We wrote about this case six months ago, regarding InvestPic's appeal to the Federal Circuit over having its patent invalided under 35 U.S.C. § 101 in the Northern District of Texas.  InvestPic did not get the outcome it was looking for.  Here, the case is back in the District Court to consider SAP's motion for recovery of attorney's fees.  As we will see, InvestPic ended up not only with its patent invalidated, but also owing a large chunk of money to SAP.

SAP was originally granted attorney's fees in 2017, after the District Court ruled, on the pleadings, that InvestPic's U.S. Patent No. 6,349,291 was invalid under § 101.  As noted above, InvestPic appealed and lost.

The 2017 Proceedings

In the 2017 ruling, the District Court wrote:

A district court may find that a patent case is exceptional and award attorney fees to a prevailing party.  35 U.S.C. § 285.  A case is exceptional if it stands out from other cases with respect to the substantive strength of a party's litigating position considering both the governing law and the facts of the case or if the case stands out in the unreasonable manner in which the case was litigated.

Notably, district courts have discretion when determining whether a case is exceptional and are to consider the totality of the circumstances rather than any bright-line rule.

Regarding InvestPic's litigation position, the District Court observed that the patent was duly issued by the USPTO and therefore presumed valid.  The District Court read into Judge Mayer's concurrence in the Ultramercial v. Hulu case to note that this presumption of validity might not apply to a patent that is challenged under § 101.  But it went on to state that "a patent owner should be entitled to rely on the fact that the claims were reviewed and approved by the USPTO and should be allowed to attempt to enforce his or her patent whether this is done by demand for licensing or by enforcement of patent rights in a court."  Thus, in the District Court's view, just because claims were found lacking under § 101 does not automatically make a case exceptional.

But in this case, "Investpic was specifically warned by the USPTO, in an opinion issued in connection with a post grant review, that it looked very unlikely that these claims were directed toward patentable subject matter and very likely that the claims were invalid."  Despite the fact that the USPTO did not actually address the § 101 issue and only invited InvestPic to submit the patent for such a review, the District Court concluded that this "created a serious cloud on the . . . claims."

Thus, the District Court concluded that the USPTO's warning, in combination with InvestPic's not taking any action on it and continuing to assert the patent, resulted in a weak litigating position.

Regarding the manner in which InvestPic litigated the patent, the District Court took a dim view toward the owners of InvestPic using a front company to engage with SAP salespeople and to learn about the allegedly infringing products.  Notably, "[the owners] held themselves out to be only employees of Regulus and failed to disclose their relationship with InvestPic and their interest in the outcome of this lawsuit."  This, according to the District Court, amounted to conducting "self help discovery under a pretense," and also rose to the level of unreasonable litigation conduct.

Accordingly, the District Court granted SAP's motion for attorney's fees.

The 2018 Proceedings

This proceeding, however, was put on hold by the Federal Circuit appeal.  Now back in the District Court, an order granting much of what SAP requested was issued on December 4, 2018.

SAP requested a total of $939,306.61, which did not include any time from attorneys and staff that worked less than 10 hours on the case.  But this amount included time that SAP's attorney spent on a petition for covered business method review which was never filed.  The District Court declined to award fees for the petition.

Also, the District Court found that the rates charged by SAP's attorneys ("$745.00 – $1,175.00 per hour for partners to $405.00 – $650.00 per hour for associates") were excessive.  In particular, the majority of the partner's rates were above the 90th percentile for Texas, and the District Court found no evidence to justify the rates being so high.  Accordingly, the District Court reduced all partner rates by 35% and all associate rates by 15%.  Based on these adjustments, the total amount actually awarded was $679,420.46.

Analysis

Focusing just on the patent-eligibility issues for the moment, here we have a successful attempt to obtain attorney's fees based on a supposedly weak litigating position under § 101.  Sure, InvestPic's owners engaged in shady practices.  That may have been enough to award attorney's fees alone.

But the District Court's reliance on a USPTO warning (not an actual USPTO decision or rejection, but just a warning) may be extreme.  Since Alice v. CLS Bank, just about any patent involving software or a business method can have its validity challenged under § 101.  Further, the USPTO is not a final or a consistent arbiter of what is or is not patent-eligible.  If anything, the USPTO applies the law in a markedly erratic fashion, with much discretion granted to the personal opinions of primary examiners and PTAB judges.  Thus, relying on an unofficial or provisional observation of the USPTO to find a case exceptional is a rather unusual step.

To further drive home this point, not even the federal courts have been able to crack the § 101 egg.  It is well-known that multiple federal judges have commented on the record that Alice was hard to apply in practice.  Judge Wu of the United States District Court for the Central District of California criticized Alice for setting forth an "I know it when I see it" test.  Judge Pfaelzer, a colleague of Judge Wu, wrote that the Supreme Court's patent-eligibility cases "often confuse more than they clarify [and] appear to contradict each other on important issues."  More recently, the Federal Circuit's Judge Plager, wrote that the post-Alice §101 inquiry "renders it near impossible to know with any certainty whether the invention is or is not patent eligible."  And these are just a few examples of judicial confusion.  There are more.

Just a few months ago, the Federal Circuit ruled 2-1 that § 101 jurisprudence was too murky to be used as the basis of an attorney's fees award.  While the facts between that case and this one differ, the law does not.