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Court Sanctions Patent Owner for Dismissing Suit to Avoid Ruling on Patent Invalidity

Monday, August 14, 2017   (0 Comments)
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Court Sanctions Patent Owner for Dismissing Suit to Avoid Ruling on Patent Invalidity

By John Paul, Brian Kacedon, and Robert MacKichan
Edited by Cecelia Sanabria
(Authors and editors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.)

Abstract: A California court awarded attorney’s fees against a patent owner who voluntarily dismissed a patent infringement suit, finding that the patent owner had developed a pattern of settling patent cases for nominal amounts or voluntarily dismissing the cases before a ruling on the validity of the asserted patents could be made.

In exceptional cases, courts may award reasonable attorney fees to the prevailing party. The question of what constitutes an exceptional case has been an issue raised in numerous recent cases.

In Shipping and Transit, LLC v. Hall Enterprises, Inc., a California court considered whether a patent owner’s conduct was exceptional where it established a pattern of filing hundreds of patent infringement cases and either settling for a small sum, or dismissing before a ruling on the merits if a defendant challenged the validity of the patents.

Background

Shipping and Transit, LLC, sued Hall Enterprises, Inc. for infringement of three patents directed to the idea of monitoring and reporting the location of a vehicle. One of the patents has been asserted by Transit in more than 400 cases and two of the patents have been asserted by Transit in more than 90 cases.

Although some defendants in prior cases challenged the validity of the asserted patents, those cases either settled or were voluntarily dismissed before a ruling on the merits.

After being sued, Hall requested that Transit voluntarily dismiss its case by no later than October 15, 2016. Transit did not do so.

Hall then moved for judgment on the pleadings, alleging that the asserted patents contained subject matter that was ineligible for patenting under 35 U.S.C. § 101.

Transit then moved to dismiss its case with prejudice. Hall did not oppose the motion to dismiss after it was provided a covenant not to sue.

The court granted Transit’s motion, and all of its claims against Hall were dismissed with prejudice.

Hall then asked the court to rule that the case was an “exceptional” and warranted an award of attorney’s fees.

The Shipping and Transit Decision

The court first considered whether Transit’s validity position was objectively unreasonable. Applying the Supreme Court’s decision in Alice v. CLS Bank Int’l, the court found that the asserted patents were directed to an abstract idea—that of monitoring and reporting the location of a vehicle—and did not contain an inventive concept sufficient to transform the abstract idea into an invention eligible for patent protection. According to the court, at best, the asserted patents “are directed to implementing an abstract idea using generic computer components.” The court further considered Federal Circuit decisions applying Alice in concluding that Transit’s validity position was objectively unreasonable in light of Alice and these decisions.

The court next considered whether Transit’s litigation conduct was reasonable, noting that Transit had a history of filing a large number of cases based on the asserted patents. While filing a large number of cases is not necessarily unreasonable litigation conduct, the court was troubled by Transit’s practice of repeatedly dismissing its own lawsuits to avoid a ruling on the merits while still persisting in filing new lawsuits advancing the same claims. The court also considered the low settlement value of Transit’s cases. Transit admitted that average license fees have averaged between $10,000 and $25,000. According to the court, the low-value license offers reflect an aggressive strategy that avoids testing the merits of its case and instead aims for early settlements.

Having found that Transit’s litigation conduct was unreasonable, the court next considered whether the case before it was “exceptional”—warranting an award of attorney fees. The court pointed out that Hall made clear its position that the asserted patents were invalid and that, had Transit dismissed when Hall requested it to, Hall’s fees would have been avoided. Instead, Transit forced Hall to incur the expenses of challenging the validity of Transit’s patents, “which predictably led to Transit voluntarily dismissing the case.”

Transit argued that its conduct was reasonable in light of “the uncertainties of the ever-evolving § 101 jurisprudence and the value of previous licenses.” The court acknowledged the “complex and developing area” of the law on patentable subject matter, but found that Transit’s pattern of conduct showed an intent to litigate even when it should have realized it had a weak litigation position.

The court also found that Transit’s business model of leveraging the high cost of litigation to extract low-value settlements compelled the need for deterrence to discourage “exploitative litigation by patentees who have no intention of testing the merits of their claims.”

Strategy and Conclusion

A patent owner asserting patents with validity issues may risk having to pay the attorney fees of the accused infringer when it voluntarily dismisses its claims to avoid a judgment on the validity of the asserted patents. Courts may also consider past instances of such conduct by the patent owner in finding that an award of fees is warranted.

The Shipping and Transit decision can be found here.

This article is for informational purposes and does not constitute legal advice. The views expressed do not necessarily reflect the views of LES (U.S.A. and Canada) or Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.