Seventh Circuit Tackles Meaning of "Exceptional" for Purposes of Attorneys' Fees Award in Lanham Act Cases
Defendant Anodyne Therapy, LLC successfully defended against Plaintiff Nightingale Home Healthcare, Inc.'s Lanham Act claim and the district court awarded Anodyne its attorneys' fees in the amount of $72,747 under Section 1117(a) of the Lanham Act, which allows such an award to the prevailing party in "exceptional cases." Nightingale appealed, claiming that it was not an exceptional case justifying such an award.
The Seventh Circuit, Judge Posner writing, addressed at some length the meaning of the word "exceptional" under this section of the Lanham Act.
First, the Seventh Circuit summarized the varying standards employed by its sister circuits. The Fourth, Sixth, Tenth and D.C. Circuits applied different tests depending on whether the plaintiff or the defendant prevailed. The Second, Fifth, and Eleventh Circuits require prevailing defendants and plaintiffs to prove that their opponent litigated in bad faith. The First, Third, Eighth, and Ninth Circuits do not distinguish between prevailing plaintiffs and defendants and do not require a showing of bad faith (though the Ninth Circuit has used language that could equate to bad faith).
It is surprising to find so many different standards for awarding attorneys' fees in Lanham Act cases. The failure to converge may be an illustration of "circuit drift": the heavy caseloads and large accumulations of precedent in each circuit induce courts of appeals to rely on their own "circuit law," as if each circuit were a separate jurisdiction rather than all being part of a single national judiciary enforcing a uniform body of federal law. But whether the difference in standards generates actual differences in result is unclear because the opinions avoid commitment by using vague words and explicit escape clauses, with the Tenth Circuit's catchall ("perhaps for other reasons as well") taking the prize.
Given the variety of standards, the Seventh Circuit started with "first principles," looking to the reasons for the limited exception to the American Rule under which each party bears its own litigation costs. Of particular interest is the explicit acknowledgment that parties may use litigation for anti-competitive purposes:
A more practical concern is the potential for businesses to use Lanham Act litigation for strategic purposes--not to obtain a judgment or defeat a claim but to obtain a competitive advantage independent of the outcome of the case by piling litigation costs on a competitor.
Ultimately, the Seventh Circuit adopted a standard for "exceptional" cases that it believed "capture[d] the concerns that underlie the various tests and offer[ed] a pathway through the semantic jungle":
We conclude 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 trademark infringement or false advertising for which he was being sued, in order to impose costs on his opponent.
The Seventh Circuit emphasized, however, that the standard was not intended to require an elaborate inquiry into the state of mind of the losing party:
[A] proceeding for an award of attorneys' fees is not a suit; it is a tail dangling from a suit. We don't want the tail to wag the dog, and this means that an elaborate inquiry into the state of mind of the party from whom reimbursement of attorneys' fees is sought should be avoided. It should be enough to justify the award if the party seeking it can show that his opponent's claim or 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 necessarily in provable intention. That should be enough to make a case "exceptional."
In the case before it, the Seventh Circuit concluded that the facts amply met this standard--Plaintiff's Lanham Act claim had "no possible merit" and the district court found that Plaintiff had made the claim in an attempt to coerce a price reduction from Defendant. It thus affirmed the district court's award of attorneys' fees and granted Anodyne's motion for its fees and costs on appeal.
The case cite is Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, No. 10-2327 (7th Cir. Nov. 23, 2010).
