Abuse Of Process In A Lanham Act Suit May Trigger Award Of Attorneys' Fees

A recent opinion from the Seventh Circuit Court of Appeals (Nightingale Home Healthcare, Inc. v. Andodyne Therapy, LLC) attempts to clarify when the prosecution or defense of a Lanham Act suit renders the case "exceptional," so as to allow for an award of attorneys' fees to the prevailing party. In doing so, the court addressed the increasing trend of businesses in bringing or defending trademark infringement and false advertising lawsuits against competitors solely to obtain a competitive advantage independent of the outcome of the case. The court held that where a party is guilty of such "abuse of process," an award of attorneys' fees would be warranted. This summary further elaborates upon the court's reasoning and why businesses must exercise caution in bringing or defending against intellectual property claims under the Lanham Act.

The Court's Opinion

Anodyne, the seller of a medical device, was the prevailing party in the underlying false advertising lawsuit brought against it by its customer, Nightingale. The trial court awarded Anodyne the attorneys' fees it incurred pursuant to a specific provision of the Lanham Act, which allows for an award to the prevailing party in "exceptional cases." Nightingale appealed this award to the Seventh Circuit Court of Appeals.

In tackling whether the case was exceptional enough to sustain the award of attorneys' fees, the court was perplexed by the varying standards used by the other circuit courts of appeals to make this determination and that those standards were often too vague to be applied objectively.

Taking a step back to find some clarity, the court looked to the policy behind the Lanham Act's provision for attorneys' fees and found that a "practical concern is the potential for businesses to use Lanham Act litigation for strategic purposes -- not to obtain a judgment or defeat a claim but to obtain a competitive advantage independent of the outcome of the case by piling litigation costs on a competitor."

In light of this policy, the court arrived at the following conclusion as to when a case under the Lanham Act is to be deemed exceptional so as to warrant an award of attorneys' fees: (1) If the defendant prevails and the plaintiff was guilty of abuse of process; or (2) If the plaintiff prevails and the defendant had no defense, but persisted in trademark infringement or false advertising to impose costs on the plaintiff.

In further explaining this standard, the court explained that abuse of process is the use of litigation for an improper purpose, whether or not the claim is colorable, often to compel the victim to yield on some matter not involved in the suit. The court found that predatory initiation of a suit is the same as predatory resistance to valid Lanham Act claims. To justify an award, the party seeking it must show that his opponent's claim or defense was "objectively unreasonable." In other words, the claim or defense was pursued not to obtain a favorable judgment, but only to impose disproportionate costs on his opponent or for purposes of extortion.

In addressing the facts of the case before it, the court noted that Nightingale had brought a Lanham Act claim that had no merit. The court held that what made the case exceptional, however, was the fact that Nightingale had initiated the claim only to coerce Anodyne into reducing the price of its medical devices sold to Nightingale. The court sustained the award of attorneys' fees to Anodyne.

What This Means For You

Though this opinion is binding only in the Seventh Circuit, other jurisdictions may certainly heed its well reasoned approach. Courts do not look kindly upon businesses that use litigation to improperly gain a market advantage. If your business is faced with the prosecution or defense of Lanham Act claims, it would be prudent to take a step back and carefully examine the merits and reasonableness of each side's respective positions to determine whether the case is merely an abuse of process.

-- Anuj Desai, Esq.

Not If, But How

Arnall Golden Gregory LLP has significant experience in intellectual property law, including patents, trademarks, and copyright. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information: www.agg.com.

Corporate Advertising: Conducting Your Own Due Diligence Is A Must

Without fail, one of the first responses from companies accused by competitors of false advertising is that “we didn’t know,” and it may well be that the advertising information came from a reputable source. But is the “innocent mistake” defense viable in false advertising litigation? Although it seems only fair that a company taking reasonable steps to verify information in its advertisements would be in the clear, federal advertising law holds companies strictly liable for false advertising. In other words, there is no good faith or innocent mistake defense to underlying liability.

We recently found a “juicy” illustration of the point. Pom Wonderful, the leading marketer of pomegranate juice, had noticed one of its smaller competitors using Pom’s own studies to market competing juice. With this competitor on the radar, Pom also noticed that the company, California-based Purely Juice, was marketing “100% pomegranate juice,” with “no added sugar.” Pom’s testing proved that claim incorrect, and after negotiation failed, Pom sued in federal court.

