The Lanham Act provides that the prevailing party is entitled to recovery of attorney’s fees in exceptional cases. The remedy is not limited to prevailing plaintiffs. This has left the various circuit courts to define the parameters of an “exceptional case” and to apply their tests to prevailing plaintiffs and defendants. However, this usually yields different tests for plaintiffs and defendants, a condition that Judge Posner found unsatisfactory in Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, ________________ (7th Cir. November 23, 2010).
Background: Nightingale was a false advertising action brought under the Lanham Act. Defendant Anodyne Therapy sold FDA-approved infrared lamps. The FDA approval did not expressly extend to treatment of peripheral neuropathy, but healthcare providers could lawfully prescribe “off-label” use of the lamps. Plaintiff Nightingale purchased Anodyne’s lamps and provided them to patients for treatment of this condition until a pricing dispute led Nightingale to substitute virtually identical lamps – with the same FDA approval – from another supplier. Nightingale then sued Anodyne for falsely claiming that its lamps were expressly FDA-approved for treating this condition.
The district court found on summary judgment that the claim had no factual merit. Moreover, the court found that Nightingale made the claim to coerce lower pricing, making the case “exceptional” under 15 U.S.C. § 1117(a). Anodyne, the prevailing defendant, received an award of its attorney’s fees. Nightingale did not appeal the judgment on the merits, but sought reversal of the attorney’s fees award.
Distilling a Common Thread to Define “Exceptional”: Noting the lack of agreement among the various circuits, Judge Posner sought to clarify when a case is “exceptional” for purposes of an award of attorney’s fees notwithstanding the “American” rule that litigation costs are typically not shifted. He focused on whether litigation is brought or defended for the purpose of vindicating a right or for strategic business purposes, such as to obtain a competitive advantage by forcing the cost of litigation on its adversary.
An exceptional case is characterized by oppression, which can be waged by either the plaintiff or the defendant for anti-competitive business purposes. Judge Posner looked to the tort of abuse of process as “a prime example of litigating in bad faith.” He adapted this tort in an even-handed way, making no distinction in principle between a plaintiff’s claim or a defendant’s defense asserted to bleed a competitor of business resources to fund litigation.
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.
Judge Posner does not extend this rule to cases between individuals and corporations, where there is a distinct lack of symmetry of resources. An individual is not likely to assert a claim or defense against a corporation to seek a competitive advantage.
While applying an abuse of process standard to the definition of an exceptional case, Judge Posner did not want “the tail to wag the dog” by inviting a separate trial on a new tort claim. Instead, he states that:
It should be enough to justify the award if the party seeking it can show that his opponent’s claim or defense was objectively unreasonable – was a claim or defense that a rational litigant would pursue only because it would impose disproportionate costs on its opponent – in other words only because it was extortionate in character in not necessarily in provable intention.
Conclusion. Nightingale seeks to set forth an evenhanded and objective test for when a case is exceptional. It may be persuasive outside the Seventh Circuit, particularly in the case of prevailing defendants because many circuits lack well-developed law in this area. Clients should note that the abuse of process standard does not require that a claim or defense be frivolous, only that it be asserted to oppress the other party in order to gain an advantage outside the courtroom.