Leapers, Inc. v. SMTS, LLC et al
OPINION AND ORDER granting in part and denying in part 126 Motion for an Exceptional Case Finding, and DIRECTING Plaintiff Leapers to file a supplemental brief within two weeks. Signed by District Judge Robert H. Cleland. (LWag)
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
Case No. 14-12290
SMTS, LLC d/b/a TUFF ZONE, et al.,
OPINION AND ORDER FINDING THE CASE TO HAVE BEEN “EXCEPTIONAL”
UNDER THE LANHAM ACT, DENYING REQUEST FOR PREJUDGMENT INTEREST,
AND DIRECTING SUPPLEMENTAL BRIEFING
This is a trademark case. Plaintiff Leapers, Inc. initiated this litigation on June 10,
2014, claiming that Defendant Trarms, Inc. and several of its customers had infringed
on Leapers’ “common law trade dress rights” by selling rifle scopes that with the same
“scalloping” grip design found on Leapers’ scopes. (Dkt. # 1.) In a March 26, 2016
opinion and order, the court granted summary judgment to Defendants, holding that
Leapers’ grip designs were not protected because of their “obvious functionality.” (Dkt. #
109, Pg. ID 4787.) The court also denied Leapers’ subsequent motion for
reconsideration, (Dkt. # 112), explaining that “Plaintiff’s arguments largely
misapprehend[ed] the court’s analysis and discussion of the record and fail[ed] to
address the court’s reason for granting summary judgment in the first place: Plaintiff
[had] proffered only a series of conclusory opinions that [were] insufficient to create a
genuine dispute of material fact.” (Dkt. # 119, Pg. ID 5221-22.) Leapers’ appeal of the
court’s rulings is currently pending.
Defendants Trarms and SMTS, LLC (d/b/a “Tuff Zone”) had filed counterclaims,
adding Counterclaimant Chuanwen “Charlie” Shi and Counter-defendant Continental
Incorporated, Inc. (“Continental”). (Dkt. # 43.) Shi is the founder and owner of Trarms,
and had previously been partners in a Chinese sporting goods manufacturer with
principals of Leapers. Tuff Zone is a customer of Trarms’. (See id.) Continental is an
Indianapolis, Indiana based consulting firm that markets itself as employing
“asymmetrical warfare” to protect its client’s intellectual property rights from
“counterfeiters and infringers who do not avail [sic] themselves to traditional
enforcement processes[.]” (Dkt. # 126-3.) In describing its “asymmetrical warfare,”
Continental’s website states:
Our attorneys promote the creative use of state civil statutes like the
Indiana Crime Victims Act [Ind. Code 34-24-3-1, (“ICVA”)], which provides
enhanced civil penalties for various crimes against property regardless of
whether the root crime has been prosecuted. We assist state and local
police agencies in enforcing state criminal statutes (i.e. forgery) as
opposed to relying solely on federal law enforcement.
(Id.) Until her withdrawal by stipulated order on January 6, 2016, Darlene R. Seymour, a
Continental employee, appeared as lead counsel for Leapers in this proceeding.
The counterclaims seek to recover under a variety of theories for Shi’s public
arrest at a Las Vegas trade show in January of 2014, his extradition to Evansville,
Indiana, and his subsequent prosecution under an Indiana counterfeiting statute, all
allegedly engineered by Leapers and Continental. (See Dkt. # 43.) This court stayed the
counterclaims by stipulated order on February 26, 2015. (Dkt. # 57.) Judge Pigman of
the Vanderburgh County Indiana Superior Court dismissed all criminal counts against
Shi on November 19, 2015. (Dkt. # 104-2.) Leapers then filed a civil complaint against
Trarms under the ICVA, currently pending in the Southern District of Indiana. See
Leapers, Inc. v. Trarms, Inc., Case No. 15-01539, (the “Indiana Litigation”) Dkt. # 1 (filed
September 11, 2015). The Indiana Litigation is ongoing. See 203 F. Supp.3d 969 (S.D.
Ind. 2016) (denying motion to dismiss).
