In Shipping and Transit, LLC v. Hall Enterprises, Inc., a district court recently held that a patent infringement case was “exceptional” under 35 U.S.C. § 285 and the defendant was entitled to recover attorney fees and costs from the plaintiff. The court’s ruling was in part because the plaintiff’s position was “objectively unreasonable” with regard to the validity of asserted claims under 35 U.S.C. § 101. This ruling highlights that a court can reach Section 101 issues even if a plaintiff takes active steps to avoid reaching them. Indeed, in this case, the court reached the Section 101 issues in part because the plaintiff had repeatedly sought to avoid a ruling.

Procedural History

U.S. Patents No. 6,415,207, 6,763,299, and 6,904,359 relate to monitoring and reporting the location of a vehicle. Shipping and Transit asserted Claim 14 of the ’299 patent, along with similar claims of the ’207 and ’359 patents.

14. A method, comprising the steps of:

maintaining delivery information identifying a plurality of stop locations;

monitoring travel data associated with a vehicle in relation to the delivery information;

when the vehicle approaches, is at, or leaves a stop location:

determining a subsequent stop location in the delivery information;

determining user defined preferences data associated with the stop location, the user defined preferences data including a time period for the vehicle to reach the subsequent stop that corresponds to when the party wishes to receive the communication; and

sending a communication to a party associated with the subsequent stop location in accordance with the user defined preferences data to notify the party of impending arrival at the subsequent stop location.

Shipping and Transit has asserted these patents in over 400 cases, none of which resulted in a ruling on the merits. In any cases where the defendants challenged the validity of the claims, the company settled out of court or voluntarily dismissed with prejudice. In this case, after Hall filed a motion for judgment on the pleadings on Section 101 grounds, Shipping and Transit moved to dismiss with prejudice and provided Hall with a covenant not to sue. Hall then moved for attorney fees and costs under 35 U.S.C. § 285, which provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Hall argued the case was exceptional because (1) Shipping and Transit’s Section 101 position was objectively unreasonable; and (2) Shipping and Transit sought “to exploit the high cost of litigation to extract an unwarranted settlement.” The court agreed.

The District Court’s Analysis

The District Court reviewed whether the case was “exceptional” under the standard established in Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S.Ct. 1749 (2014). In Octane Fitness, the Supreme Court held that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantial strength of the party’s litigating position . . . or the unreasonable manner in which the case was litigated.” 134 S.Ct. at 1756.

To assess whether Shipping and Transit’s litigation position was unreasonable, the court analyzed the asserted claims using the two-step test from Alice Corp. Pty. Ltd. v. CLS Bank Int'l., 134 S. Ct. 2347 (2014). Applying part one of the test, the court held that the “gist of claim 14” was “monitoring and reporting the location of a vehicle,” adding that “[t]he extra steps of determining user preferences and transmitting information are everyday concepts that are just as generalized.” It analogized to cases, but did not cite any prior art in reaching these conclusions. The court found that all the patents at issue were directed to abstract ideas, stating that one of them “does not teach or claim any new hardware, software, or other computer technology for performing [a] routine process.” In addressing preemption, the court concluded that the claims were written so broadly that they “could cover the activities of everyone from taxi dispatchers to warehouse delivery coordinators to bike messengers to hotel bellboys.”

In part two of the Alice test, the court held that the claims recited “a concept that may be implemented within a wide variety of entirely conventional equipment,” and thus failed to transform the abstract idea into patent-eligible subject matter. The court dismissed several of Shipping and Transit’s arguments, stating the claims did not recite the argued limitations, including a “GPS receiver” or “real-time” status information. The court therefore held that Shipping and Transit’s Section 101 position was unreasonable in light of Alice and subsequent case law. While noting that “[e]ven in this case, where the asserted claims of the Patents-In-Suit are demonstrably weak, it is still difficult to determine whether Plaintiff’s position was so baseless as to make this case exceptional,” the court nevertheless found that “[t]he weakness of Plaintiff’s § 101 position” weighed significantly in favor of such a determination.

The court then assessed whether the manner in which the case was litigated was unreasonable, using the standard established in SFA Systems LLC v. Newegg, Inc., 793 F.3d 1344 (Fed. Cir. 2015). In SFA Systems, the Federal Circuit held that “a pattern of litigation abuses characterized by the repeated filing of patent infringement actions for the sole purpose of forcing settlements, with no intention of testing the merits of one’s claims, is relevant to a district court’s exceptional case determination under § 285.” 793 F.3d at 1350. Applying this standard, the district court noted that Shipping and Transit had “repeatedly dismissed its own lawsuits to evade a ruling on the merits,” and that “Plaintiff’s business model involves filing hundreds of patent infringement lawsuits . . . and leveraging the high cost of litigation to extract settlements.” The court therefore found that the case was exceptional under 35 U.S.C. § 285, and awarded attorney’s fees and costs.

Conclusion

This case illustrates that asserting claims unlikely to survive a challenge under Section 101 can lead to awards of attorney’s fees under Section 285, especially if the patent holder repeatedly asserts the claims but appears to be evading a Section 101 ruling. While courts may not be likely to award attorney’s fees solely on the basis of whether a patent survives the Alice test, this holding may encourage patent holders to assess a claim’s validity under Section 101 before asserting it, or to consider whether a settlement in one case may lead to a Section 285 motion in another. Similarly, this holding may give defendants an incentive to litigate if the underlying claims appear to be drawn to ineligible subject matter.