Phillip Jergenson v. Inhale International Limited

United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued October 1, 2024
Decided October 7, 2024
Before
MICHAEL B. BRENNAN, Circuit Judge
MICHAEL Y. SCUDDER, Circuit Judge
NANCY L. MALDONADO, Circuit Judge
No. 24-1177
PHILLIP JERGENSON,
Plaintiff-Appellee,
v.
INHALE INTERNATIONAL LIMITED,
Defendant-Appellant.
Appeal from the United States District
Court for the Northern District of
Illinois, Eastern Division.
No. 22 CV 2040
Manish S. Shah,
Judge.
O R D E R
Phillip Jergenson sued Inhale International Limited for violating his trademark
rights under the Lanham Act. See 15 U.S.C. §§ 1114, 1125. After Jergenson voluntarily
dismissed his suit against Inhale with prejudice, Inhale requested attorney fees under
the Act’s fee-shifting provision. See id. § 1117(a). The district court denied Inhale’s
NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with FED. R. A PP. P. 32.1

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No. 24-1177 Page 2
request, and Inhale appeals. Because the district court reasonably concluded that this
case was not “exceptional,” we affirm.
Background
Jergenson designed and began selling smoking pipes, known as “proto pipes,”
through his company, Proto Pipe LLC, in 1971. In 1987, he sold his business to Michael
Lightrain and stopped selling pipes. Decades later, Jergenson started another pipe-
making company and began selling pipes with a new design. After Lightrain’s
company ceased operations and was evicted from its manufacturing space in 2018,
Jergenson began manufacturing proto pipes again. He then applied for trademark
registration for the words “PROTO PIPE” and a “PP” logo; the United States Patent and
Trademark Office (USPTO) approved the registrations in 2019.
Jergenson later sued Inhale and more than two hundred other defendants under
the Lanham Act for violating his trademark rights, see 15 U.S.C. §§ 1114 (trademark
infringement and counterfeiting), 1125 (false designation of origin), and Illinois state
law, see 815 ILCS § 510. According to Jergenson, the defendants used his trademark to
advertise and sell counterfeit pipes through e-commerce platforms like Alibaba. The
district court granted Jergenson’s motion for a temporary restraining order stopping the
defendants from using the trade name and mark and requiring third-party service
providers to the defendants (including Alibaba), with actual notice of the injunction and
a request from the plaintiff, to provide discovery including the defendants’ sales data. A
preliminary injunction followed.
Inhale was the only defendant to answer Jergenson’s complaint. Inhale also
brought counterclaims against Jergenson, including one that Jergenson’s trademark
registration was fraudulent, though those counterclaims were later dismissed. After
months of discovery, Jergenson moved to compel because he believed that Inhale was
withholding documents responsive to his requests for production. The court denied the
motion and suggested Jergenson depose one of Inhale’s officers to test the credibility of
Inhale’s claim to have no additional records.
Immediately after the court denied his motion to compel, Jergenson moved to
voluntarily dismiss his claims against Inhale with prejudice under Rule 41(a)(2) of the
Federal Rules of Civil Procedure. Jergenson explained that the cost of continued
litigation against Inhale, including a scheduled deposition of one of Inhale’s officers,

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No. 24-1177 Page 3
would outweigh any damages he could obtain if he prevailed. The court granted the
motion and dismissed Jergenson’s claims against Inhale with prejudice.
Inhale then requested an award of attorney fees as the prevailing party under the
Lanham Act’s fee-shifting provision for “exceptional cases.” See 15 U.S.C. § 1117(a).
Jergenson acknowledged that Inhale was the prevailing party but opposed the motion.
The district court denied Inhale’s motion, concluding that the case was not exceptional.
The court first reasoned that Jergenson’s litigating position was not exceptionally weak
because he had a good-faith belief that Inhale was infringing his trademark, reasonably
believed that he owned the trademark, and had registered it with the USPTO. The court
also determined that Jergenson’s litigation conduct was not exceptional because he
voluntarily dismissed his claims against Inhale once he realized that the cost of
continued litigation would outweigh any potential damages against Inhale. Inhale
appeals.
Analysis
The Lanham Act provides that “[t]he court in exceptional cases may award
reasonable attorney fees to the prevailing party.” 15 U.S.C. § 1117(a). An exceptional
case is “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.” Octane Fitness, LLC v.
ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014) (applying Patent Act’s identical fee-
shifting provision); LHO Chicago River, LLC v. Rosemoor Suites, LLC, 988 F.3d 962, 965
(7th Cir. 2021) (applying Octane Fitness test under Lanham Act). To decide whether a
case is exceptional, district courts exercise their discretion on a case-by-case basis,
considering the totality of the circumstances. Octane Fitness, 572 U.S. at 554. We
therefore review the denial of Inhale’s request for attorney fees for an abuse of
discretion. See LHO Chicago River, 988 F.3d at 967. Under this deferential standard, we
will reverse only if we find “an erroneous conclusion of law, a record that contains no
evidence rationally supporting the court’s decision, or facts that are clearly erroneous as
the district court found them.” Id.
On appeal, Inhale argues that the district court abused its discretion in denying
Inhale’s request for attorney’s fees because (A) Jergenson’s litigating position was
exceptionally weak and (B) he litigated the case in an unreasonable manner. Inhale
asserts that the court relied on clearly erroneous findings of fact and drew erroneous
conclusions of law when it denied the motion.

