In a win for the financial services community, the U.S. Court of Appeals for the Federal Circuit has upheld a lower court's order that patent lawyer Jean-Marc Zimmerman and patent holding company Eon-Net pay $631,135 in sanctions and fees for “indicia of extortion” in patent lawsuits filed by Zimmerman. The Federal Circuit denied their motion to stay execution of the judgment while they appeal the underlying order.

The order stems from, among other lawsuits, Eon-Net’s suit against Flagstar Bancorp for infringement of U.S. Patent No. 6,683,697, which relates to an information processing system for inputting information from a document or file on a computer into an application program. The court stated that, “In this case, as in its various other infringement actions, Eon-Net followed service of the complaint with a cheap offer of settlement.”

Judge Ricardo Martinez of the U.S. District Court for the Western District of Washington entered a judgment of noninfringement and awarded Flagstar $489,150 in attorney fees and expenses. He also issued a $141,984 sanctions order against Zimmerman pursuant to Rule 11 of the Federal Rules of Civil Procedure. According to Judge Martinez’s order, Eon-Net is one of three patent holding companies formed by three inventors to “enforce various continuation or divisional patents arising from an original filing in 1991.”

Judge Martinez wrote that the inventors’ Millennium L.P. company has filed at least 41 patent infringement cases in the Southern District of New York and 13 in the District of New Jersey. According to Judge Martinez, Eon-Net also filed 22 patent infringement cases in each court. In the Eastern District of New York, Eon-Net has filed four cases, and Millennium has filed one. The third inventors’ entity, Glory Licensing LLC, has filed a total of six cases in the three courts.

Judge Martinez noted that Eon-Net’s initial complaint in the Flagstar case was almost identical “to at least thirteen other complaints filed to that date against parties engaging in greatly diverse business operations.”

He found that Eon-Net’s settlement offers to the defendants, which ranged from $25,000 to $75,000 depending on the defendants’ sales, were “indicia of extortion.”

In the sanctions order, Judge Martinez also cited Zimmerman’s “failure to perform a reasonable pre-filing inquiry, failure to identify an accused product, and failure to reasonably evaluate” the reach of the patent.

The appeal of the underlying case remains pending at the Federal Circuit, case no. 2009-1308.