Now before the court is a motion filed by Trarms requesting the court find this to
have been an “exceptional case” and award Trarms reasonable attorney fees and costs
under the Lanham Act, 15 U.S.C. § 1117(a). (Dkt. # 126.) In a February 28, 2017
opinion and order, the court determined that the standard set out in Octane Fitness,
LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014), for an identically
worded provision in the Patent Act, 35 U.S.C. § 285, governed this inquiry. (Dkt. # 140.)
The court directed the parties to address at oral argument whether this case was
exceptional under the Octane Fitness standard and what impact, if any, a finding on this
matter would have on related proceedings before both this court and the Southern
District of Indiana. (See id.)
The matter has been extensively briefed and a hearing was held on March 8,
2017. The court finds no reason to delay resolution of the motion, and will hold this case
to have been an exceptional one under 15 U.S.C. § 1117(a) and Octane Fitness.
However, Leapers has not had sufficient opportunity to respond to some aspects of
Trarms’ requested fee award. Accordingly, the court will direct additional briefing before
determining the proper fee award.
Under the Lanham Act, “[t]he court in exceptional cases may award reasonable
attorney fees to the prevailing party.” 15 U.S.C. § 1117(a). Either party may be awarded
fees under the exceptional case provision. See Eagles, Ltd. v. American Eagle
Foundation, 356 F.3d 724, 728 (6th Cir. 2004) (“[M]ost of the cases involving 15 U.S.C.
§ 1117(a) have applied the ‘exceptional’ case analysis to prevailing plaintiffs. It is clear,
however, that Congress intended to include prevailing defendants as well.”). Trarms is a
prevailing party, as the court granted it summary judgment on Leapers’ claims.
In 2014, the Supreme Court clarified that “an exceptional case is simply 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.” Octane Fitness, 134 S. Ct. at
1756 (internal quotation marks omitted) (citations omitted). The Supreme Court goes on
to explain that district courts should determine whether a particular case is exceptional
“in the case-by-case exercise of their discretion, considering the totality of the
circumstances[,]” id., and to reject the clear-and-convincing standard in favor of proof by
the preponderance of the evidence, id. at 1758.
The Supreme Court expressly rejected the existing standard, which had held that
a case was exceptional only if “a district court either finds litigation-related misconduct
of an independently sanctionable magnitude or determines that the litigation was both
‘brought in subjective bad faith’ and ‘objectively baseless.’” Id. (quoting Brooks Furniture
Mfg., Inc. v. Dutailier Intern., Inc., 393 F.3d, 1378, 1381 (Fed. Cir. 2005)). The Supreme
Court explained that this formulation—nearly identical to the earlier standard set by the
Sixth Circuit in Eagles—is “overly rigid” and “superimposes an inflexible framework onto
statutory text that is inherently flexible.” Id. Instead, the Supreme Court emphasized that
district courts should consider the totality of the circumstances, drawing an analogy to
“nonexclusive” factors considered under a similar provision in the Copyright Act such as
“frivolousness, motivation, objective unreasonableness (both in the factual and legal
components of the case) and the need in particular circumstances to advance
considerations of compensation and deterrence.” Id. at 1756, n.6 (quoting Fogerty v.
Fantasy Inc., 510 U.S. 517, 534, n.19 (1994)).
While litigants generally should not be punished merely for diligently pursuing
their legal rights, the Lanham Act empowers courts to use their discretion to award fees
to prevailing parties in cases that stand out from the others based on weak—though not
necessarily baseless—claims, apparent motive, and the need for compensation and
deterrence. Id. Leapers brought this unmistakably weak trade dress case as part of a
broader, hyper-aggressive strategy targeting its competitor across multiple forums—
including through successfully pursuing public arrest and criminal prosecution in another
state—at great expense to itself and Defendants. This case is highly unusual, perhaps
even unique, and the court finds it to have been “exceptional” under the meaning of the
Lanham Act, 15 U.S.C. § 1117(a). Accordingly, the court will grant Trarms’ motion and
award reasonable fees.
