“Exceptional Case” Analysis Can Include Other Cases From an Enforcement Campaign

July 9, 2020

The Federal Circuit continues to develop its case law regarding “exceptional” cases under 35 U.S.C. § 285.  Last week, the court held that it was an abuse of discretion for a district court not to consider an unsuccessful plaintiff’s “manner of litigation.”  Elec. Commc’n Techs., LLC v. ShoppersChoice.com, LLC, 2020 WL 3551988 (Fed. Cir. July 1, 2020) (“ECT”).

The plaintiff ECT is a non-practicing entity that has filed many cases, including one against ShoppersChoice.com in the Southern District of Florida.  The district court held the claims, which are directed to a secure notification system for deliveries or pickups, invalid under § 101.  The Federal Circuit ultimately upheld that decision.  See Elec. Commc’n Techs., LLC v. ShoppersChoice.com, LLC, 958 F.3d 1178 (Fed. Cir. 2020).

After the district court’s invalidity order, ShoppersChoice sought attorney’s fees under § 285, contending that ECT’s litigation tactics were improper and the case was objectively unreasonable.  ShoppersChoice alleged that ECT had sent standardized demand letters and filed repeat patent infringement actions for the purpose of obtaining low-value “license fees” and forcing settlements.  It contended that ECT (and entities under common management or ownership) filed 150 infringement actions on a family of related patents. 

Meanwhile, in another ECT case involving a related patent, a judge in the Central District of California entered an award of attorney fees against ECT.  See Kindred Studio Illustration & Design, LLC v. Elec. Commc’n Tech., LLC, 2019 WL 3064112 (C.D. Cal. May 23, 2019).  The court there found that ECT had a history of abusive litigation and that its case was objectively unreasonable on the merits.  Before an order issued in its case, ShoppersChoice alerted the Florida court to the fee award in California.  ECT at 5-6.

Nevertheless, the Florida court denied the fee motion, finding the case unexceptional because it was not obviously weak and because the § 101 case law did not dictate an invalidity result when ECT filed the action against ShoppersChoice.  Id. 

In its decision last week, the Federal Circuit surveyed the § 285 case law.  The court stated that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  ECT at 6-7 (quoting Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014)).  Although there is no precise rule or formula, a district court must consider the “totality of the circumstances,” which may include “frivolousness, motivation, [and] objective unreasonableness.”  The Federal Circuit reviews an attorney’s fees order deferentially under the abuse of discretion standard.  Id.

In this case, the panel found that the district court “clearly erred by failing to address ECT’s manner of litigation and the broader context of ECT’s lawsuit against ShoppersChoice.”  Id. at 8 (citing SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344, 1350 (Fed. Cir. 2017)).  The district court did not address the standardized demand letters, the repeated cases involving low-value settlement demands, or the apparent lack of intention to test the merits of the case, all of which can be relevant.  Id. at 11 (citing Rothschild Connected Devices Innovations, LLC v. Guardian Prot. Servs., Inc., 858 F.3d 1383, 1390 (Fed. Cir. 2017)). 

The panel stated that “ECT’s demand for a low-value settlement—ranging from $15,000 to $30,000—and subsequent steps—such as failure to proceed in litigation past claim construction hearings—indicates the use of litigation to achieve a quick settlement with no intention of testing the strength of the patent or its allegations of infringement.”  Id. at 8.  It also stated that the California order granting fees highlighted the shortcomings of the Florida order denying fees, as the California court provided a detailed account of ECT’s litigation history, including its pattern of serial filings, threats of litigation, and similar actions.  

The unanimous panel also noted that the California court had found that ECT was one of many commonly-owned entities that had filed suits on the patents, ceasing only after several courts awarded attorney’s fees.  Id. at 9.  In a footnote, the panel further discussed the common ownership issue, suggesting that deeper factual inquiry into such entities could be undertaken in appropriate circumstances.  Id. at 10 n.6. 

The panel also found that the Florida district court failed to consider the “objective unreasonableness” of ECT’s infringement claims.  Id. at 12-13.  The California court had determined that the infringement claims in that case were objectively unreasonable but the Florida court “did not reference, much less reconcile or account for” the California court’s contrary conclusions.  Indeed, claims of a related patent had been invalidated under § 101 in another case more than two years before ECT sued ShoppersChoice.  Id. at 12-13 (citing Eclipse IP LLC v. McKinley Equip. Corp., 2014 WL 4407592 (C.D. Cal. Sept. 4, 2014)).  The panel found the Florida court’s failure to reference these prior findings by other courts “problematic.”  Id.

The Federal Circuit held that because the Florida court only briefly addressed ECT’s litigation conduct (including in other related cases) and did not adequately assess the objective reasonableness of the claims, it did not truly assess the totality of the circumstances as it was required to do.  Id. at 11 (citing AdjustaCam, LLC v. Newegg, Inc., 861 F.3d 1353, 1360 (Fed. Cir. 2017)).  Thus, the district court abused its discretion and the panel vacated and remanded on the fees issue. 

With this decision, the Federal Circuit continues to emphasize the need for district courts to carefully analyze the totality of the circumstances on fee motions, including, if applicable, conduct in larger enforcement campaigns, particularly those where many cases are filed, settlement demands are low, and the merits are never tested.  Moreover, the conduct of commonly-owned or related entities might be relevant, and, therefore, potentially discoverable on that basis during the litigation. 

Both plaintiffs and defendants should consider all of the relevant factors—including other cases in a larger enforcement campaign—in making fee motions or opposing them.  The Federal Circuit has indicated it will carefully scrutinize such orders, even under the abuse of discretion standard. 

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Related:  IPR fees may be recoverable under § 285.

Author: Jason A. Crotty