Gust, Inc. v. AlphaCap Ventures, LLC, Appeal No. 2017-2414 (Fed. Cir. Sept. 28, 2018)

In an appeal from a district court decision awarding fees pursuant to 28 U.S.C. § 1927, the Federal Circuit reversed.  The decision makes it more difficult for parties sued by non-practicing entities to recover the costs of litigation from the plaintiff’s attorneys.  Ultimately, since NPEs are frequently poorly capitalized, the decision makes it more likely that successful defendants will be unable to recover fees in exceptional cases at all.

The patent covers an abstract idea concerning crowdfunding.  It was asserted against Gust, Inc. in a case filed shortly after the Supreme Court’s decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).  Shortly after the case was filed, another patent relating to crowdfunding was found invalid as patent ineligible under Alice.  Meanwhile, the patent holder, AlphaCap, repeatedly sought to settle the case as a walk-away, which Gust refused without payment of attorneys’ fees.

Ultimately, the Texas Court transferred the case to the Southern District of New York.  That court found the patents invalid under Alice, found the case to be exceptional, and awarded attorneys’ fees pursuant to 35 U.S.C. § 285.  The district court also found the patentee’s attorneys, Gutride Safier LLP, jointly and severally liable for the defendants’ attorneys’ fees under 28 U.S.C. § 1927.  Section 1927 states, “Any attorney … who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”

The only issue on appeal was the district court’s award pursuant to 28 U.S.C. § 1927 as against Gutride Safier LLP.  A panel of the Federal Circuit reversed, finding that the district court abused its discretion in finding plaintiff’s attorneys liable.  Under the Second Circuit standard, an award under § 1927 requires that the claims asserted by the attorneys be “entirely without color” and “brought in bad faith.” 

First, the Federal Circuit held that Section 1927 only applies to “unreasonable and vexatious multiplication of proceedings,” and thus does not apply to the “filing of a baseless complaint, which is properly analyzed under Fed. R. Civ. P. 11.”  In any event, the Court found that AlphaCap’s position that the claims were patent eligible was at least colorable, “given the relative paucity of § 101 cases that were decided by this court between Alice and AlphaCap’s complaint in Texas.”  The court noted that “the domain of colorable arguments is broader when the law is unsettled.”

Second, the Federal Circuit held that plaintiff’s attorneys, Gutride, had not acted in bad faith.  The district court relied on its finding that AlphaCap was a non-practicing entity that had filed 10 such lawsuits merely seeking to extract nuisance settlements from all of the major players in crowdfunding.  The Federal Circuit noted that “because it is non-capitalized, [the patent holder and plaintiff] AlphaCap is not subject to the deterrent effect of § 285.”  But the Court held:

§ 1927 is not the proper vehicle to generally address those concerns … Rule 11, with its procedural safeguards, already addresses attorneys’ complicity in the filing of frivolous and improper litigation. Moreover, the heart of the district court’s concern is with AlphaCap, not its attorneys. … [D]ecisions within the client’s domain are generally not attributable to its attorneys. It is the client’s decision whether to capitalize its business, to acquire the patents, to decide whether to practice the patents, whether and who to sue, and whether and when to agree to low value settlements. Such client decision-making is a poor evidentiary basis on which to infer attorney bad faith in multiplying proceedings. 

The Court also analyzed the other facts the district court relied on and found that none were evidence of attorney bad faith, and reversed.

Judge Wallach dissented.  He would have held that the district court did not abuse its discretion in finding lack of a colorable claim or in finding that the attorneys acted in bad faith.

Opinion can be found here.

ALSO THIS WEEK 

Bennett Regulator Guards, Inc. v. Atlanta Gas Light Co., Appeal Nos. 2017-1555, -1626 (Fed. Cir. Sept. 28, 2018)

In an appeal from an inter partes review, the Federal Circuit reversed because of the time bar in 35 U.S.C. § 315(b).  Bennet had sued Atlanta Gas in 2012.  The case was dismissed without prejudice.  Atlanta Gas filed the IPR three years later.  The board instituted review and found that the time bar did not apply because the district court case was dismissed without prejudice.  The Federal Circuit reversed following its decision in Click-to-Call Techs., LP v. Ingenio, Inc., 899 F.3d 1321, 1329–32 (Fed. Cir. 2018), which held that serving a complaint alleging infringement implicates the time bar, regardless of any subsequent events.  See our write-up on Click-to-Call here.

Opinion can be found here.

Wisconsin Alumni Research Foundation v. Apple, Inc., Appeal Nos. 2017-2265, 2017-2380 (Fed. Cir. Sept. 28, 2018).

In an appeal from a district court decision following a jury verdict finding in favor of WARF and awarding $234 million in damages, the Federal Circuit reversed.  The decision centered around the meaning of the term “particular.”  Neither party sought a construction of the term before trial.  The district court held that the term had its plain and ordinary meaning, and that no jury instruction was necessary.  The Federal Circuit held, “Giving a term its plain and ordinary meaning does not leave the term devoid of any meaning whatsoever.”  It then construed the term’s “plain and ordinary meaning” on appeal and held that Apple’s products did not practice this claim limitation.  The Federal Circuit also affirmed the district court’s finding of no anticipation based largely on upholding the district court’s construction of a different claim term.

Opinion can be found here.

Hyatt v. PATO, Appeal No. 2017-1722 (Fed. Cir. Sept. 24, 2018)

In an appeal from a district court summary judgment ruling, the Federal Circuit affirmed.  Mr. Hyatt challenges the propriety of MPEP § 1207.04, alleging that it is arbitrary, capricious, and in excess of statutory authority.  Mr. Hyatt filed a petition for rulemaking before the PTAB to repeal § 1207.04.  The PTO denied the petition.  Mr. Hyatt filed suit challenging the denial of the rule.  The district court granted summary judgment to the PTO, dismissed the claims, and held that it lacked subject matter jurisdiction.  The Federal Circuit reversed the finding concerning subject matter jurisdiction under 28 U.S.C. § 1331, 28 U.S.C. § 1338(a), and the Administrative Procedures Act.  Nonetheless, it affirmed the district court’s grant of summary judgment.  It held that two of Mr. Hyatt’s bases for challenging § 1207.04 were barred by the statute of limitations.  The final basis was based on an erroneous interpretation of 35 U.S.C. § 6(b)(1).

Opinion can be found here.