Via How Appealing, the Seventh Circuit has a new opinion (Nightingale Home Healthcare v. Anodyne Therapy) by Judge Posner on when a Court may award attorneys’ fees in Lanham Act (i.e., trademark infringement, trademark dilution, and false advertising) cases.
The Lanham Act itself doesn’t give much guidance on when attorneys fees may be awarded: "The court in exceptional cases may award reasonable attorney fees to the prevailing party." 15 USC § 1117(a).
So what the heck does that mean?
First, a little history as to why the statute is there at all. Per the opinion:
[I]n Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 719-20 (1967), decided eight years before the fee provision was added to the Lanham Act, the Supreme Court held that attorneys’ fees could not be awarded in cases under the Act; it was that decision which prompted Congress to add the fee-shifting provision. Fleischmann rejected the proposition that courts could award fees in cases under the Act without explicit statutory authorization. “The recognized exceptions to the general rule [of no fee shifting] were not . . . developed in the context of statutory causes of action for which the legislature had prescribed intricate remedies . . . . [I]n the Lanham Act, Congress meticulously detailed the remedies available to a plaintiff who proves that his valid trademark has been infringed. It provided not only for injunctive relief, but also for compensatory recovery measured by the profits that accrued to the defendant by virtue of his infringement, the costs of the action, and damages which may be trebled in appropriate circumstances . . . . When a cause of action has been created by a statute which expressly provides the remedies for vindication of the cause, other remedies should not readily be implied.” Id.
So Congress fixed the Lanham Act, but it never explained what an "exceptional" case was.
The Circuits have tried to figure it out on their own, with, shall we say, mixed results:
The Fourth, Sixth, Tenth, and D.C. Circuits apply different tests of exceptionality 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 an award of attorneys’ fees if the defendant’s infringement (most cases under the Lanham Act charge trademark infringement) was willful or in bad faith (these terms being regarded as synonyms), while a prevailing defendant “can qualify for an award of attorney fees upon a showing of ‘something less than bad faith’ by the plaintiff,” such as “economic coercion, groundless arguments, and failure to cite controlling law.” Retail Services Inc. v. Freebies Publishing, 364 F.3d 535, 550 (4th Cir. 2004); Reader’s Digest Ass’n, Inc. v. Conservative Digest, Inc., 821 F.2d 800, 808-09 (D.C. Cir. 1987).
In the Tenth Circuit the prevailing plaintiff has to prove that the defendant acted in bad faith, while the prevailing defendant need only show “(1) . . . lack of any foundation [of the lawsuit], (2) the plaintiff’s bad faith in bringing the suit, (3) the unusually vexatious and oppressive manner in which it is prosecuted, or (4) perhaps for other reasons as well.” National Ass’n of Professional Baseball Leagues, Inc. v. Very Minor Leagues, Inc., 223 F.3d 1143, 1147 (10th Cir. 2000). Given the fourth item in this list, the Tenth Circuit can hardly be said to have a test.
The Sixth Circuit asks in the case of a prevailing plaintiff whether the defendant’s infringement of the plaintiff’s trademark was “malicious, fraudulent, willful, or deliberate,” and in the case of a prevailing defendant whether the plaintiff’s suit was “oppressive.” Eagles, Ltd. v. American Eagle Foundation, 356 F.3d 724, 728 (6th Cir. 2004). As factors indicating oppressiveness, Eagles quotes the Tenth Circuit’s list but states in the alternative, quoting (see id. at 729) our opinion in S Industries, Inc. v. Centra 2000, Inc., 249 F.3d 625, 627 (7th Cir. 2001), that “a suit is oppressive if it lacked merit, had elements of an abuse of process claim, and plaintiff’s conduct unreasonably increased the cost of defending against the suit.”
The Second, Fifth, and Eleventh Circuits require prevailing defendants, as well as prevailing plaintiffs, to prove that their opponent litigated in bad faith, or (when the defendant is the prevailing party) that the suit was a fraud. Patsy’s Brand, Inc. v. I.O.B. Realty, Inc., 317 F.3d 209, 221-22 (2d Cir. 2003); Procter & Gamble Co. v. Amway Corp., 280 F.3d 519, 527-28 (5th Cir. 2002); Lipscher v. LRP Publications, Inc., 266 F.3d 1305, 1320 (11th Cir. 2001); Tire Kingdom, Inc. v. Morgan Tire & Auto, Inc., 253 F.3d 1332, 1335-36 (11th Cir. 2001) (per curiam).
The Fifth Circuit adds that a court considering a prevailing defendant’s application for an award of attorneys’ fees should “consider the merits and substance of the civil action when examining the plaintiffs’ good or bad faith.” Procter & Gamble Co. v. Amway Corp., supra, 280 F.3d at 528.
