Seventh Circuit explains meaning of 'exceptional case' under Lanham Act

United States of America
In Nightingale Home Healthcare Inc v Anodyne Therapy LLC (Case 10-2327, November 23 2010), the US Court of Appeals for the Seventh Circuit has examined what constitutes an 'exceptional case' under Section 1117(a) of the Lanham Act for the purposes of awarding attorneys’ fees to the prevailing party. 

The plaintiff, Nightingale Home Healthcare Inc, was a provider of home healthcare services. The defendant, Anodyne Therapy LLC, sold Nightingale several infrared lamps, at $6,000 each, that were designed to relieve pain and improve circulation. Nightingale sued Anodyne under the Lanham Act, claiming that Anodyne’s sales representative had falsely represented that the lamps it sold had been approved by the Food and Drug Administration (FDA) for treatment of peripheral neuropathy. In fact, the FDA had approved the lamps, although not for treatment of neuropathy, but healthcare providers in their professional judgment were permitted to use the lamps for such treatment. The district court thus entered summary judgment against Nightingale. Anodyne, as the prevailing party, requested that the court find the case to be exceptional, a finding that would permit Anodyne to recover its attorneys’ fees. The district court granted Anodyne’s request, finding that Nightingale’s motivation for filing the suit had been to coerce Anodyne into reducing the price of its lamps.

The Seventh Circuit not only affirmed the award made by the district court, but also found that Nightingale had pursued its appeal frivolously. It granted Anodyne’s motion for attorneys’ fees and costs in the appeal pursuant to Federal Rule of Appeal Procedure 38.

The Seventh Circuit observed that there is a “surprising lack of agreement” among the federal circuit courts of appeals concerning the meaning of an 'exceptional case'. The court noted the differences, observing that, in some circuits, no distinction is made between the conduct of the plaintiff and that of defendant:
  • First Circuit: wilfulness short of bad faith or fraud on the part of the losing plaintiff or defendant will suffice.
  • In the Second, Fifth and Eleventh Circuits, the question will be whether the losing defendant or plaintiff litigated in bad faith and, if the losing party is the plaintiff, whether the suit was a fraud. The Fifth Circuit will also consider the merits and substance of a losing plaintiff’s suit.
  • Third Circuit: the court will look to culpable conduct by the losing party.
  • Fourth and DC Circuits: if the losing party is the defendant, the case is exceptional if the infringement was wilful or in bad faith. If the losing party is the plaintiff, the case may be exceptional upon a showing of something less than bad faith, such as economic coercion, groundless arguments and failure to cite controlling law.
  • Sixth Circuit: if the losing party is the defendant, the court will look to whether the infringement was malicious, fraudulent, wilful or deliberate. If the losing party is the plaintiff, the question will be whether the plaintiff’s suit was oppressive, based on whether the case lacked merit, had elements of an abuse of process claim, and the conduct unreasonably increased the cost of the defence.
  • Eighth Circuit: courts do not require a showing of bad faith.
  • Ninth Circuit: courts do not consider whether the losing party acted in bad faith, but other exceptional circumstances, such as conduct that is malicious, fraudulent, groundless or vexatious.
  • Tenth Circuit: if the losing party is the defendant, the defendant must be shown to have acted in bad faith. If the losing party is the plaintiff, the defendant need only show lack of any foundation for the suit, the plaintiff’s bad faith in brining the suit, the unusually vexatious and oppressive manner in prosecuting the suit, or “perhaps... other reasons”.
After surveying these approaches, the Seventh Circuit set out its definition of an 'exceptional case', focusing on the losing party’s motivation for pursuing its claim or defence. If the losing party is the plaintiff, the case will be considered exceptional if the plaintiff was guilty of an abuse of process, meaning that it used the case for an improper purpose, such as to drive a competitor out of the market. The court recognised that a plaintiff may be found guilty of an abuse of process even if its case had merit. The issue will be whether the plaintiff pursued the case for an improper purpose.

If the losing party is the defendant rather than the plaintiff, the case will be treated as exceptional if the defendant had no defence and yet persisted in the trademark infringement or false advertising for which it was sued in order to impose costs on the plaintiff.

The Seventh Circuit also explained that a court should avoid “an elaborate inquiry into the state of mind of the party from whom reimbursement of attorneys’ fees is sought”. For a case to be exceptional, it will be enough to show that the claim or defence is one that “a rational litigant would pursue” only to impose “disproportionate costs on [the] opponent”.

David S Fleming, Brinks Hofer Gilson & Lione, Chicago

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