A. Substantive Strength of Litigating Position
There can be no serious debate that Leapers’ unregistered trade dress case was
weak. To prevail on a claim for the infringement of an unregistered product-design trade
dress, a plaintiff must prove that its allegedly infringed product design (1) is
nonfunctional, (2) has acquired secondary meaning, and (3) is confusingly similar to the
allegedly infringing product design.” Groeneveld Transp. Efficiency, Inc. v. Lubecore
Int’l., Inc., 730 F.3d 494, 503 (6th Cir. 2013) (citing Wal-Mart Stores, Inc. v. Samara
Bros., 529 U.S. 205, 209 (2000)). Defendants’ motion for summary judgment argued
that Leapers could show neither secondary meaning nor nonfunctionality. (Dkt. # 67.)
The court stated that it was “inclined to find that Plaintiff has furnished enough
evidence—barely—to survive summary judgment on [secondary meaning,]” but did not
rule on the issue, as Leapers could not show its alleged trade dress was nonfunctional.
(Dkt. # 109, Pg. ID 4781-82.) The court did not address the likelihood of confusion
prong in its opinion.
1. Secondary Meaning
To establish secondary meaning, the evidence must show that “in the minds of
the public, the primary significance of the trade dress is to identify the source of the
product rather than the product itself.” Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S.
844, 851 (1982). While Leapers produced some evidence of secondary meaning, the
court explained that “whether any of Plaintiff’s evidence, individually or collectively,
amounts to more than a scintilla is difficult to determine.” (Dkt. # 109, Pg. ID 4781.) This
was in part due to the “intangible and ephemeral nature of secondary meaning,” (Id.
(quoting 6 J. Thomas McCarthy, Trademarks and Unfair Competition § 32:1119 (4th
ed.)), but it was also because Leapers’ proffered evidence was weak and conflicting.
For instance, Leapers provided sworn declarations only from professional
distributors, as opposed to ultimate consumers. (See Dkt. # 86-17, Pg. ID 4280-300.)
While this kind of testimony is admissible, the Sixth Circuit has emphasized that it is
“very weak” evidence that is insufficient to create a genuine issue of material fact on its
own. See Tenneco Auto. Operating Co., Inc. v. Kingdom Auto Parts, 410 F. App’x 841,
850 (6th Cir. 2010). Leapers’ expert produced survey data, but the surveys were
similarly weak. For instance, in one survey only 0.5% of participants could identify
Leapers as the maker of a scope by looking at it. (Dkt. # 69-14, Pg. ID 1973-89.) As the
court explained in its summary judgment opinion, this is a striking result—far below the
roughly 8% response rate identified as “not sufficiently probative” in Ashland Oil, Inc. v.
Olymco, Inc., 64 F.3d 662 (table op.), 1995 WL 499466, at *4 (6th Cir. August 21,
The court will not restate its summary judgment order in its entirety here.
Nevertheless, the court notes that even had it found Plaintiffs to have proffered enough
evidence to create a jury question as to secondary meaning—which it did not—Leapers
would have cleared that hurdle only “barely.” (Dkt. # 109, Pg. ID 4781-82.) In a vacuum,
that the court indicated it was inclined to find Leapers could escape summary judgment
on one of the necessary elements may cut against a finding that its case was
exceptionally weak. But the court does not view this issue in a vacuum; it considers the
“totality of the circumstances[.]” Octane Fitness, 134 S. Ct. at 1756. Leapers could not
meet the second factor (nonfunctionality), and could barely survive summary judgment
on the first. Viewed in this context, Leapers’ proffered evidence on secondary meaning
demonstrates the weakness, not the strength, of Leapers’ litigating position.
The court granted summary judgment to Defendants based on the alleged trade
dress’s “obvious functionality.” (Dkt. # 109, Pg. ID 4787.) “A product feature is
functional, and cannot serve as a trademark, if it is essential to the use or the purpose
of the article or if it affects the cost or quality of the article.” TrafFix Devices, Inc. v.
