Bad law often gives rise to creative legal arguments. But the application of such creative lawyering is necessarily bounded by ethical rules and notions of fair dealing. Patent eligibility, in its current incarnation, has been argued to be bad law by many. The current judicial interpretation of 35 U.S.C. § 101 is at best vague and at worst a subjective inquiry in which the proclivities of the reviewer (whether patent examiner, administrative judge, or federal judge) often matter as much or more than the claims under review. Such a situation is inexcusable, but still does not give a party license to engage in monkey business.
Case in point, Realtime asserted six patents against Netflix in the District of Delaware. Netflix responded by filing seven petitions for inter partes review (IPR) of these patents, and moving to dismiss four of the patents from the Delaware proceeding on grounds of ineligibility under § 101. All seven IPRs were instituted and a magistrate judge in Delaware recommended that Neflix's motion be granted.
But before the District Court judge could rule on the magistrate judge's eligibility report, Realtime voluntarily dismissed the Delaware case. The next day, Realtime filed suit in the Central District of California asserting all six patents against Netflix again. Realtime did this "despite having previously informed the Delaware court that transferring the Delaware action across the country to the Northern District of California would be inconvenient and an unfair burden on Realtime." The California court had previously found some of Reatime's claims to be patent-eligible.
Netflix moved to transfer the new assertions back to Delaware and also requested attorney's fees for the California and Delaware cases, as well as the IPRs. Again, Realtime voluntarily dismissed the case before the California judge had a chance to rule on the transfer. Nonetheless, the judge had seen enough and awarded attorney's fees to Netflix for the California cases based on equitable considerations. The judge did not, however, award attorney's fees for the Delaware cases or the IPRs. Both parties cross-appealed to the Federal Circuit.
On review, that Court quickly concluded that the California court "reasonably found Realtime's conduct in the California actions 'improper,' 'exceptional,' and 'totally unjustified.'" Given that the Delaware court was likely to rule against Realtime on the § 101 motions and that the California court was a more favorable forum for such issues, the Court found that "Realtime undoubtedly realized that by refiling in California, it could effectively erase the Delaware magistrate judge's fulsome and compelling patent-ineligibility analysis and findings."
The Court was further convinced by Realtime's behavior when it "resisted transfer back to the forum it originally chose." Thus it affirmed the California court's finding that Realtime engaged in "impermissible forum shopping."
Combined, this was enough for the Federal Circuit to agree that Realtime acted in bad faith and that these acts were "sanctionable under a court's inherent power in view of the Ninth Circuit's standard." Accordingly, "the district court did not abuse its discretion in awarding fees pursuant to its inherent equitable powers."
Moving on to Netflix's request for attorney's fees from the Delaware proceeding and the IPRs, the Federal Circuit agreed with the California court that there was no evidence of bad faith in the initial filing of the Delaware action. Further, institution of the IPRs was insufficient to make Realtime's ongoing litigation efforts futile. Thus, the Federal Circuit declined to reverse the California court with respect to the Delaware action and the IPR.
In sum, patent-eligibility is a mess. But that still does not give one a second bite at the apple or support taking contrary positions at different points in litigation. There is no reset button to press after an adverse ruling, just the appeals process. Realtime should have known better and it paid the price.
Realtime Adaptive Streaming LLC v. Netflix, Inc. (Fed. Cir. 2022)
Panel: Circuit Judges Newman, Reyna, and Chen
Opinion by Circuit Judge Chen; opinion concurring-in-part and dissenting-in-part by Circuit Judge Reyna