Seventh Circuit Court of Appeals Proposes New Standards For Awarding Attorneys’ Fees in Trademark Infringement Suits

15 U.S.C. §1117(a) allows attorneys’ fees to be awarded to prevailing parties in federal Lanham Act suits (brought primarily for trademark infringement) — but only in “exceptional cases.”  So what constitutes an exceptional case?  Are the various Circuit courts in agreement?  Richard Posner, writing on behalf of the Seventh Circuit Court of Appeals, attempted to answer these questions in Nightingale Home Health Care, Inc. v. Anodyne Therapy LLC, No. 10-2327 (7th Cir. Nov. 23, 2010).

As background, Nightingale, a provider of home healthcare services, had purchased several infrared lamps from Anodyne.  The lamps were FDA-approved for relieving minor muscle and joint pain and improving superficial circulation, but not for treating peripheral neuropathy.  In the lawsuit, Nightingale claimed that an Anodyne sales representative falsely represented that the lamps had been approved by the FDA for treating peripheral neuropathy.  Later, Nightingale replaced Anodyne’s lamps with virtually identical lamps from another supplier, apparently for price-related reasons unrelated to the scope of the FDA’s approval.  The district court found that Nightingale had made the Lanham Act claim in an attempt to coerce a price reduction from Anodyne.  After Anodyne successfully defended against Nightingale’s suit, the district judge granted Anodyne’s request for attorneys’ fees in the amount of $72,747.  On appeal, Nightingale argued that the case was not “exceptional.”

Judge Posner reviewed the standards for exceptionality in the various Federal Circuits and noted:

• The Fourth, Sixth, Tenth and D.C. Circuits apply different tests depending on whether it was the plaintiff or the defendant who prevailed.  In the Fourth and D.C. Circuits, a prevailing plaintiff is entitled to attorneys’ fees if the defendant’s infringement was in bad faith.  A prevailing defendant can qualify for attorneys’ fees for “something less than bad faith” by the plaintiff.  Examples are economic coercion, groundless arguments, and failure to cite controlling law.  In the Tenth Circuit, a prevailing plaintiff has to prove the defendant acted in bad faith, while a prevailing defendant need only show (i) lack of any foundation for the lawsuit; (ii) the plaintiff’s bad faith in bringing suit; (iii) the unusually vexatious and oppressive manner in which it was prosecuted; or (iv) “perhaps other reasons as well.”  In the Sixth Circuit, a prevailing plaintiff must prove the defendant’s infringement was “malicious, fraudulent, willful or deliberate.”  A prevailing defendant must prove the plaintiff’s suit was “oppressive” (quoting the Tenth Circuit factors).

• In the Second, Fifth and Eleventh Circuits, prevailing defendants and prevailing plaintiffs must prove that their opponent litigated in bad faith or — when the defendant is the prevailing party — that the suit was a fraud.  The Fifth Circuit adds that a court should “consider the merits and substance of the civil action when examining the plaintiff’s good or bad faith.”

• The First, Third, Eighth and Ninth Circuits (like the Second and Eleventh Circuits) make no distinction between prevailing plaintiffs and prevailing defendants.  However, a showing of bad faith is not necessarily required.  Willfulness short of bad faith or fraud will suffice.

Prior to Nightingale, the Seventh Circuit was starting to show its own incongruity.  Initially, in Door Systems, Inc. v. Pro-Line Door Systems, Inc., 126 F.3d 1028 (7th Cir. 1997), another Posner-written opinion, the Court asked whether the conduct of the party from which attorneys’ fees was sought had been “oppressive”.  Regarding a plaintiff’s suit, the answer would turn on whether the suit “was something that might be described not just as a losing suit but as a suit that had elements of an abuse of process, whether or not it had all the elements of the tort.”  A different test was set forth for “oppressive” conduct by a defendant.  In that instance, the question turned on “whether the defendant had lacked a solid justification for the defense or had put the plaintiff to an unreasonable expense in suing.”

Subsequently to Door Systems, in S Industries, Inc. v. Centra 2000, Inc., 249 F.3d 625 (7th Cir. 2001), a non-Posner-written opinion, the Court said that oppressive conduct by plaintiffs would be conduct that “lacked merit, had elements of an abuse of process claim, and plaintiff’s conduct in the litigation unreasonably increased the cost of defending against the suit.”  Also, it said a finding that a suit was oppressive could be “based solely on the weakness” of the plaintiff’s claims (e.g., malicious prosecution).

Subsequently to S Industries, in TE-TAMA Truth Foundation-Family of URI, Inc. v. World Church of the Creator, 392 F.3d 248 (7th Cir. 2004), a non-Posner-written opinion, the Court said that oppressive conduct by defendants includes not only willful infringement of the plaintiff’s trademark, but also “vexatious litigation conduct” and that oppressive conduct by plaintiffs also includes “vexatious litigation conduct.”

In Nightingale — which can only be described as a righting of the ship with Posner at the helm — the Seventh Circuit essentially returned to Door Systems and concluded that “a case under the Lanham Act is ‘exceptional,’ in the sense of warranting an award of reasonable attorneys’ fees to the winning party, if the losing party was the plaintiff and was guilty of abuse of process in suing, or if the losing party was the defendant and had no defense yet persisted in the TM infringement or false advertising for which he was being sued, in order to impose costs on his opponent.”

In order to avoid an elaborate inquiry into the state of the mind of the party from which reimbursement is sought, Judge Posner added that it should be enough to justify the award “if the party seeking it can show that his opponents claim of defense was objectively unreasonable — was a claim or defense that a rational litigant would pursue only because it would impose disproportionate costs on his opponent — in other words only because it was extortionate in character, if not necessary in provable intention.”

For context, Posner reviewed the legislative history of the Lanham Act yet offered a “more practical concern” which is essentially protecting and enhancing competition in the marketplace.  In this case, Nightingale was said to impair competition in the marketplace by filing a Lanham Act claim with no possible merit.  It misused the legal process primarily to accomplish a purpose for which it was not designed — to compel the victim to yield on some matter not involved in the suit.  Specifically, it made the claim in an attempt to coerce a price reduction from Anodyne.

In addition to affirming the judgment in District Court, the Seventh Circuit also granted Anodyne’s motion for fees and costs for the appeal.

Even adhering to the various tests set forth by the Circuit courts, it is generally considered quite difficult to obtain an award of attorneys’ fees in trademark infringement lawsuits.  Therefore, it is important to have an experienced trademark litigator review your case and devise an appropriate strategy before initiating a lawsuit.      

Please contact us if you would like to learn more about the Nightingale case or discuss any aspect of trademark litigation.