Patent Troll Lawyers Smacked Down, Made To Pay Sanctions, For Mass Lawsuits Followed By Quick Settlement Offers
from the watch-out-righthaven... dept
dwg points us to a fascinating ruling by CAFC in EON-NET LP v. FLAGSTAR BANCORP, in which CAFC (who generally sides with patent holders) not only went against a patent troll, but also actually smacked the lawyers down with fairly large Rule 11 sanctions for filing a bogus lawsuit, where the intent appeared to only be to get a company to pay up. This ruling could become an interesting precedent not just in patent cases, but potentially in copyright trolling cases as well. The court points out that Eon-Net had filed over 100 patent infringement lawsuits, following up each one quickly with an offer of settlement. In this particular case, it was clear that Flagstar did not infringe on the patents in question.
While the court found a variety of misconducts (including document destruction), where this ruling becomes potentially very damaging for all sorts of trolls — both copyright and patent trolls alike — is in the finding of “baseless litigation in bad faith.” Part of the reasoning here:
In addition to finding that Eon-Net filed an objectively baseless infringement action, the district court also determined that Eon-Net filed the lawsuit in bad faith and for an improper purpose… In particular, the district court found that Eon-Net’s case against Flagstar had “indicia of extortion” because it was part of Eon-Net’s history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation.
The record supports the district court’s finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar. At the time that the district court made its exceptional case finding, Eon-Net and its related entities, Millennium and Glory, had filed over 100 lawsuits against a number of diverse defendants alleging infringement of one or more patents from the Patent Portfolio… Each complaint was followed by a “demand for a quick settlement at a price far lower than the cost of litigation, a demand to which most defendants apparently have agreed.”… In this case, as with the other cases, Eon-Net offered to settle using a license fee schedule based on the defendant’s annual sales: $25,000 for sales less than $3,000,000; $50,000 for sales between $3,000,000 and $20,000,000; and $75,000 for sales between $20,000,000 and $100,000,000. Rule 11 Sanctions Order, at 3?4.
Check out those bolded parts. Sound familiar?
The court notes that it’s no surprise that most companies agree to settle. This is important, because we regularly hear from patent system supporters insisting that when companies settle, it’s proof that the patents are valid. Yet, here, the court itself points out that’s ridiculous:
In this case, Flagstar expended over $600,000 in attorney fees and costs to litigate this case through claim construction. Supplemental Order on Fees and Costs, at 8?11. Viewed against Eon-Net’s $25,000 to $75,000 settlement offer range, it becomes apparent why the vast majority of those that Eon-Net accused of infringement chose to settle early in the litigation rather than expend the resources required to demonstrate to a court that the asserted patents are limited to processing information that originates from a hard copy document. Thus, those low settlement offers?less than ten percent of the cost that Flagstar expended to defend suit? effectively ensured that Eon-Net’s baseless infringement allegations remained unexposed, allowing Eon-Net to continue to collect additional nuisance value settlements.
Separately, the court clearly noted the “non-practicing entity” part of the business in pointing out that, “As a non-practicing entity, Eon-Net was generally immune to counterclaims for patent infringement, antitrust, or unfair competition because it did not engage in business activities that would potentially give rise to those claims.”
In the end, the court agreed and allowed the district court’s award of $141,984.70 for Rule 11 violations and another $489,150.48 in attorneys’ fees. The law firms rushing around to file patent and copyright trolling lawsuits in the hopes of getting quick settlements may want to take notice.