Federal Circuit Vacates District Court’s Denial Of Attorney Fees Following Judgment Of Patent Invalidity Under Section 101
On July 1, 2020, the Court of Appeals for the Federal Circuit (CAFC) issued an opinion vacating and remanding the decision of the United States District Court for the Southern District of Florida denying attorney fees following a judgment of patent invalidity under 35 U.S.C. § 101. Electronic Communication Techs., LLC v. ShoppersChoice.com, LLC, F.3d (Fed. Cir. July 1, 2020).
In September 2016, Appellee Electronic Communication Technologies, LLC (ECT) sued Appellant ShoppersChoice.com (“ShoppersChoice”) in a federal district court in Florida for the infringement of a patent directed to “systems and methods that notify a party of travel status associated with one or more mobile things (MTs).” The asserted independent claim recites a system that provides notification “involving advance notice of a delivery or pickup of a good or service” to a “personal communication device (PCD),” by means of “one or more transceivers,” “one or more memories,” “one or more processors,” and “computer program code.”
In December 2016, ShoppersChoice filed a motion for judgment on the pleadings, challenging the asserted independent claim as patent-ineligible. ShoppersChoice subsequently moved to join a patent-ineligibility hearing set in a parallel lawsuit in which ECT alleged infringement of the same patent claim against other companies. The district court granted the motion, conducted a consolidated patent eligibility hearing regarding the asserted independent claim, and subsequently invalidated the claim under the two-step framework set forth in Alice Corp. Party Ltd. v. CLS Bank International, 573 U.S. 208 (2014). The CAFC noted that it affirmed the district court’s patent eligibility decision on the merits.
ShoppersChoice then filed a motion for attorney fees, citing evidence that ECT sent numerous standardized demand letters and filed repeat patent infringement actions against at least 150 defendants for the purpose of obtaining low-value “license fees” and forcing settlements. Before the district court ruled on ShoppersChoice’s motion, a federal district court in California—in one of the many other cases that ECT filed—entered an award of attorney fees against ECT. ShoppersChoice filed a letter of supplemental authority informing the district court of the California district court’s ruling. Notwithstanding, the district court denied ShoppersChoice’s motion. In doing so, the district court determined that the case was not exceptional, and explained that “[u]nder the Lanham Act, ‘[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.’”
The CAFC explained that—in a patent case—pursuant to the Patent Act’s fee-shifting provision, 35 U.S.C § 285, a “[district] court in exceptional cases may award reasonable attorney fees to the prevailing party.” The Supreme Court has explained that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigation position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated,” and that a “[d]istrict court may determine whether a case is ‘exceptional’ in the case-by-case exercise of [its] discretion, considering the totality of the circumstances.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014). In making this totality-of-the-circumstances determination, a district court may weigh such factors as frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case), and the need in particular circumstances to advance considerations of compensation and deterrence.
The CAFC agreed with ShoppersChoice’s argument on appeal that the district court abused its discretion in weighing relevant factors and by applying the incorrect attorney fee statute (i.e., the Lanham Act fee statute instead of the Patent Act fee statute).
With respect to its weighing of the relevant factors, the CAFC found that the district court clearly erred by failing to address ECT’s manner of litigation and the broader context of ECT’s lawsuit against ShoppersChoice. The CAFC explained that ShoppersChoice demonstrated that, between 2011 and 2015, ECT (using its former name Eclipse) filed lawsuits against at least 150 defendants, alleging infringement of the asserted patent and other patents in the same family. The CAFC noted that this number did not reflect ECT’s additional pre-litigation demands. Another telling factor, according to the CAFC, was ECT’s unwillingness to proceed in litigation past claim construction hearings, and, concomitantly, its willingness to accept low-value (e.g., $15,000 to $30,000) settlements to avoid testing the strength of the patent or the infringement allegations on the merits.
The CAFC contrasted the analysis of the California district court in its attorney fees opinion—the opinion that ShoppersChoice submitted as supplemental authority—with the analysis of the district court, which only briefly addressed ECT’s litigation conduct and found that this case was not the “rare case” that would warrant an exceptional determination. For example, with respect to the context of ECT’s litigation campaign, the CAFC explained that the California district court took judicial notice of a different litigious entity (S&T) that was apparently run by many of the same individuals who ran ECT, and explained that S&T finally stopped sending demand letters and filing frivolous lawsuits after several federal courts awarded attorney fees, that S&T had filed for bankruptcy in an apparent bid to avoid paying the sanctions, and that ECT did not contest that—of the 875 times ECT had asserted the patent (and other patents in the same family)—ECT had not once taken a case to a merits determination. By contrast, the district court here made no mention of the manner in which ECT litigated the case at hand, or even considered ECT’s broader litigation conduct. The CAFC explained that “[b]y not addressing the ‘adequate evidence of an abusive pattern’ of ECT’s litigation … the district court failed to conduct an adequate inquiry and so abused its discretion ….”
The CAFC also noted that the district court clearly erred by failing to consider the objective unreasonableness of ECT’s infringement allegations, citing to the California district court’s conclusion that “no reasonable patent litigant would have believed that [c]laim 11 of the ‘261 patent’—the same claim at issue in the instant case—‘was viable,’” and further noting that, years earlier, a different California district court invalidated, under § 101, similar claims in the same family (further highlighting the weakness of the patent-at-issue). The CAFC explained that, while the California district court’s opinion was not binding, “the absence in the Attorney Fee Order of any reference to either relevant case, or any allusion to their opposing conclusions, is problematic.”