Is a fail on §101 always “exceptional” under §285?

The answer to the question posed by the title is no, the Federal Circuit’s recent decision in Inventor Holdings, LLC v. Bed Bath & Beyond Inc., No. 2016-2442 (Fed. Cir. Dec. 8 2017) notwithstanding (reported on by this blog in “Attorney Fees Awarded for Post-Alice Patent Litigation”).  Two recent district court patent cases in which the validity under 35 USC §101 of the asserted patents was in question yielded different results on the award of attorney fees under 35 USC § 285 (Opal Run LLC, Plaintiff v. C & A Marketing, Inc., Defendant, No. 2:16-CV-00024-JRG-RSP (Eastern District of Texas, Marshall Division) (November 29, 2017) (“Opal Run v. C&A”) and Product Association Technologies v. Clique Media Group, No. CV 17-5463-GW (PJWx), (Central District of California) (November 30, 2017) (“PAT v. Clique Media”)).  Both cases slightly predate the Federal Circuit’s Inventor Holdings decision. 

In Inventor Holdings, the Federal Circuit cited the Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014) (“Octane Fitness”).  Octane Fitness grants courts much discretion in determining a §285 case as being “exceptional”:

“. . . an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is "exceptional" in the case-by-case exercise of their discretion, considering the totality of the circumstances.” 

The Federal Circuit determined that the district court did not abuse its discretion in granting an award of attorney fees to BBB.  It was sufficient for the district court to rely solely on the weakness of IH’s § 101 arguments, and affirmed the weakness of IH’s § 101 arguments.  The case does not establish a mandatory standard for “exceptional” behavior.

In this author’s view, both Opal Run v. C&A and PAT v. Clique Media are consistent with Inventor Holdings in that neither suggests an abuse of discretion.  The decision in PAT v. Clique Media to not grant an award of attorney fees is not an abuse of discretion given the failure by the moving party to provide the court with “. . . evidence to show that Plaintiff’s opposition to Defendant’s § 101 motion relied on baseless or frivolous legal arguments, as opposed to simply losing arguments” and a failure to show that PAT’s choices were “. . . an unreasonable way to litigate a lawsuit.”  The Opal Run v. C&A decision to award fees, with multiple bases for concluding that Opal Run litigated in an unreasonable manner, is also not an abuse of discretion. 

Big Differences in Facts Leading to Different Results

There were a couple of notable differences between the district court cases.  A key difference was that the merits of the § 101 arguments were tested in the PAT v. Clique Media case and not tested in the Opal Run v. C&A case.   Another difference was in the number of lawsuits filed by the plaintiffs on the same day, with Opal Run filing more than twice as many lawsuits as PAT. 

The Question of Merit

In Opal Run v. C&A, the court approved a joint motion to dismiss Opal Run’s infringement complaint against one of the defendants, Overnightprints, Inc. (“Overnight”), thus avoiding a test of the merits of Opal Run’s § 101 arguments.  In PAT v. Clique Media, PAT followed through with the litigation, tested the merits of its § 101 arguments, ultimately losing the asserted claims.  This distinction of testing versus not testing appears to have weighed heavily in the subsequent decisions on attorney fees under § 285.  The court in PAT v. Clique Media, in denying a fee award, emphasized the impact of PAT’s decision to pursue its claims, stating: “Contrary to Defendant’s [Clique Media’s] characterizations, Plaintiff [PAT] did test the merits of this case and, as a consequence, some of the claims of the ’738 Patent have now been found invalid.”  In contrast, the court in Opal Run v. C&A took Opal Run to task for avoiding such a test, with Opal Run balking at the defendant’s (Overnight’s) refusal to surrender its right to move for fees under §285: “Viewed collectively, these acts suggest Opal Run was trying to outlast Overnight, with the hope Overnight would eventually reconsider its position on fees, rather than diligently prosecuting its claim.”

The Numbers

In PAT v. Clique Media, PAT filed eight lawsuits on the same day against multiple defendants.  In Opal Run v. C&A, Opal Run filed 20 lawsuits on the same day against multiple defendants.  The court in PAT v. Clique Media noted that eight lawsuits filed in one day was less than examples from other cases with 200 and 100 and 58 lawsuits.  The defendants in both cases attempted to link the multiple lawsuits and low settlement values as evidence of an intent to avoid testing the merits of the claims.  In Opal Run v. C&A, the defendant was successful in persuading the court that “. . . most of the [20] cases promptly settled for between $3000 to $15,000.”  In PAT v. Clique Media, the defendant did not submit “. . . evidence of the value of Plaintiff’s settlements in its other seven cases to show that all – or even just some – of those cases concluded in nuisance value settlements.”   

It is clear that the court in Opal Run v. C&A found plaintiff Opal Run’s way of litigating to be lacking, and that the court in PAT v. Clique Media found defendant Clique Media’s way of litigating to be lacking.

Included among Opal Run’s case deficiencies identified by the U.S. District Court for the Eastern District of Texas, Marshall Division:

• Opal Run’s declining an opportunity to earlier settle the case on the same basis on which the joint motion was later granted (allowing Overnight to later move for fees);
• Opal Run’s agreement to the court’s preliminary claim constructions, despite being advised that the constructions would require a conclusion of noninfringement;
• Opal Run’s attempt, after agreeing to the court’s claim construction, to advance a new theory of infringement inconsistent with the court’s claim construction; and
• little discovery by Opal Run.

Opal Run’s behavior was characterized by the court as “consistent with the filing of patent infringement actions to force settlements with no intention of testing the merits of the claims."

Included among Clique Media’s case deficiencies identified by the U.S. District Court for the Central District of California:

• defendant asserted but did not show how earlier findings of plaintiff’s sole legal member misconduct in other patent cases was relevant to such a finding in the present case;    
• defendant asserted but did not show that venue change request by Plaintiff was unreasonable, or used solely to intentionally increase litigation costs; and
• defendant did not provide “. . . evidence of a ‘pattern’ of Plaintiff filing patent infringement actions for the sole purpose of nuisance settlements for this patent.”

The court concluded with a citation from an earlier case, Elite Lighting v. DMF, Inc., et al., Case No. CV 13-1920-GW-(JCGx), 2014 WL 12600966, stating:

“The substantive case was weak, and Plaintiff’s approach to the case does raise some concern that it pursued litigation for its own sake, for the sake of leverage in co-pending litigation, or some other improper purpose. But, that has not been clearly established, and the case does not stand out in that regard.”

Lessons for Practice

1. Think twice before asserting claims that may be vulnerable to a §101 challenge.
2. Prior to asserting a claim that may be vulnerable to a §101 challenge, decide if saving the claim from a §101 review is worth the risk of paying attorney fees.
3. When seeking attorney’s fees for a defendant, dig as deep as possible to find evidence of the plaintiff’s motives in asserting the infringement claims.