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No. 24-1177 Page 4
A. Strength of Jergenson’s Litigating Position
Inhale first argues that Jergenson’s litigating position was exceptionally weak.
Although the district court “need not consider any inflexible set of elements to
determine whether the factual or legal weaknesses of a party’s litigating position make
a case exceptional,” id. at 968, nonexclusive factors include frivolousness, motivation,
objective unreasonableness, and the need to advance considerations of compensation
and deterrence. Octane Fitness, 572 U.S. at 554 n.6. Inhale makes four arguments that
challenge the court’s discretionary ruling, but none is persuasive.
First, Inhale challenges the district court’s finding that Jergenson had a good-
faith belief that Inhale was offering for sale and selling pipes that infringed his
registered trademark. Inhale contends that Jergenson’s only evidence that Inhale
violated his trademark rights was a single listing on Alibaba, and Inhale asserts that the
listing was merely an invitation to negotiate the terms of sale of a pipe, not an offer to
sell the product. 1 Inhale further argues that Jergenson failed to produce any evidence
that Inhale, not another entity, authorized or created that listing. According to Inhale,
the record shows that Inhale did not violate the Lanham Act by using the trademark to
sell products, and thus the court clearly erred in finding that Jergenson had a good-faith
basis for his suit.
Nevertheless, the district court’s finding of good faith was not clearly erroneous.
A plaintiff’s good faith is relevant to its motivation in suing and to whether attorney
fees are warranted. See LHO Chicago River, 988 F.3d at 966–67. Here, the court found that
the listing on Alibaba.com, which identified Inhale as the seller, provided Jergenson
with a good-faith belief that Inhale was offering for sale and selling pipes using his
registered trademark. That finding has support in the record—a screenshot of the listing
that Jergenson construed as an offer by Inhale for sale of a counterfeit PROTO PIPE.
Even if Inhale is correct that this listing does not violate Jergenson’s trademark rights,
the finding that Jergenson had a good-faith belief that the listing was unlawful is not
clearly erroneous.
1 According to Alibaba’s advice to sellers: “After listing your products, you will
begin receiving inquiries from potential buyers. As a true B2B platform, Alibaba.com
lets you own the relationship with your customers – messaging back and forth and
negotiating prices.” How to Start Selling on Alibaba.com,
https://seller.alibaba.com/us/how-to-sell (Last checked October 3, 2024).

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No. 24-1177 Page 5
Second, Inhale argues that the district court clearly erred when it determined that
Jergenson at least arguably owned the PROTO PIPE trademark (and therefore did not
have an exceptionally weak case). According to Inhale, Jergenson had no reasonable
basis to believe he owned the trademark because he had sold it to Michael Lightrain in
1987. (Jergenson, for his part, does not dispute that he sold his trademark rights with
the rest of the business.) And, Inhale continues, Jergenson’s deposition testimony shows
that Lightrain never abandoned the trademark after obtaining it—meaning that
Jergenson had no right to register it with the USPTO, let alone to sue Inhale for
infringement.
But the district court had sufficient evidence on which to base a finding that
Jergenson’s ownership of the PROTO PIPE trademark was, at least, reasonably disputed
when he sued. A trademark is abandoned if its use in commerce “has been discontinued
with intent not to resume such use.” 15 U.S.C. § 1127. Jergenson testified that
Lightrain’s operation “went completely out of business” in 2018. Jergenson also testified
that Lightrain “packed up his manufacturing equipment and put it in storage” and that
Lightrain began selling some of the manufacturing equipment after he went out of
business and was evicted from his manufacturing space. We have held that the owner
of a trademark abandoned it under similar circumstances where he shut down his
business, attempted to sell its assets, and ceased using the trademark in commerce.
See Specht v. Google Inc., 747 F.3d 929, 934–35 (7th Cir. 2014). And “[o]nce a mark is
abandoned, it returns to the public domain, and may be appropriated anew.” Id. at 935.
The district court had some evidence that Jergenson appropriated the abandoned
trademark based on his testimony that he resumed using the trademark and registered
it with the USPTO after Lightrain went out of business.
To establish that there was no abandonment, Inhale points to Jergenson’s
testimony that Lightrain intended to restart his business. At the same time, we are not
required to adopt Inhale’s interpretation of the partially developed record. See Anderson
v. City of Bessemer City, 470 U.S. 564, 574 (1985) (“Where there are two permissible views
of the evidence, the factfinder’s choice between them cannot be clearly erroneous.”).
Here, the district court’s finding that Jergenson’s trademark rights were disputed was
one permissible view of the evidence that (1) Lightrain abandoned the trademark by
shutting down his business and (2) Jergenson became its owner by producing proto
pipes under the trademark and registering the trademark with the USPTO. Thus, the
court did not clearly err.

