Judge Cote Holds Attorneys Liable for Trying to Keep a “Baseless” Case in E.D. Tex. that Sought Nuisance Payments from Numerous Defendants

by Patterson Belknap Webb & Tyler LLP
Contact

On December 8, 2016, District Judge Denise Cote (S.D.N.Y.) granted defendants Gust, Inc.’s (hereinafter, “Gust”) motion for attorneys’ fees and costs under 35 U.S.C. § 285 and 28 U.S.C. § 1927 against plaintiff AlphaCap Ventures, LLC (hereinafter, “AlphaCap”) and its counsel.

Background

In January 2015, AlphaCap, despite having knowledge of the decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014) and its implications for its patents, initiated ten patent infringement actions in the Eastern District of Texas against every major entity that provides internet crowdfunding services. Gust answered AlphaCap’s complaint in March 2015 with six counterclaims, seeing a declaratory judgment of non-infringement and invalidity on each of the three patents-in-suit. By June 2015, AlphaCap had settled each action except for the action against Gust. None of the settlement amounts exceeded $50,000, and some were substantially smaller. AlphaCap’s counsel was to receive fees on a contingency basis.

In June 2015, Gust filed a motion to transfer venue to the Southern District of New York. Shortly thereafter, counsel for AlphaCap contacted Gust’s counsel, stated that this case was “not worth litigating,” and offered a “walkway” settlement whereby AlphaCap would dismiss its claims with prejudice. Gust would not agree to settle unless AlphaCap assigned the patents to Gust or agreed to pay Gust’s attorneys’ fees. Under the terms of Gust’s offer, AlphaCap could retain the proceeds of any license agreements into which it had already entered. AlphaCap rejected the offer.

In March 2016, the action was transferred to the Southern District of New York, and consolidated with an action Gust had filed against AlphaCap in August 2015, in which Gust sought a declaratory judgment of non-infringement and invalidity of the same patents, and alleged abuse of process, tortious interference with contract, tortious interference with prospective economic advantage, and attempted monopolization under § 2 of the Sherman Act and state law claims.

In May 2016, AlphaCap provided Gust with a covenant not to sue it for infringement of the patents at issue. AlphaCap took the position that the covenant required dismissal of Gust’s counterclaims seeking a declaratory judgment of non-infringement and invalidity. Gust stated that it would still seek to show that the patents are invalid in order to support its remaining claims and to obtain an award of attorneys’ fees and costs under 35 U.S.C. § 285.

AlphaCap moved to dismiss all of the parties’ pending claims in both actions, and in July 2016, the court granted the dismissal. The court held that the covenant rendered moot the parties’ claims and counterclaims related to the infringement and validity of the patents-in-suit. Regarding the remaining issue in the case—Gust’s requests for attorneys’ fees and costs—the parties agreed that the covenant did not affect such requests.

Award of Attorneys’ Fees and Costs

35 U.S.C. § 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Further, under 28 U.S.C. § 1927, an attorney may be personally liable to cover attorneys’ fees where the attorney “multiplie[d] the proceedings” “unreasonably and vexatiously.” Accordingly, the court considered whether Gust was a prevailing party, whether the case is exceptional, and whether AlphaCap’s attorneys acted in bad faith.

The court held that the dismissal of AlphaCap’s patent infringement claims with prejudice has the necessary “judicial imprimatur” to constitute a judicially sanctioned change in the legal relationship of the parties, such that the court can properly entertain Gust’s fee claim under 35 U.S.C. § 285.

The court went on to hold that under Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), the case is “exceptional” for two reasons: (1) AlphaCap’s lawsuit against Gust was “frivolous” and “objectively unreasonable” in view of Alice and its progeny, and (2) the manner in which AlphaCap litigated its claim was unreasonable, insofar as AlphaCap’s goal was to extract a nuisance settlement from Gust. The court also noted that the circumstances suggested that AlphaCap’s instigation of baseless litigation is not isolated to this instance, but is instead a part of a predatory strategy aimed at reaping financial advantage from the inability or unwillingness of defendants to engage in litigation. An attorneys’ fees award will deter litigation misconduct in future cases, the court opined.

Personal Liability

While the court held that AlphaCap is liable to cover Gust’s attorneys’ fees and costs, it also held that Richard Juarez, an office of Plaintiff, is not personally liable under an “alter ego” theory. However, the court further concluded that AlphaCap’s attorneys had acted in bad faith in litigating this case. The court considered, in detail, two specific activities in which AlphaCap’s attorneys had engaged. First, the court concluded that AlphaCap’s attorneys acted in bad faith by filing an opposition and a sur-reply to Gust’s motion to transfer venue from the Eastern District of Texas even though the attorneys had failed to identify a single witness located in the district. Second, the court concluded that AlphaCap’s attorneys acted in bad faith by proceeding with the litigation for as long as they did, in order to make it expensive for Gust to defend itself, even though the attorneys were aware that the infringement claims were unlikely to succeed in view of Alice. Accordingly, the court held that under 28 U.S.C. § 1927, AlphaCap’s attorneys were also liable to cover Gust’s attorneys’ fees and costs.

Case: Gust, Inc. v. AlphaCap Ventures, LLC, No. 15cv6192 (DLC), 2016 U.S. Dist. LEXIS 170118 (S.D.N.Y. Dec. 8, 2016). The patents-in-suit are U.S. Patent Nos. 7,848,976; 7,908,208; and 8,433,630.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Patterson Belknap Webb & Tyler LLP | Attorney Advertising

Written by:

Patterson Belknap Webb & Tyler LLP
Contact
more
less

Patterson Belknap Webb & Tyler LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.