Purely Juice, it turns out, had been using a broker to find juice suppliers. The broker vouched for its suppliers, but, despite those assurances, the juice Purely Juice received was adulterated, so that the “100% pomegranate” and “no sugar” claims were false. Purely Juice claimed it had no idea of the adulteration, and that it took the word of its broker about the reliability of the juice supply.

Was that approach successful? Just last week, a court of appeals affirmed a trial award against Purely Juice of approximately $1.2 million in damages, disgorgement of more than $300,000 in its profits, and attorney’s fees of more than $620,000. One of the legal principles that resulted in the award is that a company is liable for false advertising regardless of its knowledge. Not only that, an officer or director is personally liable for false advertising in which she participates or that she directs, so the president of Purely Juice, also a defendant, shared in the liability.

It did not help Purely Juice that the trial court also found it “knew or should have known” about the shaky credentials and processes of its suppliers and therefore, of the adulteration. In that market, the limited supply of pomegranate juice means that many suppliers mix in other juice, and add sugar. Had the company conducted and abided by its own testing, and done better due diligence, one wonders if it could have avoided the litigation entirely.

For our own marketing teams, the lesson is clear. The advertising “buck” stops at the company’s door, and assurances from third parties about the quality or characteristics of supplied products, even from trusted suppliers or business partners, will not insulate the company from liability for false advertising. Thorough internal due diligence is a must.


--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

New Wireless False Advertising Litigation: A Reminder to Look at "The Big Picture"

The battle that broke out last week over the accuracy of Verizon Wireless’ new cell phone coverage campaign is not focused solely on the language of Verizon’s advertisements. It is focused on the images, and specifically, on two coverage maps and the message they convey. In two television pieces and on its website, Verizon uses side-by-side maps of the US with color coding to show 3G coverage. The maps emphasize what Verizon believes is its overwhelming advantage over AT&T in territorial 3G coverage. The ads parody the popular iPhone advertisements with the refrain that to explain spotty AT&T coverage, “there’s a map for that.”


AT&T, locked in competition in its most important quarter of the year, is not laughing. In a lawsuit filed in federal district court in Atlanta, AT&T claims that the maps mislead its customers “into believing that when they are

in the areas depicted by large swaths of white or blank space in AT&T’s ‘3G’ coverage maps, they have no coverage whatsoever.” The lawsuit, at least at this point, is actually fairly narrow. AT&T is not claiming anything in the ads is actually false but believes the overall piece is still misleading. Even though Verizon added the phrase, in small font, “Voice & data services available outside 3G coverage areas,” and even though the map is based on actual coverage data, AT&T suggests that the maps convey the complete absence of coverage in the white areas. It asks the Court, at least in its initial request for a temporary restraining order, to stop Verizon from displaying the maps.

To obtain an injunction where no statement is literally false, AT&T is required to put forward some evidence of deception. Usually in federal advertising cases, that evidence takes the form of consumer focus group or survey data. Here, AT&T offers a survey it says shows a 23.5% level of confusion among wireless customers: Assuming AT&T’s survey is valid and was conducted in accordance with generally accepted survey principles, that data is more than enough to justify a finding of confusion. Verizon has not yet filed its response, but it will be interesting to see the competing testimony and market research on the effect of the advertisements. And certainly, the district court will be looking at more than just deception in making its decision.
We’ll continue to follow the dispute and report on the first round. Argument is scheduled for later this month – though we’re certain AT&T would have preferred an earlier hearing – so we should have some early insight fairly soon. If AT&T loses its early TRO request, its momentum is gone and much of the steam leaves its suit.

Regardless of the outcome, though, the case provides a good reminder: If your company sells products or services in a competitive market, especially head-to-head using comparative advertising, keep your eye on more than just the accuracy of advertising copy. Also look to the advertising’s overall impact and impression, and ask what messages a reasonable customer will take away. For purposes of this kind of competitive advertising review, marketing-savvy businesses should be aware that federal law prohibits not just false, but misleading advertising. Even if the words themselves literally true, they may imply a false message, especially when the advertising piece is considered as a whole.

--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.