An Exceptional Award of Attorney’s Fees in a Patent Case Against a Non-Practicing Entity, i.e., a Patent Troll
Whether you are a patent owner, represent a patent owner, have received a demand letter or represent a party defending itself in an NPE case, this “Report and Recommendation” by the Court in Shipping and Transit, LLC v. LensDiscounters.com, Case No. 16-80980 (S.D. Fla) is worth reading. The Magistrate Judge has recommended an award of attorney’s fees in favor of the Defendant and against the patent owner. The Court explained that because “the substantive strength of either parties’ litigating position was not fully meted out due to Plaintiff’s early filing of a covenant not to sue accompanied by a request for dismissal,” the Court would then base its decision “on the manner in which the case was litigated to make its determination.”
As a quick primer for non-lawyers, in the U.S. legal system, an award of attorney’s fees is the exception and not the rule. Generally, there exist three ways to get attorney’s fees awarded: (1) based on a contract term, (2) under a statutory provision, and/or (3) based upon the Court’s power to sanction a party. In patent litigation, the Patent Act states that the “Court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. §285.
Historically, it was difficult to meet the “exceptional case” standard to get an award. However, in 2014, the Supreme Court held that the long-held standard was too rigid, and announced a new and more lenient standard, explaining that an “exceptional case” is “simply one that stands out from others with respect to the substantive strength of a party’s litigating position… or the unreasonable manner in which the case was litigated.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014).
In this currently pending case, the Magistrate Judge has recommended an award of attorney’s fees against the plaintiff patent owner, a well-known non-practicing entity (NPE - the name given to companies that own patents but only use them to sue others who allegedly violate the patent rights, often pejoratively referred to as “patent trolls”). In the Court’s opinion, the judge noted that Shipping and Transit, LLC, and its predecessor, ArrivalStar, S.A., had ten active patent cases (at the time of the filing), and 315 closed patent cases. The Court also noted that it was undisputed that the courts in all of the 325 now closed cases had never reached the merits of the case!
The Court found “unreasonable” the manner of the plaintiff NPE’s litigation as measured against its “pattern and practice.” The patents in the lawsuit relate to logistics in the shipping of goods. The Court noted that the plaintiff knew before filing suit that one of the defendant’s shippers did not have a license to use the patents in suit. Nevertheless, rather than pursue the case, the plaintiff voluntarily dropped the case. The Court explained, “it appears that Plaintiff brought this case merely to elicit a quick settlement from Defendant on questionable patents.” (citing to a California opinion concluding that the patents were drawn to patent-ineligible abstract ideas).
The Court also found that the pre-suit demand letter was indicative of a finding of “exceptional case” status. Specifically, the Court held that the omission of key facts in the demand letter coupled with a nuisance value pre-suit settlement offer underscored the case being exceptional.
Having represented a handful of the defendants in those 325 cases cited by the Court, I found the findings by the Court in line with my experience, and more importantly, if the opinion by the Court stands, as an excellent legal precedent to cite in other, similar patent cases.
William Trueba is a founding member of the South Florida based intellectual property law firm of Trueba & Suarez, PLLC. As a registered patent attorney and electrical engineer, his practice is centered on the domestic and international enforcement and defense of intellectual property rights. He may be reached at firstname.lastname@example.org.