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«Before POSNER, KANNE, and ROVNER, Circuit Judges. POSNER, Circuit Judge. After Anodyne successfully defended against Nightingale's suit, see 589 F.3d ...»

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NIGHTINGALE HOME HEALTHCARE, INC. v. ANODYNE THERAPY, LLC

626 F.3d 958 (7th 2010)

Before POSNER, KANNE, and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

After Anodyne successfully defended against Nightingale's suit, see 589 F.3d 881 (7th

Cir.2009), the district judge granted the defendant's request for an award of attorneys'

fees in the amount of $72,747. The award was based on 15 U.S.C. § 1117(a), which

allows attorneys' fees to be awarded to prevailing parties in Lanham Act suits—but only in "exceptional cases," a term we shall try to clarify in this opinion because of the surprising lack of agreement among the federal courts of appeals concerning its meaning in the Act. See, e.g., 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 30.101 (4th ed.2010); 4 Louis Altman & Malla Pollack, Callmann on Unfair Competition, Trademarks and Monopolies § 23:67 (4th ed.2010). The judge had granted summary judgment in favor of Anodyne on Nightingale's Lanham Act claim early in the litigation. Nightingale, which had not appealed that ruling, contends that no award of attorneys' fees is justified, because the case is not "exceptional."

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 1 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 [*961] 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).





And where are we, the Seventh Circuit, in this jumble? In Door Systems, Inc. v. Pro-Line Door Systems, Inc., 126 F.3d 1028, 1031 (7th Cir.1997), we said that the test was whether the conduct of the party from which the payment of attorneys' fees was sought had been "oppressive," and that "whether the plaintiff's suit was oppressive" turned 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." But that, we said, "would not be the right question if the plaintiff had prevailed and was seeking the award of attorneys' fees. In such a case the focus would be on whether the defendant had lacked a solid justification for the defense or had put the plaintiff to an unreasonable expense in suing." Id. The quoted passage was actually discussing the award of attorneys' fees under the Illinois Consumer Fraud and Deceptive Business Practices Act. But fees were also sought under the Lanham Act, and the opinion— 2 seeking to make sense of one of the definitions of "exceptional" (namely, "malicious, fraudulent, deliberate, or willful") that is found, as we noted earlier, in the cases— suggests that the test is the same under both statutes: "oppressive," in the sense expounded in Door Systems. Id. at 1031-32.

In later cases we said that oppressive conduct by a plaintiff that might justify an award of reasonable attorneys' fees to the defendant would be conduct that "lacked merit, had elements of an abuse of process claim, and plaintiff's conduct in the litigation [*962] unreasonably increased the cost of defending against the suit," S Industries, Inc. v. Centra 2000, Inc., supra, 249 F.3d at 627; see also Central Mfg., Inc. v. Brett, 492 F.3d 876, 883-84 (7th Cir.2007); that oppressive conduct by defendants included not only willful infringement of the plaintiff's trademark but also "vexatious litigation conduct," TE-TAMA Truth Foundation-Family of URI, Inc. v. World Church of the Creator, 392 F.3d 248, 261-63 (7th Cir.2004); and that a finding that a suit was oppressive could be "based solely on the weakness" of the plaintiff's claims, S Industries, Inc. v. Centra 2000, Inc., supra, 249 F.3d at 627, or the plaintiff's "vexatious litigation conduct." TE-TA-MA Truth Foundation-Family of URI, Inc. v. World Church of the Creator, supra, 392 F.3d at 263.

So "vexatious litigation conduct" by the losing party can justify the award of attorneys' fees to the winner, regardless of which side engages in such conduct, as long as it's the losing side.

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. To decide whether the standards differ more than semantically would require a close study of the facts of each case.

It may be helpful in the interest of clarity, simplicity, and uniformity to start with first principles, by asking why the Lanham Act makes an exception, albeit a narrow one (if "exceptional" is to be given proper force), to the "American" rule that forbids shifting the litigation expenses of the prevailing party to the loser.

