S Industries, Inc. v. Diamond Multimedia Systems, Inc., 96 C 3389.

• Decision Date: 19 August 1998
• Docket Number: No. 96 C 3389.,96 C 3389.
• Citation: 17 F.Supp.2d 775
• Parties: S INDUSTRIES, INC., a Delaware Corporation, Plaintiff, v. DIAMOND MULTIMEDIA SYSTEMS, INC., d/b/a/ Diamond Computer Systems, Inc., Micron Electronic, Inc., Zeos, Computer City, Inc., Comp USA, Elek-Tek, Circuit City, Best Buy, and Egghead Software, Defendants.
• Court: U.S. District Court — Northern District of Illinois

17 F.Supp.2d 775

S INDUSTRIES, INC., a Delaware Corporation, Plaintiff, v. DIAMOND MULTIMEDIA SYSTEMS, INC., d/b/a/ Diamond Computer Systems, Inc., Micron Electronic, Inc., Zeos, Computer City, Inc., Comp USA, Elek-Tek, Circuit City, Best Buy, and Egghead Software, Defendants.

No. 96 C 3389.

United States District Court, N.D. Illinois, Eastern Division.

August 19, 1998.

John Valas, Chicago, IL, for Plaintiff S Industries, Inc.

Andrew P. Bridges, Sara Harrington, Diane E. Turriff, Wilson, Sonsini, Goodrich & Rosati, Palo Alto, CA, David C. Hilliard, John Thompson Brown, Pattishall, McAuliffe, Newbury, Hilliard & Geraldson, Chicago, IL, for Defendants Diamond Multimedia Systems, Inc., Micron Electronics, Inc., Computer City, Compusa, Elek-Tek, Circuit City, Best Buy and Egghead Software.

MEMORANDUM OPINION AND ORDER

WAYNE R. ANDERSEN, District Judge.

As the prevailing parties, Defendants petition the Court for the attorneys' fees and costs incurred in defending this lawsuit. For the following reasons, the petition is granted.

I. BACKGROUND

The facts of this lawsuit are more fully set out in the Court's January 20, 1998 Memorandum Opinion and Order. S Indus., Inc. v. Diamond Multimedia Sys., Inc., 991 F.Supp. 1012 (N.D.Ill.1998). On June 5, 1996, S Industries filed suit against Diamond Multimedia Systems, Inc. ("Diamond") and Diamond's customers Micron Electronic, Inc., Zeos, Computer City, Inc., COMPUSA, Elek-Tek, Circuit City, Best Buy, and Egghead Software (collectively the "Defendants") alleging infringement of its purported STEALTH mark for computers and computer related goods.

In its second amended complaint, S Industries brought claims under the Lanham Act for infringement of a registered trademark (Count I), false designation of origin (Count II), unfair competition (Count III), and dilution (Count IV). Additionally, S Industries alleged state law claims under the Illinois Consumer Fraud and Deceptive Trade Practices Act and the Illinois Uniform Deceptive Trade Practices Act (Count V) and the Illinois Counterfeit Trademark Act (Count VI).

On January 20, 1998, we granted summary judgment in favor of Defendants and denied the cross motion of S Industries for summary judgment. Diamond Multimedia Sys., Inc., 991 F.Supp. at 1023-24. Additionally, we awarded Defendants the reasonable attorneys' fees and costs incurred for the defense of Counts I and IV. Id. As the prevailing parties on Counts II, III, and, V, we invited Defendants to submit a petition for the fees and costs incurred for the defense of these counts. Id. at 1024. State law did not authorize Defendants to receive fees and costs for Count VI. Id.

As instructed, Defendants timely submitted a petition for fees and costs for Counts II, III, and V along with supporting declarations and schedules of fees and costs for Counts I — V. S Industries objects arguing that the fees are neither warranted nor reasonable.

II. FEES AND COSTS ARE WARRANTED ON COUNTS II, III AND V

The Lanham Act authorizes an award of attorneys' fees to the prevailing party in a trademark dispute "in exceptional cases." 15 U.S.C. § 1117. The Illinois Consumer Fraud and Deceptive Trade Practices Act also authorizes the court to award reasonable attorneys' fees and costs to a prevailing party. 815 ILCS 505/10a(c); Door Systems, Inc. v. Pro-Line Systems, Inc., 126 F.3d 1028, 1029-30 (7th Cir.1997) (citations omitted). The matter is within the district court's discretion and the standard is "a generous one." FASA Corp. v. Playmates Toys, Inc., 108 F.3d 140, 143 (7th Cir.1997).

Under the Lanham Act and the Illinois Consumer Fraud and Deceptive Trade Practices Act, fees may be awarded to a prevailing defendant if the plaintiff's suit can fairly be regarded as oppressive. Door Systems, Inc., 126 F.3d at 1032. Bad faith is not the correct standard for determining whether a case is exceptional. Rather "the canonical formula in this and other circuits is malicious, fraudulent, deliberate, or willful." Id. at 1031 (citations omitted).