Mktg. Displays, Inc., 532 U.S. 23, 32 (2001). In other words, Leapers needed to show
the “scalloping” grip design was “merely an ornamental, incidental, or arbitrary aspect of
the device.” Id. at 30. To do this, Leapers “fruitlessly relie[d] on a series of conclusory
opinions, its California trade dress registration, and the fact that Shi applied for a
Chinese design patent.” (Dkt. # 109, Pg. ID 4783.) None of these, the court found, could
“strip [the] design of its obvious functionality[.]” (Id. at 4783.)
Leapers argued strenuously at the motion hearing that its evidence was based
on a distinction between “de jure” and “de facto” functionality that the court declined to
adopt. In their summary judgment briefing, Plaintiffs quoted Fuji Kogyo Co., Ltd. v.
Pacific Bay Intern., Inc., 461 F.3d 675, 685 (6th Cir. 2006), stating “the Federal Circuit
maintains a helpful doctrine of de jure versus de facto functionality” before going on to
quote a federal circuit case, which stated:
Our decisions distinguish de facto functional features, which may be
entitled to trademark protection, from de jure functional features, which are
not. In essence, de facto functional means that the design of a product
has a function, i.e., a bottle of any design holds fluid. De facto functionality
does not necessarily defeat registrability. De jure functionality means that
the product has a particular shape because it works better in this shape.
Id. (quoting Valu Eng’g Inc. v. Rexnord Corp., 278 F.3d 1268, 1274 Fed. Cir. 2002))
(internal quotation marks omitted).
Leapers proffered an affidavit of David Ding, Leapers’ co-founder and vice
president, who stated that “while designing the Trade Dress, my sole motivation was to
create a distinctive, aesthetically pleasing appearance . . . . At no time were my design
choices influenced or directed by . . . functional preferences.” (Dkt. # 82, Pg. ID 3768.)
Other affidavits similarly averred that the design is “only ornamental and does not
impact scope functions” (Dkt. # 86-4, Pg. ID 4043) or “only for appearance, not
functional” (Dkt. # 86-5, Pg. ID 4052), and stated something to the effect that it “gives a
distinctive first impression.” (Id.) Leapers’ expert, Peter Kokalis, opined that “Leapers
clearly chose its trade dress to set it apart from other companies rather than for a
utilitarian purpose.” (Dkt. # 86-18, Pg. ID 4341.)
The court largely rejected these as “[c]onclusory statements unadorned with
supporting facts.” (Dkt. # 109, Pg. ID 4784.) The court went on to explain that:
The testimony proffered by Plaintiff and referenced in this section
scrupulously avoids stating the obvious: the “design” all witnesses refer to
is the design of a grip. A grip is inalterably functional. It exists to grasp or
grip a thing more securely. Because the scope could not function without
the grip—in that it could not be adjusted as to focus—it is “essential to the
use or the purpose” of the scope in question. The designer says he
desired to make the grip attractive, and that may be taken as true. But the
element made more attractive is not for that reason transformed into mere
ornamentation; it retains its functional essence while being made more
(Id. at Pg. ID 4784-85 (emphasis in original).)
A finer point should be made here—some aspect of a grip design could
conceivably be nonfunctional. For instance, a particular color pattern could be divorced
from the functional nature of the grip. But Leapers’ “scalloping” style is inseparable from
how the grip on the various adjustment knobs performs its function—which is to provide
a surface to grip the knob. Even were the court to accept Leapers’ distinction between
de jure and de facto functionality—a distinction the Sixth Circuit once described as
“helpful” but has not formally adopted—Leapers’ grip design remains functional. And, as
a result, Leapers’ position was objectively weak.
B. Improper Motive
Defendants’ arguments regarding Leapers’ alleged bad faith substantially overlap
with its claims against Leapers and Continental in the related case—claims originally
asserted as counterclaims in this proceeding. See Case No. 16-14229, Dkt. # 1. Trarms’
spun-off claims range from defamation and tortious interference to antitrust violations
under the Sherman Act, 15 U.S.C. § 2, and alleged constitutional violations—all
stemming from Shi’s arrest and the other pending litigation. Id. The court is hesitant to
make factual findings at this point that may impact claims in the related proceeding.
Accordingly, the court will avoid delving into specifics regarding this outside conduct.
