Allegations of Abusive Litigation Tactics Must Be Considered for Attorney Fees Award

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When the Court of Appeals for the Federal Circuit reversed the lower court’s award of attorney fees in Munchkin, Inc. v. Luv n’ Care, Ltd. last month, we were reminded that, while a district court has wide latitude to consider issues that have not been fully litigated before it as a basis for a fee award, when the basis of the award rests on such issues, it must be accompanied by a detailed explanation of the court’s assessment of a litigant’s position.  In addition, the appellate court indicated that a successful fees motion must clearly explain, in a fact-intensive manner, why the plaintiff’s position on each claim was weak and/or fundamentally meritless and, thus, unreasonable. Last week, the Federal Circuit again took issue with a lower court’s decision on attorney fees — this time vacating and remanding the denial of fees in Electronic Communication Technologies, LLC v., LLC. This latest opinion provides additional detail as to what a court must consider when deciding on an award of attorney fees.

After the Federal Circuit affirmed the District Court for the Southern District of Florida’s decision to declare the single asserted claim invalid under 35 U.S.C. § 101 (discussed here in an earlier blog post), Shopperschoice moved for attorney fees. Shopperschoice supported its request to declare the case exceptional with evidence that Electronic Communication Technologies (ECT) sent standardized demand letters and filed lawsuits against at least 150 defendants in an attempt to secure nuisance value license fees through settlement. Shopperschoice also informed the District Court of the Central District of California’s attorney fees award against ECT in one such lawsuit. The district court was not persuaded that the case should be deemed exceptional and explained that ECT’s litigating position was not “so obviously weak” since there were no binding cases demonstrating that the asserted claim was abstract. In fact, the district court seemed to imply that, since it was a somewhat difficult exercise for the court to determine whether the asserted claim was invalid, there had to be some strength to the ECT’s litigating position. In essence, the district court concluded that there was nothing that made this case stand out from others such that it was exceptional and worthy of an award of attorney fees.

Reviewing the district court’s denial of Shopperschoice’s attorney fees motion for abuse of discretion, the Federal Circuit found that the lower court made a clear error of judgment in failing to consider ECT’s manner of litigation and the objective weakness of the asserted patent claim. In particular, the appellate court took issue with the lower court’s failure to review ECT’s litigation tactics, which were characterized by the court to be abusive and for the sole purpose of forcing settlements. In fact, the court noted that ECT normally only demanded about $15,000 to $30,000 to settle and routinely failed to proceed with a lawsuit past the Markman phase. Indeed, the evidence presented by Shopperschoice clearly demonstrated that ECT had no real intention of testing the strength of the patent or the infringement allegations. While the lower court had all of this evidence before it — including the Central District of California’s thorough opinion discussing ECT’s litigation history, which noted, among other “in terrorem” tactics, that “of the 875 times ECT has asserted the ʼ261 patent. . .ECT has never ‘tak[en] a single case to a merits determination’” — it failed to consider ECT’s manner and pattern of litigation. The court made it clear that, when abuses are alleged, the grant or denial of attorney fees requires attention to a party’s manner and pattern of litigation.

The lower court’s lack of reconciliation between its determination on the objective unreasonableness of ECT’s asserted claim against Shopperschoice and the contradictory conclusions reached in other jurisdictions was also an issue for the appellate court. In fact, at least one other jurisdiction found that “no reasonable patent litigant would have believed that [the asserted claim]. . . was viable.” Even recognizing that 1) the holdings from other jurisdictions were not binding in the Southern District of Florida and 2) there is no specific formula for a court to assess the totality of circumstances in deciding whether a case warrants an exceptional determination, the appellate court felt that the district court needed to have at least considered and discussed the holdings in its order since it reached an alternative determination.

While the district court will have another opportunity to assess the totality of circumstances on remand, it is highly unlikely that it will again find that the case is not exceptional given the dressing-down that it received from the appellate court. In any event, unlike Luv n’ Care’s attorney fees motion in Munchkin, it seems that Shopperschoice’s motion is a better representation of what could or should be presented in the way of evidence and argument to support a finding of exceptionality. If the patentee was unreasonable in its belief that its claim was viable, including through a willful ignorance of invalidity under 35 U.S.C. § 101 and/or prior art such as in Rothschild Connected Devices Innovations, LLC v. Guardian Protection Services, Inc., that should be explained to the court in a fact-intensive manner. If the plaintiff engaged in vexatious litigation tactics, present all evidence (even from other jurisdictions) in your motion. In short, make sure the exceptional picture you are painting for the court is colored in as completely as possible.