Patent Troll Lawyers Smacked Down, Made To Pay Sanctions, For Mass Lawsuits Followed By Quick Settlement Offers
from the watch-out-righthaven... dept
dwg points us to a fascinating ruling by CAFC in EON-NET LP v. FLAGSTAR BANCORP, in which CAFC (who generally sides with patent holders) not only went against a patent troll, but also actually smacked the lawyers down with fairly large Rule 11 sanctions for filing a bogus lawsuit, where the intent appeared to only be to get a company to pay up. This ruling could become an interesting precedent not just in patent cases, but potentially in copyright trolling cases as well. The court points out that Eon-Net had filed over 100 patent infringement lawsuits, following up each one quickly with an offer of settlement. In this particular case, it was clear that Flagstar did not infringe on the patents in question.While the court found a variety of misconducts (including document destruction), where this ruling becomes potentially very damaging for all sorts of trolls -- both copyright and patent trolls alike -- is in the finding of "baseless litigation in bad faith." Part of the reasoning here:
In addition to finding that Eon-Net filed an objectively baseless infringement action, the district court also determined that Eon-Net filed the lawsuit in bad faith and for an improper purpose... In particular, the district court found that Eon-Net's case against Flagstar had "indicia of extortion" because it was part of Eon-Net's history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation.Check out those bolded parts. Sound familiar?
The record supports the district court's finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar. At the time that the district court made its exceptional case finding, Eon-Net and its related entities, Millennium and Glory, had filed over 100 lawsuits against a number of diverse defendants alleging infringement of one or more patents from the Patent Portfolio... Each complaint was followed by a "demand for a quick settlement at a price far lower than the cost of litigation, a demand to which most defendants apparently have agreed."... In this case, as with the other cases, Eon-Net offered to settle using a license fee schedule based on the defendant's annual sales: $25,000 for sales less than $3,000,000; $50,000 for sales between $3,000,000 and $20,000,000; and $75,000 for sales between $20,000,000 and $100,000,000. Rule 11 Sanctions Order, at 3—4.
The court notes that it's no surprise that most companies agree to settle. This is important, because we regularly hear from patent system supporters insisting that when companies settle, it's proof that the patents are valid. Yet, here, the court itself points out that's ridiculous:
In this case, Flagstar expended over $600,000 in attorney fees and costs to litigate this case through claim construction. Supplemental Order on Fees and Costs, at 8—11. Viewed against Eon-Net's $25,000 to $75,000 settlement offer range, it becomes apparent why the vast majority of those that Eon-Net accused of infringement chose to settle early in the litigation rather than expend the resources required to demonstrate to a court that the asserted patents are limited to processing information that originates from a hard copy document. Thus, those low settlement offers—less than ten percent of the cost that Flagstar expended to defend suit— effectively ensured that Eon-Net's baseless infringement allegations remained unexposed, allowing Eon-Net to continue to collect additional nuisance value settlements.Separately, the court clearly noted the "non-practicing entity" part of the business in pointing out that, "As a non-practicing entity, Eon-Net was generally immune to counterclaims for patent infringement, antitrust, or unfair competition because it did not engage in business activities that would potentially give rise to those claims."
In the end, the court agreed and allowed the district court's award of $141,984.70 for Rule 11 violations and another $489,150.48 in attorneys' fees. The law firms rushing around to file patent and copyright trolling lawsuits in the hopes of getting quick settlements may want to take notice.
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Filed Under: copyright trolls, patent trolls, sanctions, trolls
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Re:
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Re: Re:
;-P
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Re:common-sense
Common sense should be regarded with suspicion.
Albert Einstein on common sense:
"Common sense is the collection of prejudices acquired by age eighteen."
*wink*
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That aside, keep building that precedent. While cases like Atlantic v. Anderson and Capitol Record v. Debbie Foster certainly prove that things turn against the trolls more often than not, no doubt the P2P attorneys still will drape themselves in the Jammie Thomas case like the TSA draping themselves with the "threat of terrorism" banner to justify their actions.
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Re:
Let's try some more:
Basketflame Systems
Umbrellatree United
Crowdsun Financial
Rainwind Strongcorp
Actually, these are starting to sound like MMO character names...
That's it! We need a good corporate MMO where your corporation is your character. You have to go on patent trolling quests and defend against regulatory investigations.
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Re: Re:
EVE Online.
