United States: District Courts Increasingly Award Attorneys' Fees Based On Patentees' Unreasonable Positions And Vexatious Litigation Strategies

Abstract

Following a Supreme Court ruling in 2014, district courts have awarded attorneys' fees to defendants in an increasing number of patent litigations. As one example, a district court in Texas recently awarded attorneys' fees to prevailing defendants finding the case "exceptional" because of the plaintiff's unreasonable positions and vexatious litigation strategy.

Under U.S. law (35 U.S.C. § 285), district courts can award reasonable attorneys' fees to prevailing parties in "exceptional cases." In 2014, the Supreme Court's opinion in Octane Fitness, LLC v. Icon Health & Fitness, Inc. held that a case is "exceptional" if a party's litigation position or conduct during litigation "stands out from others." Following Octane Fitness, district courts have increasingly granted motions for attorneys' fees. From 2002-2013, district courts granted motions for attorneys' fees in roughly 20-25% of cases. By contrast, since Octane Fitness in April 2014, district courts have granted 36% of motions for attorneys' fees (64 out of 176 cases).

Recently, in eDekka LLC v. 3Balls.com, Inc.,1 the U.S. District Court for the Eastern District of Texas awarded attorneys' fees to prevailing defendants, finding the case exceptional because the plaintiff presented unsupportable arguments in response to defendants' motions to dismiss, and the because the plaintiff sued a large number of defendants with the goal of extracting nuisance settlements.

Background

Plaintiff eDekka, a non-practicing entity, filed lawsuits against 130 defendants in 2014 and 89 defendants in 2015, alleging infringement of a patent directed to storing and labeling information. Numerous defendants in the 2015 actions filed motions to dismiss, arguing that the asserted patent was invalid because it was directed to unpatentable subject matter. The court granted defendants' motions to dismiss and held that the asserted claims of the plaintiff's patent were not patent-eligible. The defendants then moved for attorneys' fees under § 285.

The eDekka Decision

The court granted the defendants' motion for attorneys' fees, holding that the case was "exceptional" because (1) eDekka's case was objectively unreasonable and (2) eDekka litigated in an unreasonable manner.

According to the court, eDekka's case was objectively unreasonable because no reasonable patentee could have expected success on the merits in light of the defendants' motions to declare the patent invalid for claiming unpatentable subject matter. The court found that eDekka repeatedly offered insupportable arguments on behalf of an "obviously weak patent" and questioned whether eDekka even engaged in a reasonable and thorough pre-suit investigation regarding the validity of its patent. In part to deter eDekka and other patentees from engaging in similar conduct, the court found that eDekka's unreasonable patentability positions supported an "exceptional" case finding.

The court also found eDekka litigated in an unreasonable manner by filing similar lawsuits against over 200 defendants and using a strategy that avoided testing the case on the merits by aiming for early nuisance value settlements. The court noted that historically, defendants agreed to settlements with eDekka at early points in the litigation for amounts significantly below the cost of taking the case to trial. In particular, eDekka contacted numerous defendants days before the patentability hearing with offers to settle for $3,000 each—an offer, the court noted, that was an extraordinarily low amount. The court concluded that eDekka's goal was clearly to exploit the high cost of defending a complex patent litigation in order to extract nuisance value settlements. Considering the totality of the circumstances, including eDekka's unreasonable positions regarding patentability, and its vexatious litigation strategy, the court held the case was "exceptional" under 35 U.S.C. § 285, and granted defendants' motion for attorneys' fees.

Strategy and Conclusion

Since Octane Fitness, district courts are increasingly willing to grant motions for attorneys' fees. Plaintiffs can limit their liability for attorneys' fees by conducting thorough pre-suit investigations into infringement and patentability, including patent-eligibility issues , and presenting supportable, well-reasoned arguments during litigation. A comprehensive pre-suit investigation will also be useful in preparing the Complaint prior to suit in light of the recent heightened pleading standard for patent suits under the Federal Rules.

On the other hand, defendants facing unreasonable patent suits increasingly have the opportunity to recover attorneys' fees and to deter patentees from filing suit in the future. In some situations, motions to dismiss a patent as being directed to unpatentable subject matter can also be a powerful tool for defendants—not only to invalidate the plaintiff's patent, but also to expose unreasonable litigation positions early in the litigation.

Footnote

1 The eDekka decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2015/eDekkaLLCv3balls.com-txed-2-15-cv-00585-177.pdf.

Previously published by LES Insights

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