LHO Chicago River, L.L.C. v. Joseph Perillo

                               In the

     United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 19‐1848
LHO CHICAGO RIVER, L.L.C.,
                                                   Plaintiff‐Appellee,
                                 v.

JOSEPH PERILLO, et al.,
                                             Defendants‐Appellants.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
           No. 1:16‐cv‐6863 — Charles P. Kocoras, Judge.
                     ____________________

 ARGUED SEPTEMBER 26, 2019 — DECIDED NOVEMBER 8, 2019
               ____________________

   Before BAUER, MANION, and ST. EVE, Circuit Judges.
    MANION, Circuit Judge. Defendants appeal the denial of
their request for Lanham Act attorney fees following the
plaintiff’s voluntary dismissal of its trademark infringement
suit. The lone question here is whether the Supreme Court’s
decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc.,
572 U.S. 545 (2014)—a patent case—should guide district
courts faced with Lanham Act attorney fees applications.
Most of our sister circuits have answered that question in the
2                                                             No. 19‐1848

affirmative, but we have never addressed the issue. The op‐
portunity now presents itself, and for all the reasons herein,
we join our sister circuits in holding that Octane controls and
remand for further consideration.1
                               I. Background
    LHO Chicago River, L.L.C., owns an upscale, downtown
Chicago hotel that underwent a branding change in February
2014 when the establishment became “Hotel Chicago,” a sig‐
nature Marriott venue. Around May 2016, Joseph Perillo and
his three associated entities—Rosemoor Suites, LLC, Portfolio
Hotels & Resorts, LLC, and Chicago Hotel, LLC2—opened
their own “Hotel Chicago” only three miles from LHO’s site.
LHO then sued Defendants for trademark infringement and
unfair competition under the Lanham Act, 15 U.S.C. § 1125(a),
and for trademark infringement and deceptive trade practices
under Illinois state law. The litigation dragged on for more


    1 A separate panel of this court very recently applied Octane when re‐
viewing a denial of Lanham Act attorney fees. See 4SEMO.com Inc. v. S. Ill.
Storm Shelters, Inc., 939 F.3d 905, 913–14 (7th Cir. 2019). Our colleagues in
that case, however, did not compare Octane against our existing standard;
the parties therein did not raise the same conflict we now face, and the
district judge cited no standard at all when denying attorney fees. Thus,
we cannot say the 4SEMO.com panel applied Octane in favor of this Cir‐
cuit’s existing caselaw.
    2 We refer collectively to Mr. Perillo and these entities as “Defendants”

but pause to question whether Mr. Perillo is a proper party to this appeal.
The parties stipulated to Mr. Perillo’s dismissal from the underlying ac‐
tion shortly after LHO filed its amended complaint, and the district judge
dismissed Mr. Perillo, without prejudice, on August 25, 2016. (Doc. 59.)
Indeed, the order appealed here, by its own language, applies only to the
LLC defendants. (Doc. 175.) In any event, Mr. Perillo’s inclusion or exclu‐
sion at this stage has no bearing on today’s conclusion.
No. 19‐1848                                                                 3

than a year until LHO moved to voluntarily dismiss its claims,
with prejudice. The district judge granted LHO’s motion and
entered judgment on February 21, 2018.
    Defendants made a post‐judgment request for attorney
fees pursuant to 15 U.S.C. § 1117(a), which permits the district
court to award reasonable fees to the prevailing party in “ex‐
ceptional cases.” In their attorney fees briefing, the parties
identified two distinct standards for determining such excep‐
tionality: (1) this Circuit’s prevailing standard, that a case is
exceptional under § 1117(a) if the decision to bring the claim
constitutes an “abuse of process”; and (2) the more relaxed
totality‐of‐the‐circumstances approach under the Patent Act
that the Supreme Court announced in Octane Fitness, LLC v.
ICON Health & Fitness, Inc., 572 U.S. 545 (2014). When Defend‐
ants moved for attorney fees, we had not yet provided guid‐
ance on Octane’s applicability in this context, though several
of our sister circuits had extended Octane to the Lanham Act.
It comes as no surprise then, that when the district judge ruled
on Defendants’ request, he acknowledged Octane but never‐
theless adhered to our “abuse‐of‐process” standard. The
judge found LHO had not brought an exceptional case war‐
ranting attorney fees.3 Defendants appeal.


