2014, the U.S. Supreme Court in Octane Fitness, LLC v Icon Health & Fitness, Inc., 134 S.Ct. 1749 (2014) made fee shifting more readily available as it eased the standards for determining whether a case was “exceptional” for purposes of the fee shifting provision of the Patent Act (35 U.S.C. 285). Prior to Octane, the prevailing party had to meet a rigid standard and prove by “clear and convincing” evidence that the case was brought in subjective bad faith and was objectively baseless or that the other party engaged in gross litigation misconduct. The Octane Court rejected the high “clear and convincing” evidentiary burden, replacing it with lesser “preponderance of the evidence standard. And, now the district court has great discretion (under a deferential abuse of discretion standard) to decide whether the case is exceptional because it “is simply one that stands out from others with respect to the substantives strength of a party's litigating position (considering the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”
Recently, in Fair Wind Sailing, Inc. v Demspter, 764 F. 3d 303 (3rd Cir. 2014), the 3rd Circuit held that the Octane standards for fee shifting should also apply to trademark cases, noting that the fee shifting language in the Lanham Act was identical to the Patent Act. Also of note was that the Demspter court indicated that it may be possible to recover reasonable attorneys' fee if the prevailing party was exceptionally meritorious even if the losing party's case was not extraordinarily meritless.
As with any fee shifting matter, the party seeking fees must establish that the legal fees and expenses were reasonable. This requires a determination of the appropriate lodestar (a calculation of the reasonable billing rates times reasonable hours), which is often a difficult and tedious calculation. Clients, who were not in the position to oversee the law firms billing methodology and efficiencies, are well served to hire an outside legal cost control consultant and consider auditing the legal bills.