The reason has been said to be that "the public interest in the integrity of marks as a measure of quality of products" is so great that it would be "unconscionable not to provide a complete remedy including attorney fees for acts which courts have characterized as malicious, fraudulent, deliberate, and willful," and the award of fees "would make a trademark owner's remedy complete in enforcing his mark against willful infringers, and would give defendants a remedy against unfounded suits." S.Rep. No.

1400, 93d Cong., 2d Sess. 5-6 (1974), U.S.Code Cong. & Admin.News 1974, pp. 7132, 7136-7137. In addition, the patent and copyright statutes authorize the award of attorneys' fees, id. at 5, and trademark law protects an analogous form of intellectual property.

3 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. Almost all cases under the Act (this one, as we'll see, is a rare exception), whether they are suits for trademark infringement or for false advertising, 15 U.S.C. §§ 1114, 1125(a), are between competitors. The owner of a trademark might bring a Lanham Act suit against a new entrant into his market, alleging trademark infringement but really just hoping to drive out the entrant by imposing heavy litigation costs on him. See, e.g., Peaceable Planet, Inc. v. Ty, Inc., 362 F.3d 986, 987 (7th Cir.2004). [*963] "Trademark suits, like much other commercial litigation, often are characterized by firms' desire to heap costs on their rivals, imposing marketplace losses out of proportion to the legal merits." Mead Johnson & Co. v. Abbott Laboratories, 201 F.3d 883, 888 (7th Cir.2000).

"The increased ease of bringing suit in federal court and the greater availability of remedies may extend the competitive battlefield beyond the `shelves of the supermarket' and into the halls of the courthouse. Commentators have already suggested that the availability of large damage awards will motivate firms to litigate false advertising suits aggressively in the hope of winning large damage awards and impairing the competitiveness of a business rival, particularly a new entrant." James B. Kobak Jr. & Mary K. Fleck, "Commercial Defamation Claim Added to Revised Lanham Act," Nat'l L.J., Oct. 30, 1989, p. 33. Similarly, a large firm sued for trademark infringement by a small one might mount a scorched-earth defense to a meritorious claim in the hope of imposing prohibitive litigation costs on the plaintiff.

These, then, are the types of suit rightly adjudged "exceptional"; for in a battle of equals each contestant can bear his own litigation costs without impairing competition.

When the plaintiff is the oppressor, the concept of abuse of process provides a helpful characterization of his conduct. Unlike malicious prosecution, which involves filing a baseless suit to harass or intimidate an antagonist, abuse of process is the use of the litigation process for an improper purpose, whether or not the claim is colorable. "The gist of the abuse of process tort is said to be misuse of legal process primarily to accomplish a purpose for which it was not designed, usually to compel the victim to yield on some matter not involved in the suit.... If the plaintiff can show instigation of a suit for an improper purpose without probable cause and with a termination favorable to the now plaintiff, she has a malicious prosecution or a wrongful litigation claim, not a claim for abuse of process.... [T]he abuse of process claim permits the plaintiff to recover without showing the traditional want of probable cause for the original suit and without showing termination of that suit." 2 Dan B. Dobbs, The Law of Torts § 438 (2001). Abuse of process is a prime example of litigating in bad faith.

The term "abuse of process" is not used to describe behavior by defendants. Id. It has been said that "while it is obvious that the torts of abuse of process and malicious prosecution are prevalent and damaging to both innocent defendants as well as the judicial process, it is not so obvious where the line is that separates an attorney's zealous advocacy from his tortious interference with the litigation processes." Leah J. Pollema, "Beyond the Bounds of Zealous Advocacy: The Prevalence of Abusive Litigation in 4 Family Law and the Need for Tort Remedies," 75 U. Mo.-Kan. City L.Rev. 1107, 1117 (2007). But the need to draw that line is the same whether the plaintiff is attacking or the defendant is defending. If a defendant's trademark infringement or false advertising is blatant, his insistence on mounting a costly defense is the same misconduct as a plaintiff's bringing a case (frivolous or not) not in order to obtain a favorable judgment but instead to burden the defendant with costs likely to drive it out of the market. Predatory initiation of suit is mirrored in predatory resistance to valid claims.



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