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Objectively Baseless Patent Litigation

The Federal Circuit Court of Appeals affirmed a monetary award of nearly $600,000 to Defendant and accused infringer Flagstar and against patentee Eon-Net and its counsel Zimmerman under 35 U.S.C. sec. 285 (“an exceptional case” ruling ) and Fed.R. Civ. P. 11 (a Rule 11 Sanction). Eon-Net LP v. Flagstar Bancorp, Case No. 2009-1308 (Fed. Cir. July 29, 2011) (available here). Patentee Eon-Net is a non-practicing entity. Eon-Net argued, and the Court agreed, “that it is not improper for a patentee to vigorously enforce its patent rights or offer standard licensing terms.” Eon-Net at pg. 24. However, attorney Zimmerman had filed over 100 suits on behalf of Eon-Net and most of those cases were subject to early settlements or dismissals. Id pg. 7. The Court noted that the “low settlement offers—less than ten percent of the cost that Flagstar expended to defend suit [$600,000] — effectively ensured that Eon-Net’s baseless infringement allegations remained unexposed, allowing Eon-Net to continue to collect additional nuisance value settlements.” Id. at p. 23. The Court noted that Eon-Net’s contrary claim construction position “borders on the illogical” and that “[t]he specification exposes the frivolity” of its position. Id. at p.26.

The Patent Statute, 35 U.S.C. § 285, permits the court to award attorneys fees in exceptional circumstances. “[W]e have observed that many varieties of misconduct can support a district court’s exceptional case finding, including lodging frivolous filings and engaging in vexatious or unjustified litigation. See Takeda Chem. Indus., Ltd. v. Mylan Labs., Inc., 549 F.3d 1381, 1387–88 (Fed. Cir. 2008). Indeed, ‘[l]itigation misconduct and unprofessional behavior may suffice, by themselves, to make a case exceptional under § 285.’ Rambus Inc. v. Infineon Techs. AG, 318 F.3d 1081, 1106 (Fed. Cir. 2003). Absent litigation misconduct or misconduct in securing the patent, sanctions under § 285 may be imposed against the patentee only if both (1) the patentee brought the litigation in bad faith; and (2) the litigation is objectively baseless. Brooks Furniture Mfg., Inc. v. Dutailer Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).” Eon-Net at pg. 17.

The trial court had found both litigation misconduct and objectively baseless litigation. “Eon-Net and its counsel destroyed relevant documents prior to the initiation of its lawsuit against Flagstar and that Eon-Net intentionally did not implement a document retention plan.” Id. at pg. 18. Further, “the district court found that Eon-Net failed to engage the claim construction process in good faith because Eon-Net failed to offer a construction for any disputed claim terms, lodged incomplete and misleading extrinsic evidence with the [trial] court, and submitted declarations that contradicted earlier deposition testimony by the declarants.” Id at pg. 19.

 Improper Claim Construction

Central to the appeal, the trial court concluded that the terms “document,” “file,” “extract,” and “template” were limited to information originating from a hard copy document. Based on these constructions, Eon-Net stipulated to noninfringement of the asserted claims in order to appeal the trial court’s ruling. Thereafter, the district court awarded Flagstar its fees and costs. Eon-net appealed.

Eon-Net’s Claim 1 states: “A multimode information processing system for inputting information from a document or file on a computer into at least one application program according to customizable transmission format instructions, and to operate in at least one of: [a] a definition mode wherein content instructions are used to define input information from within said document or file required by said at least one application program; and [b] an extraction mode to parse at least a portion of said document or file to automatically extract at least one field of information required by said at least one application program … ” (emphasis added)

The patent specification consistently discusses processing information from a “hard copy” document. Col./line 1/15, Fig. 1, 4/55, 5/8, 5/16, 14/53. Per the Court, “the written description repeatedly defines the invention as a system for processing information that originates from hard copy documents, and, under this construction, it is undisputed that Flagstar does not infringe any asserted claim of the … patents. Thus, because the written description clearly refutes Eon-Net’s claim construction, the district court did not clearly err in finding that Eon-Net pursued objectively baseless infringement claims. Cf. iLOR v. Google, Inc., 631 F.3d 1372, 1378-79 (Fed. Cir. 2011) (reversing finding that the patentee’s claim construction position was objectively baseless where ‘[o]n its face, the claim language does not preclude the patentee’s construction,’ the written description failed to ‘clearly refute the patentee’s construction,’ and the patentee could reasonably argue that the prosecution history did not preclude its construction).” Eon-Net at pg. 21.

The Court found that Eon-Net’s claim construction was illogical and the specification “exposes the frivolity” of its position. Id. at p.26.

“We noted in Eon-Net I that ‘[t]here is really no dispute that Eon-Net’s counsel did examine portions of Flagstar’s website and, based on his experience, concluded that it worked in a manner that infringed the ’697 patent.’ 249 F. App’x at 196. A reasonable presuit investigation, however, also requires counsel to perform an objective evaluation of the claim terms when reading those terms on the accused device. See Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295, 1300–01 (Fed. Cir. 2004); S. Bravo Sys., Inc. v. Containment Techs. Corp., 96 F.3d 1372, 1375 (Fed. Cir. 1996). The district court concluded that the written description expressly defines the invention as a system for processing information originating from hard copy documents, … finding that Eon-Net’s contrary claim construction position ‘borders on the illogical’ and that ‘[t]he specification exposes the frivolity of Eon-Net’s claim construction position.’” Pg. 26.

 Rule 11

The Federal Circuit applies the regional circuit law to the Rule 11 sanctions analysis. Under Ninth Circuit law, the trial court must determine that the complaint is “legally or factually ‘baseless’ from an objective perspective” and that the attorney failed to conduct a “reasonable and competent inquiry” before filing the complaint. Eon-Net at pg. 25, quoting Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002) and Buster v. Greisen, 104 F.3d 1186, 1190 (9th Cir. 1997)). Since the claim construction analysis was frivolous, illogical and not objective, the trial court sanctioned Attorney Zimmerman and the appeals court affirmed.

Rule 11

Improper Claim Construction

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