Failure to reevaluate at summary judgment leads to fee award in false advertising case

Design Resources, Inc. v. Leather Indus., 2016 WL 5477611,
No. 10CV157 (M.D.N.C. Sept. 29, 2016)
After defendants Leather Industries (LIA) and Ashley
Furniture prevailed
in this false advertising case
, they sought a fee award.  The Fourth Circuit applies the Octane Fitness standard in Lanham Act
cases: exceptional cases deserving fee awards are those “ ‘that stand[ ] 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.’ ” More specifically,
courts consider whether
(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.
Something less than bad faith is required; “[r]elevant
considerations include[ing] economic coercion, groundless arguments, and
failure to cite controlling law.”
Here, DRI argued that its claims survived early motions and
were only dismissed at summary judgment, and thus weren’t frivolous or
objectively unreasonable.  LIA argued
that DRI should have known that it couldn’t prevail with the evidence gathered
during discovery.  Ashley pointed out
that, on appeal, the Fourth Circuit described DRI’s literal falsity by
necessary implication claim as “confounding,” requiring the court to accept
that the ad meant the opposite of what it said. 
DRI responded that it failed to prevail because it didn’t show
misleadingness, but that didn’t make its claim groundless.  However, “the Lanham Act provides for an
award of attorneys’ fees when the conduct of the litigation becomes
unreasonable over time.” A plaintiff is thus “obligated to continually assess
the strength of its claim throughout the litigation.”
The court found that the case began as an objectively
reasonsble claim; DRI could have thought it was a target of Ashley’s ad against
suppliers “using leather scraps that are misrepresented as leather.”  However, discovery failed to show literal
falsity or misleadingness.  DRI’s own
evidence didn’t show any consumer confusion, and that changed the context of
the case.  Thus, fees should be awarded “as
a result of Plaintiff’s failure to continually assess the substantive strength
of its litigation position, particularly by the conclusion of discovery.”
Defendants also argued that DRI litigated the case in a
needlessly aggressive way.  However, “conduct
triggering relief must go beyond an aggressive litigation strategy.”  But deterrence goals supported a fee award:
litigants should know not to pursue their claims “when the claim has fallen
apart following discovery due to a lack of supporting evidence.”

Thus, the court awarded fees of $274,036 to Ashley and
$250,676 to LIA on the Lanham Act claims, and commented that it would have
reached the same result under North Carolina law (for the coordinate state law

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