Judge William Fletcher, U.S. Court of Appeals for the Ninth Circuit
Judge William Fletcher, U.S. Court of Appeals for the Ninth Circuit ()

SAN FRANCISCO — Is annoying a district judge enough to trigger attorney fee shifting under the Lanham Act, or do you have to behave “outrageously”?

That won’t be the formal test adopted by the U.S. Court of Appeals for the Ninth Circuit when it rules on an $836,000 fee award in a business defamation dispute between Arizona software companies. But the distinction was on the mind of one of the judges Monday as the Ninth Circuit became the latest court to hash over the meaning of an “exceptional case.”

Fulbright & Jaworski partner Jonathan Franklin tried to downplay eMove v. SMD Software as a “run of the mill” case in which trial counsel had raised “debatable and non-frivolous” issues.

Nevertheless, said Judge William Fletcher, “You certainly managed to annoy the district judge.”

Franklin’s opponent tried to run with that argument. “The district court in this case was outraged, as you picked up on,” Osborn Maledon partner Eric Fraser told Fletcher.

“I just said ‘annoyed,’” Fletcher corrected him. “He might have been outraged, but I just said ‘annoyed.’”

The Ninth Circuit is the latest appellate court to confront the definition of an exceptional case. The Federal Circuit set a new standard in December, and the U.S. Supreme Court held hearings on the issue in February. Those cases are in the patent context, though. Monday’s case arises under the Lanham Act. Both statutes provide that “the court in exceptional cases may award reasonable attorney fees to the prevailing party.”

The litigants before the Ninth Circuit are competitors who provide specialized software to storage companies. EMove Inc., a subsidiary of U-Haul International Inc., accused SMD Software Inc. of a broad campaign to disparage its product to customers. The evidence was thin: An SMD executive said “Fuck U-Haul” at a hotel bar where an eMove executive was entertaining a client; an independent consultant faxed vague criticisms to another client; and call logs showed that SMD sales reps mentioned eMove occasionally.

EMove’s trial lawyers at Kercsmar & Feltus of Scottsdale said this proved SMD would defame eMove “to anyone who will listen.” To Joseph Goodwin, the chief district judge of West Virginia, sitting by designation to help Arizona with a severe backlog, it was “throwing mud at the wall and hoping that some of it would stick.”

Fulbright partner Franklin came aboard for eMove on appeal, and on Monday the Ninth Circuit judges asked him to walk them through the evidence piece by piece.

“What else did you have?” Fletcher asked at one point.

“This just seems trivial,” Judge Jay Bybee said.

“It may seem trivial to your honor, but in a competitive business, it’s taken seriously,” Franklin said, arguing that the call logs were circumstantial evidence of a broader campaign. While that may not have been a winning argument, it wasn’t unreasonable, Franklin said.

When it was his turn, Osborn Maledon’s Fraser said the Ninth Circuit’s own confusion about the evidence underscored that eMove brought a bogus case. “This was not a mere summary judgment. This was a blowout,” he told the court.

Just as with patents, though, the standard of review for exceptional cases is cloudy. Bybee told Fraser that he must essentially make his case all over again to the Ninth Circuit on de novo review.

Fraser objected, saying the Ninth Circuit should defer to Goodwin’s factual findings—for example, that eMove “shifted allegations” throughout the litigation. Bybee seemed skeptical.

But it wasn’t clear that even a searching standard of review will spare eMove from the $836,000 award.

“If we thought it was exceptional, then you’re going to lose here, is that right?” Bybee asked Franklin on rebuttal.

“If your honors think it’s exceptional, we lose, yes,” Franklin conceded.

Contact the reporter at sgraham@alm.com.