    3  Today’s remand allows the district judge to apply Octane in place of
the “abuse of process” standard. The parties asked alternatively that we
review the district judge’s conclusions in his attorney fees order. We de‐
cline to do so. See Fair Wind Sailing, Inc. v. Dempster, 764 F.3d 303, 315 (3d
Cir. 2014) (“With its unparalleled knowledge of the litigation and the par‐
ties, the District Court is better suited to make [the Lanham Act attorney
fees] assessment in the first instance.”). To guard against future confusion,
however, we note the proper standard for such review is one of abuse of
discretion. While not dispositive, the parties dispute this issue in their
briefs, but the caselaw is clear: “A decision to award attorneys’ fees under
4                                                            No. 19‐1848

                               II. Discussion
    The Lanham Act contains the following fee‐shifting lan‐
guage: “The court in exceptional cases may award reasonable
attorney fees to the prevailing party.” 15 U.S.C. § 1117(a). Our
current standard for identifying “exceptional” trademark
cases comes from Burford v. Accounting Practice Sales, Inc., 786
F.3d 582, 588 (7th Cir. 2015), and Nightingale Home Healthcare,
Inc. v. Anodyne Therapy, LLC, 626 F.3d 958, 963–66 (7th Cir.
2010).4 Burford and Nightingale hold a case “exceptional” un‐
der § 1117(a) if it amounts to an “abuse of process.” Burford,
786 F.3d at 588 (citing Nightingale, 626 F.3d at 963–64). An
abuse of process occurs when a claim is: (1) “objectively un‐
reasonable because it is one a rational litigant would pursue
only because it would impose disproportionate costs on his
opponent” (in other words, extortionate in nature); or (2)
when a party brings a frivolous claim with the purpose of ob‐
taining an advantage external to the litigation, “‘unrelated to
obtaining a favorable judgment.’” Id. (quoting Nightingale, 626
F.3d at 966).
    The Patent Act contains an identical provision: “The court
in exceptional cases may award reasonable attorney fees to



the Lanham Act is firmly committed to the district court’s discretion … .”
BASF Corp. v. Old World Trading Co., 41 F.3d 1081, 1099 (7th Cir. 1994); see
also TE–TA–MA Truth Found.–Family of URI, Inc. v. World Church of the Cre‐
ator, 392 F.3d 248, 257 (7th Cir. 2004) (“We normally review for abuse of
discretion a district court’s denial of fees under § 1117(a).”).
    4 Because our decision overturns Burford and Nightingale in favor of
Octane, this opinion has been circulated among all active judges of this
court in regular active service. No judge favored a rehearing en banc on
this question.
No. 19‐1848                                                    5

the prevailing party.” 35 U.S.C. § 285. Addressing § 285 in
2014, the Supreme Court determined:
       [A]n “exceptional” case is simply one that
       stands out from others with respect to the sub‐
       stantive 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, consid‐
       ering the totality of the circumstances.
Octane, 572 U.S. at 554. Among the circumstances for consid‐
eration, the Court pointed to a nonexclusive set of factors it
identified earlier when addressing the Copyright Act’s simi‐
lar fee‐shifting provision. See id. at 554 n.6 (citing Fogerty v.
Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994)). Those factors in‐
clude “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.” Id. (internal quotation marks
and citation omitted).
   The Court reached this holding by construing the term
“exceptional” in accordance with the word’s ordinary mean‐
ing. Octane, 572 U.S. at 553–54. In particular, while highlight‐
ing the identical language shared by the Patent and Lanham
Acts, the Court relied on Noxell Corp. v. Firehouse No. 1 Bar‐B‐
Que Rest., a trademark case in which the D.C. Circuit inter‐
preted the term “exceptional” in § 1117(a) to mean “uncom‐
mon” or “not run‐of‐the‐mill.” Octane, 572 U.S. at 554 (citing
771 F.2d 521, 526 (D.C. Cir. 1985).
6                                                     No. 19‐1848