The First, Third, Eighth, and Ninth Circuits, like the Second and the Eleventh, do not distinguish between prevailing plaintiffs and prevailing defendants; neither do they require a showing of bad faith. Tamko Roofing Products, Inc. v. Ideal Roofing Co., 282 F.3d 23, 32 (1st Cir. 2002) (“willfulness short of bad faith or fraud will suffice when equitable considerations justify an award and the district court supportably finds the case exceptional”); Securacomm Consulting, Inc. v. Securacom Inc., 224 F.3d 273, 280 (3d Cir. 2000) (“culpable conduct on the part of the losing party” is required but “comes in a variety of forms and may vary depending on the circumstances of a particular case”); Stephen W. Boney, Inc. v. Boney Services, Inc., 127 F.3d 821, 827 (9th Cir. 1997) (“a finding that the losing party has acted in bad faith may provide evidence that the case is exceptional” but “other exceptional circumstances may [also] warrant a fee award”); Hartman v. Hallmark Cards, Inc., 833 F.2d 117, 123 (8th Cir. 1987) (“bad faith is not a prerequisite” to an award). Yet a later Ninth Circuit decision interprets “exceptional” to mean “the defendant acted maliciously, fraudulently, deliberately, or willfully” (note the echo of the Sixth Circuit’s Eagles decision) or the plaintiff’s case was “groundless, unreasonable, vexatious, or pursued in bad faith.” Love v. Associated Newspapers, Ltd., 611 F.3d 601, 615 (9th Cir. 2010).
Yikes. As Posner observes:
"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."
For largely pragmatic reasons, the Seventh Circuit settles on an "abuse of process" standard:
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.
It’s a fair conclusion, but not the only rational conclusion. As Posner notes, there’s already two separate means by which a party can recover for conduct which amounts to an abuse of process. First,
[C]ases such as Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991), state that one of the inherent powers of a federal court is to “assess attorney’s fees when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.” For similar formulations, see, e.g., Mach v. Will County Sheriff, 580 F.3d 495, 501 (7th Cir. 2009); Mañez v. Bridgestone Firestone North American Tire, LLC, 533 F.3d 578, 585, 591- 92 (7th Cir. 2008). That sounds a lot like the abuse of process test that we think best describes the exceptional case that merits an award of attorneys’ fees under the Lanham Act. But if we are right about our interpretation of “exceptional case,” the question arises why Congress bothered to include a fee-shifting provision in the Act; for didn’t the courts already have inherent power to award fees for abuse of process in Lanham Act cases?
Abuse of process is the name of a tort. A tort is proved in a tort suit. But a proceeding for an award of attorneys’ fees is not a suit; it is a tail dangling from a suit.
Posner resolves the first problem by saying that Congress was amending the Lanham Act to deal with the Fleischmann Distilling Corp. opinion, and then largely avoids the second problem.
Yet, if Congress had wanted courts to apply an abuse of process standard in assessing attorneys fees under the Lanham Act (or under other statutes that provide for fees in "exceptional" cases, like in patent infringement cases), then it would have said so, and would have amended the Act to provide for attorneys fees where the losing party was guilty of abuse of process in suing or defending the claim.
But that is not what Congress did. Instead, Congress, in its wisdom, used the term "exceptional cases." "Exceptional" meaning "unusual" or "not typical." Congress thus provided for attorneys’ fees in cases in which the losing side’s prosecution or defense of the case was merely unusual or atypical when judged against ordinary or typical cases, a far lower bar than amounting to an "abuse of process."
Imagine the world of Lanham Act cases as a Bell Curve, with wholly frivolous claims on the left and wholly frivolous defenses on the right.
Congress wanted "exceptional" cases to result in fee-shifting. What’s "exceptional" mean? Well, assuming a normal distribution, then 68% of cases fall within one standard deviation of the mean — and if we use that as our definition of "usual" or "typical," then it means Congress meant for fee-shifting to happen in 32% of cases.
"Abuse of process" though, is a much higher bar. I think most lawyers would agree that far fewer than 32% of claims and defenses represent an abuse of process.
So moving from a mere "exceptional" standard to an "abuse of process" standard tells lower courts that a a case being a mere single deviation from the mean — i.e., being an exceptional case — isn’t enough to award fees. Rather, fees are awarded only in the most egregious of cases, in which the parties had absolutely no basis for their position, just like they would be liable for the tort of abuse of process.
While there might be merits to that policy, and it does not seem to be the policy that Congress adopted: instead, Congress permitted courts to order fee-shifting in cases that went beyond your ordinary litigation, that is, one standard deviation from the mean.