However, the evidence submitted thus far about Leapers’ conduct—in large part
through its agent Continental—suggests this case is part of a continuing campaign of
asymmetrical warfare intended to harass and intimidate Defendants.
A similar case is instructive, see Farouk Systems, Inc. v. AG Global Products,
LLC, 2016 WL 6037231 (E.D. Mich. October 14, 2016). In Farouk Systems, the plaintiff
claimed its use of a particular red and black color scheme on hair care appliances
constituted protectable trade dress, and brought copyright and trademark claims against
a competitor and the competitor’s president, who had previously been the plaintiff’s
president. Id. The trial court granted summary judgment to the defendants, finding that
the plaintiff had not used the asserted trade dress consistently and the defendants
demonstrated that only 5.9% of consumers associated the red-and-black combination
with a particular hair care company, and only 1.7% identified the plaintiffs as the source.
In addition, the defendants “presented evidence that Farouk filed this lawsuit not to
protect its red and black trade dress but, instead, to harass [the defendants] and cause
them to expend significant time and resources defending against the frivolous claim.” Id.
at *4. “At the time the lawsuit was filed, Plaintiff had no information that any consumers
had been confused . . . . Yet prior to filing this lawsuit, [the plaintiff] attempted to coerce
a large distributor . . . not to carry [the product]. When that effort failed, [the plaintiff]
confronted [the defendant] at a trade show and threatened to sue him if [he] continued
to market [the product.]” Id.
Leapers has argued repeatedly in its briefs and during oral argument that the
earlier criminal prosecution is unrelated to the court’s determination of exceptionality,
but to the extent that this case appears to be another skirmish in a larger campaign of
“asymmetrical warfare” waged by Leapers against its competitor and former business
partner, a “relationship” does appear to emerge suggesting a finding of exceptionality.
Far more than simply threatening baseless litigation like the plaintiff in Farouk,
uncontested evidence in the record suggests that Leapers, through its agent,
engineered serious criminal jurisdiction in a friendly venue and coordinated an
embarrassing public arrest of Leapers management and customers before bringing this
objectively weak case. (See Dkt. # 141-1.) In addition to the direct impact of the criminal
case on this case—the Fifth Amendment self-incrimination issues, the compulsory
counterclaims, and the requests for this court to enjoin the criminal proceedings—for the
purposes of this motion, the evidence suggests that this case was part of Leapers’
broader campaign against Trarms and Shi.
In particular, the court finds the Continental billing records submitted by Leapers
to be especially troubling. (See id.) The records show that Continental billed Leapers
over $26,000 for a months-long undercover sting operation; and further suggest that
Continental and Leapers knew Shi lived in California but arranged for the public arrest
at the Las Vegas “Shot Show,” “facilitated” the “apprehension and arrest” in person, and
regularly corresponded with law enforcement and prosecutors throughout the official
investigation. (Dkt. # 141-1.)
Both in briefing and in oral argument, Leapers has emphatically denounced
Trarms’ argument that Leapers “lied” to this court about its degree of involvement in
Shi’s criminal prosecution. (See, e.g., Dkt. # 134, Pg. ID 5884-86.) Despite the
theatrically outraged tone employed by Leapers and its counsel, Leapers has largely
confined its disagreement to quibbles about whether it, as a private entity, technically
“controls” the prosecutors or can “institute” legal proceedings. (Id.) Leapers also
contends that it lacked a “substantive opportunity . . . to describe its interaction with
Indiana law enforcement” beyond its answer and motion to dismiss Trarms’
counterclaims. (Dkt. # 134, Pg. ID 5887.) In that motion to dismiss, Leapers describes
Continental’s purchase of Trarms scopes and its report to an Evansville police
detective, but omits any involvement after that initial contact, including in Shi’s arrest.
(Dkt. # 51, Pg. ID 684-85.) The billing records suggest that, even if Leapers did not
outright “lie” to the court, it has certainly downplayed its involvement—particularly in the
arrest—to a degree that can be fairly described as misleading.