We have already held that Counts I and IV are oppressive. Diamond Multimedia Sys., Inc., 991 F.Supp. at 1023-24. S Industries argues that Counts II, III, and V, and this lawsuit generally, are not oppressive "because there is no evidence that S Industries brought these counts or this action for any purpose other than the legitimate desire to preserve S Industries' rights to use the mark which is subject of this suit...." (Response to Defs. Petition for Fees, p. 5). S Industries' assertion is unpersuasive. "A suit can be oppressive because of lack of merit and cost of defending even though the plaintiff honestly though mistakenly believes that he has a good case and is not trying to merely extract a settlement based on the suits nuisance value." Door Systems, Inc., 126 F.3d at 1032.

Claims for unfair competition under the Illinois Consumer Fraud and Deceptive Trade Practices Act are resolved in the same manner as Lanham Act claims. D 56, Inc. v. Berry's, Inc., 955 F.Supp. 908, 920 (N.D.Ill. 1997). To have prevailed under these Acts, S Industries had to establish that it has a protectable mark, and if so, that Defendants' use of the mark brought about a likelihood of consumer confusion. Dunn v. Gull, 990 F.2d 348, 351 (7th Cir.1993); Thompson v. Spring-Green Lawn Care Corp., 126 Ill. App.3d 99, 104, 81 Ill.Dec. 202, 466 N.E.2d 1004, 1010 (1984).

It is axiomatic that the right to a distinctive mark belongs to the person who first continuously uses the mark to identify or distinguish goods or services in commerce. "Only active use allows consumers to associate a mark with particular goods and notifies other firms that the mark is so associated." Zazu Designs v. L'Oreal, S.A., 979 F.2d 499, 503 (7th Cir.1992). Trademark rights are acquired by adoption and use, not by registration.

S Industries' claims of unfair competition under both the Lanham Act (Counts II and III) and the Illinois Consumer Fraud and Deceptive Trade Practices Act (Count V) are oppressive. These causes of action were not grounded on a plausible theory of ownership, let alone one even remotely supported by the law or the scant evidence presented by S Industries. S Industries' original complaint made no allegation that it used the STEALTH mark on computers and computer related goods. (Original Complaint, ¶¶ 14, 16). Although, S Industries amended its complaint to remedy this crucial omission, the evidence put forth by S Industries to support its claim that it actively and continuously attempted to or succeeded in establishing a trade in computers and related goods under the STEALTH mark is so inadequate as to be oppressive. See Diamond Multimedia Sys., Inc., 991 F.Supp. at 1017-20.

To support its claim of continuous use, among other inadequate evidence, S Industries relied on an abandoned trademark application and a rejected trademark application for STEALTH in connection with computers and computer related goods and eight invoices showing de minimum sales of computers and related goods in the late 1980s. Not surprisingly, one of these invoices documents the sale of a computer designated with the SENTRA rather than STEALTH mark and another invoice fails to identify the computers sold by any mark whatsoever. Significantly, S Industries submitted no valid evidence of any sales after 1988 even thought it repeatedly claimed continuous use through at least 1996. To bring a cause of action based on evidence of this sort, and to require Defendants to defend such a claim, is not only oppressive, but also inappropriate, frivolous, and, sanctionable.

Throughout the litigation, S Industries has exhibited conduct which increased the cost and burdensome nature of this lawsuit. To provide evidence of consumer confusion and continuous use, S Industries submitted the affidavit of David Todoroff ("Todoroff"), an S Industries customer who purportedly purchased STEALTH brand computers. Todoroff, however, deliberately thwarted Defendants' attempts to serve a deposition subpoena. Incredibly, S Industries' lawyer apparently refused to provide Defendants' attorneys with any contact information for Todoroff and counseled him not to cooperate with Defendants' service attempts. Defendants were ultimately unable to serve the subpoena. (Ron Lamb Aff., ¶¶ 4-7).

In its opposition to the instant motion, S Industries characterizes this lawsuit as an effort to police its STEALTH mark. Although policing a valid mark is not oppressive in and of itself, S Industries is not the typical trademark owner seeking to preserve its intellectual property rights. S Indus., Inc. v. Hobbico, Inc., 940 F.Supp. 210, 211 (N.D.Ill.1996) (Judge Shadur finds that "S Industries, Inc.... appears to have entered into a new industry — that of instituting federal litigation"). Indeed, in one of S Industries' recent "policing" attempts, Judge Castillo granted summary judgment against S Industries and awarded attorneys' fees and costs to the Defendants noting that, "[t]his Court can think of few suits more oppressive, or few cases more exceptional than this." S Indus., Inc. v. Stone Age Equipment, Inc., No. 96 C 4591, 1998 WL 341626, *24 (N.D.Ill. June 24, 1998). In that case, S Industries' conduct and litigation tactics, and even some of the evidence, resemble its actions and submissions in the instant lawsuit. Apparently, Todoroff purchases a wide-variety of S Industries' products and is happily willing to provide testimony in S Industries' lawsuits. In the instant suit, Todoroff's affidavit, which is dated September 17, 1997, states that he is a "self employed business man" having longtime familiarity with S Industries' STEALTH brand computer products. (Todoroff Aff, p. 1). In Stone Age Equipment, Inc., 1998 WL 341626, at *13, Todoroff submitted an affidavit dated December 17, 1997 in which he claims that he is a professional tennis instructor and business owner who purchased a number of sporting goods, including "STEALTH brand...