    Octane also abrogated the Federal Circuit’s exceptionality
standard contained in Brooks Furniture Mfg., Inc. v. Dutailier
Int’l., Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). Under Brooks, a
district court could find a case exceptional either where the
parties had engaged in material, sanctionable litigation mis‐
conduct, or where the litigation had been both brought in bad
faith and objectively baseless. 393 F.3d at 1381. The Court
deemed this approach “overly rigid” because it allowed cer‐
tain litigants to escape attorney fees. Octane, 572 U.S. at 545–
55. For example, while Brooks permitted attorney fees against
a party engaging in sanctionable litigation tactics, such a
heightened level of misconduct is not always present in a sub‐
stantively weak case or a case in which a litigant acts simply
“unreasonably.” The same is true for Brooks’s second prong,
which requires subjective bad faith and objective baselessness:
a case that “stands out from others” with respect to the party’s
legal position or strategy need not carry both traits. As Octane
observed, again looking to Noxell, “a case presenting either
subjective bad faith or exceptionally meritless claims may suf‐
ficiently set itself apart from mine‐run cases to warrant a fee
award.” Id. at 555 (emphasis added) (citing Noxell, 771 F.2d at
526 (“[W]e think it fair to assume that Congress did not intend
rigidly to limit recovery of fees by a [Lanham Act] defendant
to the rare case in which a court finds that the plaintiff acted
in bad faith, vexatiously, wantonly, or for oppressive rea‐
sons… . Something less than ‘bad faith,’ we believe, suffices
to mark a case as ‘exceptional.’”) (internal quotation marks
and citations omitted; alteration supplied by Octane)).
    Our Burford/Nightingale standard suffers from similar in‐
flexibility. As outlined above, an abuse of process occurs only
when a litigant pursues an objectively unreasonable claim to
extort or inflict disproportionate costs on his opponent, or
No. 19‐1848                                                       7

when a party brings a frivolous claim for external gain. Under
either of these prongs, a fee applicant must show that his op‐
ponent acted essentially with ill motive, but this conflicts with
Octane’s holding that “‘there is no precise rule or formula for
making [exceptionality] determinations … .’” 572 U.S. at 554
(quoting Fogerty, 510 U.S. at 534). For example, based on our
current caselaw, a party’s substantively weak position or
strategy might make a case “stand out from others,” but with‐
out extortionate or external motives fueling the litigation, the
case cannot be deemed exceptional under § 1117(a). We think
it fair that such a scenario should not render a case unexcep‐
tional and prevent recovery of fees so automatically.
    Given Octane’s rejection of a similarly rigid standard for
an identical fee‐shifting provision, and considering the
Court’s reliance on trademark law therein, we agree with De‐
fendants that Octane’s standard should apply in the present
context of the Lanham Act. “[F]ee‐shifting statutes’ similar
language is a strong indication that they are to be interpreted
alike.” Indep. Fed’n of Flight Attendants v. Zipes, 491 U.S. 754,
758 n.2 (1989) (internal quotation marks and citation omitted).
Furthermore, Congress expressly referenced the Patent Act’s
attorney fees provision when justifying § 1117(a)’s passage:
       In appropriate circumstances, a successful party
       should be entitled to full compensation for the
       injuries sustained and expenses incurred, since
       these were necessitated by the acts of the oppos‐
       ing party. The federal patent and copyright stat‐
       utes expressly provide for reasonable attorney
       fees, as do a number of other federal acts.
S. Rep. No. 93‐1400, at 5, as reprinted in 1974 U.S.C.C.A.N.
7132, 7135; see also Romag Fasteners, Inc. v. Fossil, Inc., 866 F.3d
8                                                     No. 19‐1848

