Latest Federal Court Case 08/1/2020
In our Case of the Week, the Court of Appeals for the Federal Circuit concisely affirmed an award of attorneys’ fees for gamesmanship that can be politely characterized as “impermissible forum shopping.” Judge Reyna dissented because he did not think the sanctions went far enough.
Realtime brought a patent infringement action against Netflix in the District of Delaware. Netflix moved to dismiss the action on the bases that Realtime failed to plead a claim and that four of the six patents-in-suit were invalid under 35 U.S.C. § 101. While the motion to dismiss was pending, Netflix moved to transfer the action to the Northern District of California, and filed for inter partes review at the USPTO. In response to the motion to transfer, Realtime argued that, with no ties to the Northern District of California, requiring Realtime to litigate there would create an “unfair” burden on Realtime, with “greater expense, additional travel, and more work for Realtime.” Although Realtime convinced the district court to deny the motion to transfer, the Delaware magistrate judge, after full briefing, issued a recommendation that the court invalidate the four patents challenged under § 101. To make up for the potential vulnerability, Realtime amended its complaint, adding five more related patents. However, as luck would have it, these five related patents were involved in a parallel patent infringement action Realtime had brought against different defendants in Delaware and, shortly after they were added to the action against Netflix, the opinion issued in the parallel litigation invalidating all five related patents as directed to ineligible subject matter. The PTAB then began instituting IPRs of all six patents that Realtime had asserted against Netflix.
Before the Delaware court could rule on the magistrate judge’s recommendation, Realtime voluntarily dismissed the Delaware action without prejudice and, despite previously arguing that the Northern District of California was an unfair and inconvenient forum, re-filed two separate patent infringement actions against Netflix in the Central District of California for the same patents-in-suit. Netflix moved to transfer the two California actions back to Delaware—which Realtime opposed on the basis that California was more convenient than Delaware—and also moved for attorneys’ fees. After the motion to transfer was briefed, but before the attorneys’ fees motion was fully briefed, Realtime dismissed the two California actions, voluntarily and without prejudice. Netflix moved for attorneys’ fees for the Delaware action, the two California actions, and the IPRs. The Central District of California granted fees for the two California actions, under either § 285 or the court’s inherent equitable powers, but declined to award fees in the Delaware action or IPRs, finding them unwarranted under either § 285 or Federal Rule of Civil Procedure 41(d). Netflix appealed the lack of fees in the Delaware action and IPRs, and Realtime appealed the award of fees in California.
Starting with Realtime’s appeal of the attorneys’ fees award from the two California actions—and applying Ninth Circuit law because the inherent ability to impose sanctions is not a patent question—the Federal Circuit affirmed the California court’s award. In the Ninth Circuit, sanctions are appropriate when behavior constitutes or is tantamount to bad faith. Bad faith behavior can include willful actions with an improper purpose, including delaying or disrupting litigation and the “full range of litigation abuses,” and can include even a “truthful statement or non-frivolous argument or objection” when made for an improper purpose. The Federal Circuit recounted the history and found this was willful behavior (for the improper purpose of forum shopping) and tantamount to bad faith, and therefore that the district court did not abuse its discretion by awarding attorneys’ fees under its equitable power.
Turning to Netflix’s appeals, the Federal Circuit again agreed that the district court did not abuse its discretion in denying Netflix attorneys’ fees for the Delaware action and IPRs. The impermissible forum shopping had not occurred when Realtime filed the Delaware suit. There were no circumstances when Realtime filed the Delaware action such that Realtime knew or should have known the futility of its case. Therefore, there were no bad faith actions to justify awarding fees to Netflix for the Delaware action or for the IPRs Netflix filed in response to the Delaware action.
In a three-paragraph dissent, Judge Reyna only questioned why the district court and Federal Circuit majority did not go further and award attorneys’ fees for the Delaware action and IPRs. According to Judge Reyna, Realtime’s second voluntary dismissal should have operated as an adjudication on the merits, and should have conferred prevailing party status to Netflix for the purposes of a § 285 attorneys’ fee award.
The opinion can be found here.
By Tyler Hall
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.
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