Phoenix Modular Elevator, Inc. ("Phoenix") filed a complaint for patent infringement against T.L. Shield & Associates, Inc. ("Shield") and Modular Elevator Manufacturing, Inc. ("MEM"). The patent at issue, United States Patent No. 6,079,520 (the "520 patent"), is entitled "Method of Retro-Fitting Elevators to Existing Buildings." As explained by the district court, the '520 patent describes a method of manufacturing an elevator and installing it onto an existing, multistory building.

During the case, Phoenix learned that a smaller than expected number of potentially infringing elevators were not actually infringing. As a result, Phoenix signed a covenant not to sue and explained that it was no longer economical to litigate the case. Phoenix then filed an unopposed motion to dismiss the complaint for lack of subject matter jurisdiction. 

Defendants then filed a motion seeking reasonable attorneys' fees and costs pursuant to Federal Rule of Civil Procedure ("Rule") 11. In their motion, Defendants asserted that there was no factual basis for the infringement claim, and that Phoenix did not conduct a reasonable investigation before filing suit.

In response, Phoenix argued that its decision to file the action was based on "(1) information it knew regarding the history of the invention and Defendants' business relationship with the inventors; and (2) an assessment made by a patent lawyer who analyzed the patent and compared it to publicly available information on Defendants' products." With respect to the merits of the claim, Phoenix argued that based on its expert's assessment, the term, "floor," should be construed as the bottom plane defined by the hoistway, rather than a solid panel or complete covering. Phoenix argued that Defendants' product does infringe on at least one of the patent limitations. The district court, without making a determination as to strength of the arguments, found that the arguments on the merits were plausible. "That is sufficient, as frivolousness can be found only where the arguments and allegations are implausible. As Defendants indicate, there is no evidence that Plaintiff provided notice, or engaged in any pre-filing discussions with Defendants."

Nonetheless, the district court noted that Phoenix had "provided evidence that it attempted to make an assessment of the likelihood of infringement. While recent events indicate that Plaintiff misjudged the extent of the infringement, such a mistake does not constitute frivolous or baseless conduct. As such the Court finds that Defendants have not satisfied their high burden of showing that the complaint was frivolous."

Accordingly, the district court denied the motion for Rule 11 sanctions.

Phoenix Modular Elevator, Inc. v. T.L. Shield & Assoc., et al., Case No. CV 14-00339-RGK (PLAx) (C.D. Cal. Dec. 16, 2014)