The Court of Appeals for the Federal Circuit recently decided Eon-Net v. Flagstar on appeal from District Court. The Federal Circuit explains,
Here, Eon-Net only appeals the district court's exceptional case finding and has not appealed the district court's determination of the amount of attorney fees and costs. Eon-Net argues that the district court clearly erred in its exceptional case finding, asserting that Eon-Net proffered reasonable claim construction positions, that the purpose of its lawsuit—to obtain licensing revenue—was proper, that Eon-Net did not destroy any relevant documents, and that Eon-Net's litigation tactics were not offensive or vexatious. Thus, argues Eon-Net, the district court committed clear error and its exceptional case finding should be reversed.
We disagree. It is undisputed that the district court applied the correct legal standard under 35 U.S.C. § 285. Regarding the court's factual finding, as a general matter, we 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)...
The Court goes on to explain the misconduct in the instant case.
1. Litigation misconduct
2. Filing objectively baseless litigation in bad faith
In discussing the second kind of misconduct, filing objectively baseless litigation in bad faith the court states:
The record supports the district court's finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar. At the time that the district court made its exceptional case finding, Eon-Net and its related entities, Millennium and Glory, had filed over 100 lawsuits against a number of diverse defendants alleging infringement of one or more patents from the Patent Portfolio. Id. at 2—4, 16. Each complaint was followed by a "demand for a quick settlement at a price far lower than the cost of litigation, a demand to which most defendants apparently have agreed." Id. at 16. In this case, as with the other cases, Eon-Net offered to settle using a license fee schedule based on the defendant's annual sales: $25,000 for sales less than $3,000,000; $50,000 for sales between $3,000,000 and $20,000,000; and $75,000 for sales between $20,000,000 and $100,000,000. Rule 11 Sanctions Order, at 3—4...
The decision may suggests a shift in the courts approach to excessive patent litigation, and serve as a warning to litigants as to what kind of litigation might result in sanctions by the Court. The patentee's right to enforce their patents vigorously against alleged infringers turns on the claim construction of the patent by the Court. When the claim construction is not clear then patent holder will need to review the decision and carefully approach filing litigation against alleged infringers, performing an extensive pre-suit investigation. Though the patent holder performed an investigation, the investigation their performed was not sufficient, in the instant case the Court stated
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, Claim Construction Opinion, at 17—19, 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." Rule 11 Sanctions Order, at 12—13. For the reasons stated above, those findings were not clearly erroneous. Accordingly, Eon-Net has failed to meet its high burden to show that the district court abused its discretion in imposing Rule 11 sanctions.
For more information also read:
PatentlyO has an interesting posting discussing the case.
New Article by the Inquirer, US Appeals Court Ruling Smacks Down a Patent Troll
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