On July 29, 2001, the Court of Appeals for the Federal Circuit issued an important decision regarding patent litigation: Eon-Net LP v. Flagstar Bancorp (Fed. Cir. 2011). Eon-Net is a patent holding company that primarily earnings as revenue through litigation and licensing fees, rather than developing manufacturing or marketing (also known as a patent troll). The court awarded Flagstar $489,150.48 in attorney fees and costs and $141,984.70 in sanctions against Eon-Net. Slip Op. at 3. In view of this opinion, patent owners may be wondering how to enforce and license their valid patent rights without incurring liability like Eon-Net.
The court imposed sanctions under 35 U.S.C. 285, which allows sanctions to punish exceptional cases of misconduct. Specifically, the court found that Eon-Net violated Rule 11 of the Federal Rules of Civil Procedure because “(1) the patentee brought the litigation in bad faith; and (2) the litigation is objectively baseless.” Slip Op. at 17.
The district court noted that Eon-Net’s behavior had an “indicia of extortion”. Slip Op. at 22. After evaluating Eon-Net’s behavior, the court noted that Eon-Net filed over 100 lawsuits, immediately followed by offers to settle at a price far lower than the cost to defend the litigation. Slip Op. at 22. Settlements were offered at between $25,000-$75,000 based on the annual sales of the defendant. Slip Op. at 22-23. Because these settlement offers were far lower than the cost of defending a patent litigation, the great majority of defendants chose to settle.
Furthermore, the court noted that EonNet failed to engage the claim construction process in good faith because Eon-Net destroyed relevant and important documents, attempted to evade a careful analysis of the claim terms in litigation, failed to offer a construction for any disputed claim terms, lodged incomplete and misleading extrinsic evidence with the court, and submitted declarations that contradicted earlier deposition testimony by the declarants. Slip Op. at 18-19.
The court acknowledged that patentees should be able to fit be able to defend and profit from their intellectual property. However, the court noted that this was not a case where the claims present a close call; rather, the specification unequivocally compels the claim constructions adopted by the district court. Slip Op. at 15-16.
Before engaging in litigation, a patentee should have a valid argument that the opposing party is infringing its patent. The infringement argument should be based on a good-faith interpretation of the claims. If you believe your intellectual property rights are being violated, contact us if you need a patent attorney in Los Angeles to evaluate your case. Your patent attorney has the expertise to help you determine the scope of your intellectual property rights.