The US Court of Appeals for the Seventh Circuit officially joined its sister circuits in holding that the Supreme Court standard for awarding attorney’s fees in patent cases, set forth in Octane Fitness, LLC v. ICON Health & Fitness, Inc., was equally applicable to attorney’s fees claims under the Lanham Act. In doing so, the Seventh Circuit overruled its prior holding that a plaintiff’s claims were only “exceptional” under the Lanham Act if they constituted an abuse of process. LHO Chicago River, LLC v. Perillo, Case. No. 19-1848 (7th Cir. Nov. 8, 2019) (Manion, J).

LHO Chicago, owner of the Hotel Chicago, sued defendants after the defendants opened a competing “Hotel Chicago” three miles from the plaintiff’s hotel. After more than a year of litigating, LHO moved to voluntarily dismiss its claims with prejudice, and the district judge granted the motion. Defendants then moved for attorney’s fees under § 1117(a) of the Lanham Act, which allows the court to award attorney’s fees to the prevailing party in “exceptional cases.”

The district court applied the Seventh Circuit’s then-prevailing standard, which only permitted a defendant to recover fees if the plaintiff’s claims had constituted an “abuse of process.” This standard required proof that the plaintiff’s claim was “(1) ‘objectively unreasonable because it is one a rational litigant would pursue only because it would impose disproportionate costs on his opponent’ . . . or (2) . . . a frivolous claim [brought] with the purpose of obtaining an advantage external to the litigation, ‘unrelated to obtaining a favorable judgment’” (quoting Seventh Circuit cases Burford v. Accounting Practice Sales, Inc. (2015) and Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC (2010)). The district court held that the plaintiff’s claims had not risen to this standard and denied the request for fees. Defendants appealed.

The sole issue on appeal was whether the Seventh Circuit would adopt the standard set forth by the Supreme Court in Octane Fitness v. ICON Health & Fitness (2014) (IP Update, Vol. 18, No. 8) for determining whether a patent case was “exceptional.” Octane Fitness loosened the standard for exceptionality, holding:

[A]n “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.

Thus, under Octane Fitness, to determine if a case is exceptional, a district court must simply weigh non-exclusive factors such as “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.”

Although Octane Fitness interpreted the exceptionality standard in the Patent Act, 35 USC § 285, the interpreted language is identical to that in § 1117(a) of the Lanham Act, and the Supreme Court cited trademark cases in deciding Octane Fitness. In addition, in the five years since Octane Fitness was decided, many circuits adopted its standard for Lanham Act cases, including the First, Second, Third, Fourth, Fifth, Sixth, Ninth, 11th and Federal Circuits.

Determining to join its sister circuits, the Seventh Circuit formally overruled its “abuse of process” standard and adopted the “totality of the circumstances” standard of Octane Fitness. It then vacated the denial of attorney’s fees and remanded the case to the district court to evaluate the matter under the Octane Fitness standard.

Practice NoteOctane Fitness has become the law for trademark cases in most circuits. Practitioners in those few circuits that have not yet formally adopted this standard should assume nonetheless that it is applicable and should argue their fees motions accordingly.