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IP Alert: Seventh Circuit Adopts Octane's Fee Standard for Trademark Cases

November 14, 2019

On November 8, in LHO Chicago River, L.L.C. v. Joseph Perillo, et al., the Seventh Circuit held that the totality-of-the-circumstances approach introduced in patent case Octane Fitness, LLC v. ICON Health & Fitness, Inc., should be applied in determining an award of attorneys’ fees under the Lanham Act. This case overruled earlier decisions that had required a more stringent showing of bad faith by the litigant.

LHO, owner of “Hotel Chicago,” sued the defendants for trademark infringement, unfair competition, and deceptive trade practices after they opened a venue bearing an allegedly deceptively similar name. LHO later filed a motion to voluntarily dismiss its claims, which the district court granted.

Subsequently, the defendants sought attorneys’ fees under the Lanham Act, which provides such an award to the prevailing party in “exceptional cases.” In its determination of the exceptionality of the case at hand, the district judge found that attorneys’ fees were not warranted under the “abuse of process” standard as per Seventh Circuit precedent. Defendants appealed, arguing that this standard was incorrect.

The Seventh Circuit analyzed two standards for whether to award fees. The court first discussed the circuit’s current prevailing standard implemented in earlier cases, which holds that a case is “exceptional” if it amounts to an abuse of process. An abuse of process occurs when a claim is (1) “objectively unreasonable because it is one a rational litigant would pursue only because it would impose disproportionate costs on his opponent”; or (2) when a party brings a frivolous claim with the purpose of obtaining an advantage external to the litigation, “unrelated to obtaining a favorable judgment.”

The Seventh Circuit then evaluated the Supreme Court’s interpretation of the term “exceptional” in Octane. In that case, the Court found that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated.” Although the facts in Octane involved the Court’s analysis of the Patent Act, both the Patent Act and the Lanham Act feature identical language regarding an award of attorneys’ fees in exceptional cases. Thus, the Supreme Court’s interpretation of the term “exceptional” in Octane was dispositive in the trademark case at hand.

Moreover, the Supreme Court also provided that an “exceptional” case is determined based on the more relaxed totality of the circumstances standard. A court’s consideration of the totality of the circumstances should include an analysis of various factors, including “frivolousness, motivation, objective unreasonableness . . . and the need in particular circumstances to advance considerations of compensation and deterrence.”

The Supreme Court’s analysis of “exceptional” had also been based on the trademark case Noxell Corp. v. Firehouse No. 1 Bar-B-Que Rest., in which the D.C. Circuit interpreted the term to mean “uncommon” or “not run-of-the-mill” and concluded that an exceptional case may sufficiently set itself apart from “mine-run cases” if it presents either subjective bad faith or particularly meritless claims. The Court in Octane ultimately held that a case may be considered to be “exceptional” for conduct amounting to less than “bad faith.”

Based on the Supreme Court’s analysis, the Seventh Circuit overturned its earlier decisions and held that Octane’s “exceptional case” rule should be applied as the governing framework for requests for attorneys’ fees under the Lanham Act. Therefore, the Seventh Circuit vacated the district court’s order and remanded the case, instructing the district judge to consider the parties’ fee dispute through an examination of the totality of the circumstances in light of the Octane factors.

The Seventh Circuit’s decision introduces a more relaxed standard in determining whether a case is exceptional according to the Lanham Act. The new rule is favorable to parties seeking an award of attorneys’ fees because courts can now grant such requests for matters that involve less than bad faith.

For more information on this decision, please contact Fitch Even attorney Kerianne A. Strachan, author of this alert.

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