1330, 1335–36 (Fed. Cir. 2017), and Fair Wind Sailing, Inc. v.
Dempster, 764 F.3d 303, 315 (3d Cir. 2014) (both opinions rec‐
ognizing the same).
    LHO attempts to minimize the overlap of patent and
trademark caselaw, noting that Burford, which postdates Oc‐
tane, made no mention of the Supreme Court’s decision,
“likely because Octane interpreted a different statutory provi‐
sion.” (LHO’s Br. at 17.) True, we did not discuss Octane in
Burford despite Octane’s earlier release, but our silence in Bur‐
ford should not be interpreted as a rejection of Octane’s exten‐
sion to Lanham Act fee‐shifting. As pointed out correctly by
Defendants, the Burford parties never directed us to Octane in
any of their filings. See United States v. Crawley, 837 F.2d 291,
292–93 (7th Cir. 1988) (discussing the reduced weight an opin‐
ion carries when based on issues “not refined by the fires of
adversary presentation”).
    Most circuits—many of them since Burford—have ex‐
tended Octane to the Lanham Act’s fee‐shifting provision, re‐
lying on legislative history, the Patent Act’s identical lan‐
guage, and the Supreme Court’s use of trademark law in Oc‐
tane. See Evoqua Water Techs., LLC v. M.W. Watermark, LLC, 940
F.3d 222, 235 (6th Cir. 2019); Sleepy’s LLC v. Select Comfort
Wholesale Corp., 909 F.3d 519, 530–31 (2d Cir. 2018); Scholz v.
Goudreau, 901 F.3d 37, 49–50 (1st Cir. 2018); Tobinick v. Novella,
884 F.3d 1110, 1117–18 (11th Cir. 2018); Romag, 866 F.3d at
1334–36; SunEarth, Inc. v. Sun Earth Solar Power Co., 839 F.3d
1179, 1180–81 (9th Cir. 2016) (en banc); Baker v. DeShong, 821
F.3d 620, 624–25 (5th Cir. 2016); Slep‐Tone Entm’t Corp. v. Kar‐
aoke Kandy Store, Inc., 782 F.3d 313, 318 (6th Cir. 2015); Georgia‐
Pacific Consumer Prods. LP v. von Drehle Corp., 781 F.3d 710, 721
No. 19‐1848                                                                9

(4th Cir. 2015); Fair Wind Sailing, 764 F.3d at 314–15.5 These
opinions both instruct and confirm our analysis here.
    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. This
does not require us to invent a new formula, as Defendants
propose through their “highly likely to fail” test. (Defendants’
Reply Br. at 8–10.) Instead, we simply instruct district courts
analyzing such requests to examine the “totality of the cir‐
cumstances” and exercise their “equitable discretion” in light
of the factors and considerations identified in Octane and, by
reference, Fogerty. Octane, 572 U.S. at 554 n.6.
                            III. Conclusion
    Because the district judge here did not address the parties’
fee dispute under Octane, we VACATE the attorney fees order
and REMAND so he may do so.




    5 The Tenth and D.C. Circuits have yet to address Octane’s applicabil‐
ity to Lanham Act attorney fees. And the Eighth Circuit has adopted a
hybrid approach instructing district courts to consider both the totality of
the circumstances under Octane and whether the plaintiff brought an ac‐
tion that “was groundless, unreasonable, vexatious, or was pursued in
bad faith.” B&B Hardware, Inc. v. Hargis Indus., Inc., 912 F.3d 445, 454 (8th
Cir. 2018) (internal quotation marks and citation omitted). In any event,
from what we can gather, no circuit has considered and rejected Octane’s
extension to the Lanham Act.