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Make it “adjectivenoun adjectivenoun”
Umbrellatree Cyberunited
Crowdsun Intellifinancial
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Re: Flagstar Bancorp sounds like Star Wars
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The "quick settlement" extortion only works if target is poor.
Now Eon-Net lawyers needs to be disbarred permanently, and prosecuted under RICO. Otherwise, they may now be a bit chastened, but probably still ahead on money...
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Re: The "quick settlement" extortion only works if target is poor.
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Re: Re: The "quick settlement" extortion only works if target is poor.
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Re: Re: Re: The "quick settlement" extortion only works if target is poor.
Using established industry standard methods(*) to find the damages caused by this incident I think that (rounded to nice numbers) two trillion dollars is about right.
(*) One: take a really big number. Two: multiply by time of day and your favourite number. Three: ??? Four: Profit!
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Re: Re: The "quick settlement" extortion only works if target is poor.
When the word "troll" is used, it is useful to keep in mind that it has two distinct meanings, one being persons who buy up "paper" and then treat it like any negotiable instrument, and the other being law firms trolling for business.
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Re: The "quick settlement" extortion only works if target is poor.
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Good to hear
It's nice to see the CAFC recognizing a clear and blatant case of abusive use of a patent. However, one might beckon the question, why only on law suit number 100 did the court come to this grand epiphany. nevertheless, I'm happy to see this ruling in the books.
I wonder if it will be cited as a precedent in copyright cases as well. Though the principle of patent trolling is strikingly similar to the principle of copyright trolling, I'm not certain the court will see this as a directly applicable precedent. Even though the mechanism used by the trolls in both patent and copyright litigation are the same, the rights themselves are vastly different.
When discussing patent trolls, we often come back to the point that the sole existence of these mythical creatures is predicated on the collecting and stockpiling of patents for the sole purpose of using them to litigate. I can see the software copyright industry fitting neatly into this picture though I have a little more difficulty likening the actions of a patent troll to those of an organization like the RIAA for instance.
The RIAA has also filed suits only to immediately offer settlement options a fraction of the cost of litigating the matter (they even set up a discreet and anonymous settlement payment service aimed at college kids who want to keep the entire affair under wraps).
That being said, they maintain that they are championing the rights of copyright holders everywhere.
So you see, though the methodology used by these two entities is almost identical (one might even argue that the RIAA's "discreet payment option" is worse), it would be exceedingly hard to agree that the behavior of an organization such as the RIAA is tantamount to abuse of procedure and frivolous suits being brought by patent trolls.
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Re: Good to hear
They were the only company that stood up to the bully and went to court. Only then could the Judge review all of the information rather than just what Eon-Net submitted to the court.
Much like the information in the copyright trolling cases, they claim the discovery of the account holders name will give them the infringer.
Except an IP address does not equal a person, and it is possible the account holder was completely unaware of any infringing activity.
But they get a handy letter telling them that because they pay the bill they are automatically responsible and they should just pay up or face being fined up to $150,000.
USCG submitted a huge pile of IP addresses, that included a DNS belonging to Google. Any lawyer given a chance to argue against the filing would point to this as a huge glaring problem with the data collection. Instead this filing was rubber stamped... until the Judge figured out that all of those people were most likely not subject to his courts jurisdiction and that plaintiffs had mischaracterized the facts by omission.
The RIAA also has a history of stringing people along and just as the case was about to go to trial, dropping it. The Judge then ruled no harm no foul after the target tried to countersue. They suffered "no harm" so they had no standing.
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Re: Good to hear
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Why the court took so long to notice
Flagstar not only didn't want to pay extortion for a patent claim that they thought was bogus, but they checked and found that EON was doing lots of quickly-settled lawsuits, and brought it to the court's attention. That's why the court did notice that case.
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The wheels on the Justice go round and round, just sometimes to damn slow.
The lawyers on the case go, sue sue sue, sue sue sue.
The lawyers on the case go, sue sue sue, what do you mean we loose?!
The Judge on the bench goes, slap slap slap, slap slap slap.
The Judge on the bench goes, slap slap slap, you lousy freaking trolls.
The verdict on the page goes, dum dum dum, dum dum dum.
The verdict on the page goes, dum dum dum, sounding ominous doom.
The patent system will go, sue sue sue, sue sue sue.
The patent system will go, sue sue sue, because its still broken.
