ABUSE OF PROCESS REQUIRED FOR A CASE TO BE EXCEPTIONAL UNDER THE LANHAM ACT

The Lanham Act authorizes courts to award attorneys’ fees to the prevailing party in “exceptional cases.” 15 U.S.C § 1117. The Seventh Circuit addressed what it means for a case to be exceptional last year in Nightingale Home Healthcare v. Anodyne Therapy. The Seventh Circuit settled on the following standard.

[A] case under the Lanham Act is “exceptional,” in the sense of warranting an award of reasonable attorneys’ fess 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.

Abuse of process the court explained, is the misuse of legal process primarily to accomplish a purpose for which it was not designed, such as in a Lanham Act case, suing “to obtain a competitive advantage independent of the outcome of the case by piling litigation costs on a competitor.”

The abuse of process standard for exceptional Lanham Act cases in the Seventh Circuit is less exacting than the Federal Circuit’s test for finding an exceptional case for purposes of awarding attorneys fees in a patent case, discussed in my April 14, 2011 post. The Federal Circuit requires not only subjective bad faith but objective unreasonableness to qualify a patent case as exceptional.

The court surveyed precedent nationwide and found an absence of consensus on a precise standard. That portion of the opinion is a good resource for litigants in every circuit. A researcher can start there and then move to the authorities cited from the particular court in which he is litigating.
 

WE HAVE AN INJUNCTION, WHY CAN'T WE GET CONTEMPT?

It is not always the case that once a court issues an injunction prohibiting further patent infringement , any further infringement will be punishable by contempt. That is often a disappointment for patent owners, but the recent Federal Circuit en banc opinion in Tivo v. Echostar explains how this can occur.

A two part inquiry is required to determine whether the enjoined party may be found in contempt. The first question is whether there are “colorable differences” between the enjoined product and the re-designed product. The crucial question for determining whether there are colorable differences is: what are the differences between the features relied on to determine infringement and the modified features? If the differences are “colorable” or “significant” there can be no contempt, even if the re-design still infringes the patent. If, on the other hand, any differences are not colorable, the court must then determine whether the re-design infringes the patent. The enjoined party should be held in contempt only if the differences are non-colorable and the re-design infringes.

On a motion for contempt, the patentee bears the burden of proving both the absence of colorable differences and the continuing infringement by clear and convincing evidence. It is no defense, however, that the enjoined party did not intend to violate the injunction, although the court may in its discretion consider diligence and good-faith efforts for purposes of mitigating the punishment.

The Court rejected Echostar’s argument that it should not be held in contempt because the injunction was vague and overbroad. The Court emphasized that the time to challenge the clarity of the injunction is when it issues; a party cannot act first and then complain about ambiguity or breadth when it is caught.