By Cheryl Beise, J.D.
Seventh Circuit joined other circuits in adopting totality of circumstances test for determining whether trademark case qualifies as ‘exceptional.’
For purposes of determining whether a case qualifies as "exceptional" under the Lanham Act’s fee shifting provision, the U.S. Court of Appeals in Chicago, joining several other circuit courts, has adopted the totality of circumstances test set forth by the Supreme Court for evaluating whether a case is exceptional under the Patent Act’s fee shifting provision. Because district court in this case had rejected the defendants’ request for attorney fees under the Seventh Circuit’s prevailing more restrictive abuse of process test, the decision was vacated and the case remanded for reconsideration under the Supreme Court’s Octane Fitnessstandard (LHO Chicago River, LLC v. Perillo, November 8, 2019, Manion, D.).
In February 2014, LHO Chicago River LLC ("LHO") rebranded its upscale downtown Chicago property from "Hotel Sax" to "Hotel Chicago." Around May 2016, Joseph Perillo and three associated entities associated with him, Rosemoor Suites, LLC, Portfolio Hotels & Resorts, LLC, and Chicago Hotel, LLC, (collectively, "Defendants") opened their own "Hotel Chicago" only three miles from LHO’s site. LHO sued Defendants for trademark infringement and unfair competition under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and for trademark infringement and deceptive trade practices under Illinois state law. In February 2017, the district court rejected LHO’s request for a preliminary injunction, finding that "Hotel Chicago" was a descriptive mark that had not acquired secondary meaning in the minds of consumers. One year later, the district court granted LHO’s voluntary motion to dismiss its claims with prejudice. Following dismissal, Defendants made a request for attorney fees pursuant to Section 35(a) of the Lanham Act, U.S.C. § 1117(a), which permits the district court to award reasonable fees to the prevailing party in "exceptional cases." The district court denied Defendants’ request for fees, finding the case was not "exceptional" under the Seventh Circuit’s "abuse of process" standard. Defendants appealed.
Under the Seventh Circuit’s traditional standard for determining whether a case is "exceptional" for purposes of an award of attorney fees under the Lanham Act, 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.
Defendants argued that the Seventh Circuit’s traditional abuse of process standard conflicted with the Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014). Even though the Octane Fitness standard applies to the Patent Act, several circuit courts have applied the test in Lanham Act cases because the fee shifting provisions in both statues are nearly identical.
In Octane Fitness, the Supreme Court adopted a more relaxed totality-of-the-circumstances standard for courts to use when considering whether a case qualifies as "exceptional." The Supreme Court clarified that "an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances."
The Seventh Circuit agreed with Defendants that its abuse of process test conflicted with the Supreme Court’s Octane Fitness test and, given the similarities between the Patent Act and Lanham Act fee shifting provisions, the court further agreed that the Octane Fitness standard should be adopted for determining whether a case qualifies as exceptional under the Lanham Act.
Defendants pointed out that the Seventh Circuit’s decision in Burford v. Accounting Practice Sales, Inc., 786 F.3d 582, 588 (7th Cir. 2015)—which was decided after Octane Fitness—applied the abuse of process standard for reviewing a Lanham Act fee determination. "True, we did not discuss Octane in Burford despite Octane’s earlier release," the court said, "but our silence in Burford should not be interpreted as a rejection of Octane’s extension to Lanham Act fee-shifting." The court noted that the Burford parties never drew attention to Octane Fitnessin any of their filings. The court also observed that since Burford, most circuits have extended Octane’s standard to Lanham Act cases and none has expressly declined to apply Octane Fitness to Lanham Act cases.
"Therefore, we join our sister circuits and adopt Octane’s ‘exceptional case’ standard as the governing framework for attorney fees requests under § 1117(a) of the Lanham Act," the Seventh Circuit said. The district court’s decision was vacated and remanded for reconsideration of Defendants’ attorney fee request under Octane Fitness.
The case is No. 19-1848.
Attorneys: Nicole M. Murray (Quarles & Brady LLP) for LHO Chicago River, L.L.C. Alain Villeneuve (Duane Morris LLP) for Joseph Perillo.
Companies: LHO Chicago River, L.L.C.; Rosemoor Suites, LLC; Portfolio Hotels & Resorts, LLC; Chicago Hotel, LLC
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