First published in LES Insights
A Texas court recently ordered a patent owner to pay over one hundred thousand dollars in attorneys' fees. The decision came after the court determined on summary judgment that the accused infringers did not infringe the asserted patent under the court's claim-construction ruling. Importantly, the court had entered the same claim-construction ruling in an earlier case, for a different, but related, set of patents. The court held that the patent owner's relitigation of the same claim-construction argument, along with what the court deemed to be a litigation strategy designed to inflate the accused infringer's costs, amounted to "exceptional" conduct and merited an award of attorneys' fees.
In 2014, the Supreme Court changed the standard for awarding attorneys' fees in a patent-infringement case. Before 2014, a court awarded attorneys' fees only if a party's litigation position was objectively baseless. This standard proved to be a high bar, and courts rarely awarded fees. But the Supreme Court's recent ruling lowered the bar, requiring only that the case be "exceptional" to merit fees. Courts that have considered whether to award attorneys' fees in the wake of the recent Supreme Court decision have helped define what qualifies as "exceptional." In a recent decision from the Southern District of Texas, TechRadium Inc. v. FirstCall Network Inc.,1 the court awarded attorneys' fees after finding that the patent owner knew or should have known its infringement position was meritless under the court's findings in an earlier litigation involving related patents.
TechRadium sued several companies, including FirstCall, that develop and market digital mass-notification systems. The parties disputed the meaning of the term "user." The court noted that TechRadium's counsel conceded that it could not prove infringement if the court did not adopt TechRadium's proposed construction. After the court rejected TechRadium's construction, TechRadium dismissed its claims against FirstCall so that the parties could pursue a business resolution. TechRadium settled with all other defendants, except one, who later prevailed on a motion for summary judgment of non-infringement, based on the claim construction of "user." TechRadium did not appeal.
TechRadium and FirstCall could not agree on payment terms and their negotiations broke down. TechRadium filed a second lawsuit against FirstCall, asserting a patent that was related to, but not asserted in, the prior litigation. TechRadium also sued City of Friendswood, one of FirstCall's customers. TechRadium filed its second suit in Galveston, Texas, not Houston, Texas, where the earlier litigation took place. This prompted FirstCall and City of Friendswood ("Defendants") to ask the court to transfer the case to Houston, Texas, which the court granted, over TechRadium's objections.
The Defendants moved for summary judgment of non-infringement, arguing that the court's earlier construction of "user" applied to the newly asserted patent, and that under that construction, the Defendants did not infringe. TechRadium countered that the court should interpret "user" more broadly than it did before. The court acknowledged that because its prior ruling concerned different, albeit-related patents a new analysis was appropriate. But the court rejected all of TechRadium's arguments and concluded that its earlier construction applied to the newly asserted patent. Thus, the Court granted Defendants' motion for summary judgment of non-infringement. Defendants then filed a motion for the award of attorneys' fees.
The court held that TechRadium's conduct in the second litigation was "exceptional," warranting fees. The court identified what it called "commonly cited ways" to show exceptionality, including where the patent holder conducted an inadequate prefiling investigation; knew or should have known its claim was meritless or "lacked substantive strength"; brought suit to extract settlement; proceeded with its case in bad-faith; or committed litigation misconduct.
First, the court found exceptionality because TechRadium's infringement claim hinged on a claim construction the court previously rejected. TechRadium reasoned that differences in the wording between the patents from the earlier case and the asserted patent justified a different construction. Finding the wording differences between the patents "slight," the court disagreed and found that TechRadium's arguments for a different construction lacked merit. This factor, the court held, "strongly" supported exceptionality because TechRadium used the second litigation to relitigate positions the court already rejected, a ruling that TechRadium did not appeal.
Additionally, the court stated that TechRadium appeared to have used the second litigation to extract a settlement from FirstCall, another factor supporting exceptionality. Finally, the court found that TechRadium repeatedly took litigation positions to increase FirstCall's costs, for the purpose of pressuring settlement. This conduct, according to the court, included 1) filing the action in an inconvenient venue and forcing FirstCall to ask the court to transfer the action, 2) pursuing amendments to its complaint that the court rejected twice upon FirstCall's motions, and 3) delaying or refusing production of documents and forcing FirstCall to file a motion with the court. The court thus concluded that TechRadium's conduct met the "exceptional" standard and ordered it to pay the Defendants over 100 thousand dollars in attorneys' fees.
Strategy and Conclusion
This case illustrates the potential risk for patent owners who consider filing a second suit against the same party on a different, but related, patent, if the second suit implicates the same issues the patent holder failed to prevail on in the first suit.