Leapers has continuously sought to parse the language of Octane Fitness into
defining as narrow and rigid a standard as possible. But the Supreme Court repeatedly
emphasizes the open-ended nature of the inquiry—indeed, the problem with the old
formulation was that it “superimpose[d] an inflexible framework onto statutory text that is
inherently flexible.” Octane Fitness, 134 S. Ct. at 1756. The court “must determine
whether a case is ‘exceptional’ in the case-by-case exercise of [its] discretion,
considering the totality of the circumstances.” Id. In light of, among other things, the
objective weakness of Leapers’ position, the improper motive implied by the campaign
of asymmetrical warfare of which this case is a single front, and the need to deter such
troubling uses of the judicial process in the future, the court finds this case to have been
exceptional within the meaning of the Lanham Act, 15 U.S.C. § 1117(a). Accordingly,
the court will award reasonable attorney fees to Defendants.
C. Fee Award
Defendants request $720,547.01 in attorney fees and expenses for this
proceeding, $94,232.94 in pre-judgment interest, and $22,890.49 in fees and expenses
incurred from a related proceeding before the Trademark Trial and Appeal Board
(“TTAB”), for a total of $865,048.91. (Dkt. # 135, Pg. ID 5995.) The court will deny the
request for prejudgment interest and direct further briefing.
Defendants calculated their requested prejudgment interest award based on
interest accruing on the entire requested attorney fee award from the date this lawsuit
was filed. (Dkt. # 127, Pg. ID 5809.) The court finds the requested relief of prejudgment
interest on attorney fees accruing even before the costs were incurred to be
unwarranted, even under these extraordinary facts. Defendants cite a single,
unreported, out-of-circuit case to support its contention that courts “can and do award
prejudgment interest to defendants in trademark infringement cases.” (Dkt. # 135, Pg.
ID 5994 (citing Hickory Farms, Inc. v. Snackmasters, Inc., 2008 U.S. Dist. LEXIS 67762,
*7-8 (N.D. Ill. April 2, 2008)). The Hickory Farms court stated it had “not found a case in
which a prevailing defendant was awarded pre-judgment interest on attorney’s fees
under 15 U.S.C. § 1117(a)” but concluded that it could, and would, make such an award
there. Id. The dearth of cases awarding prejudgment interest on attorney fees proves
the extraordinary nature of the remedy, even before taking into account Defendants’
eyebrow-raising method of calculating interest based on costs that had not yet been
incurred. Accordingly, the court will exercise its discretion and deny Defendants’ request
for prejudgment interest.
Defendants did not provide an accounting for the time allegedly spent on this
litigation with its initial brief, but have attached an updated declaration, including 214
pages of invoices, to its reply. (See Dkt. # 136.) The court will allow Leapers the
opportunity to review the evidence proffered in support of Defendants’ requested
amount and submit supplemental briefing to the court challenging billing it believes to be
Defendants also request fees incurred in the TTAB proceeding. Defendants first
makes this request in their reply brief (Dkt. # 135, Pg. ID 5993), though they raised the
possibility in an affidavit in support of the fee award (Dkt. # 127, Pg. ID 5718-19.)
Leapers has had little, if any, opportunity to respond to this request. The court will direct
further briefing on this issue as well.
IT IS ORDERED that Trarms’ motion for an exceptional case finding is
GRANTED IN PART AND DENIED IN PART. The motion is GRANTED in that the court
finds that this case is exceptional within the meaning of the Lanham Act, 15 U.S.C. §
1117(a). Trarms’ request for prejudgment interest is DENIED.
IT IS FURTHER ORDERED that Plaintiff Leapers is DIRECTED to provide a
supplemental brief, no longer than six pages, addressing (1) whether Trarms is entitled
to fees for the TTAB proceeding and (2) whether Trarms’ requested fee award includes
time spent unreasonably or time that is otherwise not compensable. Leapers is
DIRECTED to provide this supplemental briefing within two weeks of the date of entry
of this order.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: July 20, 2017
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, July 20, 2017, by electronic and/or ordinary mail.
Case Manager and Deputy Clerk
S:\Cleland\JUDGE'S DESK\C1 ORDERS\14-12290.LEAPERS.exceptional.case.finding.TLH2.docx
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