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No. 24-1177 Page 6
Third, Inhale contends that the district court should have concluded that this
case was exceptional because Jergenson defrauded the USPTO when he registered the
trademark. To register the trademark with the USPTO, Jergenson had to make a verified
statement alleging specific facts about his ownership and use of the trademark.
See 37 C.F.R. § 2.33. According to Inhale, Jergenson made three false statements: (1) that
he was using the trademark in commerce when he registered it; (2) that he was the
owner of the trademark and had rights to it since 1976; and (3) that no other person had
the right to use the trademark in commerce.
In contrast, the district court considered Inhale’s allegations of fraud and
reasonably concluded that this case was unexceptional because Inhale provided no
evidence that Jergenson deliberately attempted to mislead the USPTO. Fraud in
registering a trademark “occurs when an applicant knowingly makes false, material
representations of fact in connection with its application.” In re Bose Corp., 580 F.3d 1240,
1243 (Fed. Cir. 2009) (quoting Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48 (Fed. Cir.
1986)). The party alleging fraud must show “a deliberate attempt to mislead the
[USPTO] into registering the mark.” Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 670
(7th Cir. 1982). Finding that Inhale did not substantiate a “deliberate attempt,” the
district court reasonably rejected fraud as a basis for finding Jergenson’s litigating
position exceptionally weak. Even if, as Inhale contends, Jergenson made incorrect
statements when registering his trademark, Inhale supplies no reason to believe that
Jergenson—who undisputedly created and used the trademark for decades before
selling it, and who later resumed use after the buyer’s arguable abandonment—
deliberately attempted to mislead the USPTO. 2 Without such evidence, this is not a
clear error on which the court based its conclusion that the case is not exceptional.
Fourth, Inhale submits that the district court overstated the strength of
Jergenson’s case by relying on the presumption that a registered trademark is valid.
Though registration of a trademark with the USPTO is “prima facie evidence of
validity,” the presumption can be rebutted with evidence of invalidity. Uncommon, LLC
v. Spigen, Inc., 926 F.3d 409, 420–421 & n.5 (7th Cir. 2019). Inhale says it rebutted that
presumption with its evidence that Jergenson did not own the trademark and that he
2 Regardless, even if Jergenson had committed fraud in connection with his
application, that simply “knock[s] out” the registration. See Specialized Seating, Inc. v.
Greenwich Indus., LP, 616 F.3d 722, 728 (7th Cir. 2010). But he could still attempt to
enforce an unregistered trademark. See id.

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No. 24-1177 Page 7
defrauded the USPTO. Yet Inhale’s arguments miss the mark: The court merely
observed that when Jergenson filed suit, he had a presumptively valid trademark,
which cut against concluding that he should have known his infringement case was
exceptionally weak. The court did not make a finding that the trademark was valid or
decide whether the presumption could be overcome here; thus, there is nothing for
Inhale to challenge.
B. Jergenson’s Litigation Conduct
The district court also ruled that Jergenson’s litigation conduct was not
exceptional. On this question, courts consider whether a case was litigated in an
unreasonable manner, accounting for factors such as the party’s motivation and “the
need in particular circumstances to advance considerations of compensation and
deterrence.” LHO Chicago River, 988 F.3d at 969 (citing Octane Fitness, 572 U.S. at 554
n.6).
According to Inhale, Jergenson dragged it through months of discovery before
voluntarily dismissing his suit, even though he knew early on that the potential
damages against Inhale were minimal. Inhale points out that the injunctions issued
early in the suit required Alibaba to provide Jergenson with records of Inhale’s sales on
Alibaba’s website and that those records should have put him on notice that any
damages against Inhale were minimal. Thereafter, Inhale asserts, Jergenson
unreasonably prolonged his suit against Inhale.
But Inhale’s argument fails to engage with the district court’s rationale that when
Jergenson filed suit, he was unaware that damages would be so low. And in any case,
the Lanham Act provides a cause of action for infringement even if damages are
minimal, so his case was not inherently frivolous. See 15 U.S.C. § 1117. Inhale does not
establish that it was unreasonable for Jergenson to seek further discovery about Inhale’s
sales before abandoning his claim. Jergenson maintained that Alibaba did not fully
comply with its disclosure requirements under the TRO, and so he vigorously sought
discovery from Inhale. When that did not bear fruit, he yielded. Inhale has not shown
that Jergenson pursued discovery with an improper motive. Under the totality of the
circumstances, the court reasonably decided that Jergenson’s litigation conduct did not
warrant fee-shifting.
AFFIRMED

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