The U.S. Federal Circuit recently affirmed an award of
attorneys' fees and sanctions against plaintiff Eon-Net in
excess of $630,000. (Eon-Net LP, v. Flagstar Bancorp, Case No.
2009-1308 ). In an opinion written by Judge Lourie and joined
by judges Mayer and O'Malley, the Federal Circuit affirmed the
district court's finding that the case was exceptional under 35
U.S.C. § 285 in light of various instances of litigation
misconduct and other bad faith behavior, including what the
district court termed "indicia of extortion." The Federal
Circuit also affirmed the lower court's grant of sanctions
under Rule 11 because Eon-Net filed "legally baseless"
infringement contentions and failed to perform a proper pre-suit
investigation. At the heart of the decision was the plaintiff's
strategy of suing a large number of defendants in an attempt to
extract quick "cost of defense" settlements, but without
performing a proper pre-suit investigation against many of those
Plaintiff Eon-Net's asserted claims covered a document
processing system that created a paperless environment by
processing hard-copy documents and storing that information in an
electronic format. Defendant Flagstar moved for summary judgment of
non-infringement fairly early in the case on the basis that
plaintiff's infringement claims, which were aimed at a system
for processing information entered on a website rather than
information in hard-copy documents, were baseless. The district
court's claim construction limited the scope of the asserted
claims to cover only hard-copy documents, and the parties then
stipulated to non-infringement. Defendant Flagstar subsequently
moved for attorneys' fees pursuant to 35 U.S.C. §285,
which were awarded by the district court. The Federal Circuit
upheld this decision, finding that the plaintiff had initiated
suits against a "plethora of diverse defendants, where Eon-Net
followed each filing with a demand for a quick settlement at a
price far lower than the cost to defend the litigation." (Slip
Op. at 22). The Federal Circuit agreed with the district
court's characterization of this behavior as an "indicia
of extortion," especially since "Eon-Net placed little at
risk when filing suit." (Id. at 22-24). After finding
that Eon-Net had purposefully put forth claim construction
positions that were directly contradictory to the express teachings
of the specification, the Federal Circuit also held that the
failure to engage in the claim construction process in good faith
was an additional reason to find the case exceptional under §
285. Because of this and several other discovery abuses
(e.g., failure to retain documents from concurrent
litigations), the Federal Circuit upheld the finding of the case as
exceptional. Similarly, the Federal Circuit also found that the
award of Rule 11 sanctions was not clearly erroneous is in light of
Eon-Net's "legally baseless" infringement contentions
and its failure to perform a reasonable pre-suit investigation.
What This Means for You
By referring to the plaintiff's litigation
"strategy" as "extortion," it is clear that the
Federal Circuit is becoming particularly suspicious of plaintiffs
that file suits against a large number of defendants primarily to
extract "cost of defense" licensing revenue, but without
performing a proper pre-suit investigation against each of those
defendants. The Federal Circuit explained that "[a] reasonable
pre-suit investigation ... requires counsel to perform an objective
evaluation of the claim terms when reading those terms on the
accused device." (Slip Op. at 26). It appears that the Federal
Circuit would have prospective plaintiffs engage in an objectively
reasonable claim construction analysis prior to the filing of any
suit against another party, as part of the pre-suit investigation.
In situations involving multiple defendants, this pre-suit
diligence must be undertaken for each and every defendant.
Moreover, the pre-suit analysis of claim construction should be
supportable in light of the written description in order to avoid
being found "illogical" or frivolous. (See Slip Op. at
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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