Hopefully this will change the landscape some in many different areas. But you know some will keep at it, because they have an angle that can't miss.
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It just occurred to me
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Re: It just occurred to me
"Give us what we want, or we drop the gavel."
VS.
"Give us what we want, or we drop the bomb."
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Re: Re: It just occurred to me
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Re: Re: Re: It just occurred to me
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Re: Re: Re: Re: It just occurred to me
....For great justice...
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Re: Re: It just occurred to me
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The court's sole role is to apply existing precedent to cases presented to it for a decision. If it happens to render a decision that benefits a patent holder or a patent applicant, it is because the law happens to align with their interests, and not because the court is predisposed to favor them.
It is also worthwhile to note that the CAFC is not a "Patent Court". This is merely one of several areas in which the court has original jurisdiction over appeals. Similarly, it is not a court dominated by persons who have practiced patent law prior to their appointment to the bench. At this time only 3 of the judges have practiced patent law, and at least two of them will very likely take "Senior Status" in the near term. Who will be appointed in their stead? Almost certainly persons who have never been involved in the practice of patent law.
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Re:
This alone might make them more qualified than anyone else.
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Appointments have been and continue to be a political reward system. Until we demand better, we will always get the same.
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Re:
So when I hit you in the back of the head and knock your ass out, don't worry, it's not about you and you have no input in the decision, it's only about me, so you should be fine......
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Re:
"Contrary to the popular perception here, the CAFC does not generally side with holders of patents or patent applicants.
The court's sole role is to apply existing precedent to cases presented to it for a decision. If it happens to render a decision that benefits a patent holder or a patent applicant, it is because the law happens to align with their interests, and not because the court is predisposed to favor them."
There are so many misstatements in here that I can't imagine how to begin.
First of all, the CAFC is a patent court. It has been tasked by Congress specifically to unify the law of patents in the United States. That makes is a unique court among all circuit courts, and, indeed, among all courts in the country. Other courts can hear appeals on patent counter-claims, but that isn't standard. Oh, and the CAFC's patent precedent is binding on all other circuits. Think about that. So, again, CAFC is a patent court. The fact that it hears other cases does not change this.
There is no such thing as "original jurisdiction over an appeal." Original jurisdiction means you bring your case there first, as opposed to a lower court.
Saying that the court only sides with patent holders because of the state of the law is also silly. Judges--all judges--have personal biases, and the law can be applied in many, many cases to bring results that favor one party or the other. If a particular court consistently renders verdicts favoring one sort of party over the other, that can be used to impute bias. Here's an example: would you say that a court, say, in the deep south, that regularly returns verdicts against black parties and favoring white parties is doing so "because the law happens to align with [whites'] interests, and not because the court is predisposed to favor them?"
All that said, I don't have it in for the CAFC. I just think it's important to debunk your debunking, because it's bunkum.
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Corroding husk
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How can I harm a patent holder's stake in the marketplace if s/he doesn't actually sell anything?
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Re:
It doesn't matter the patent is on something obvious, we hold the patent and your use of it cost us money! Now pay up or else.
Welcome to the big players in patents. Companies that buy up huge pools of patents, and then rent them out so companies have have epeen measuring contests and waste money fighting in court.
When no one wants to rent them, find someone doing something remotely similar to your broad patent and file suit and offer a quickie settlement cheaper than what a legal battle will cost.
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History of Zimmerman / Eon-Net
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Nitpicking
By their wording, couldn't a company be exempt from the license fee schedule if they could somehow show that they made a) exactly $3,000,000; b) exactly $20,000,000; or c) >$100,000,000?
OT: It's good to see more courts recognizing the 'legal extortion' racket for what it really is.
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Attention required - patents were already licensed!
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Intangible Assets
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propaganda
Prior to eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the Supreme Court decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now some of those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don’t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back in the patent system with injunctions fully enforceable on all infringers by all inventors, large and small.
For the truth about trolls, please see http://truereform.piausa.org.
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They are still ahead of the game
1 loss @ $600K
total win = $1.9 million.
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+1 on more punitive actions
Disbarring the lawyer for filing a bad suit isn't enough. The court should seize and invalidate the patent in cases of gross abuse, while hopping over shell LLC's to the real money behind the extortion.
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Attorneys are the extortionists
$600,000 in attorney fees for Patent defense is considered small potatoes, WTF can justify such a ridiculous fee for a 'service'?
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standards
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