Updated below to correct an error in my original analysis. -DC
WPEM LLC v. SOTI Inc. (Fed. Cir. 2021)
WPEM sued SOTI for patent infringement based upon its mobile-device software management “Speed Lockdown” tool. The complaint cites MobiControl Version 11 as infringing. In its answer, SOTI responded with information from its Version 10, which predates the asserted patent as well as other prior art references. Settlement discussions ensued:
- Offer 1: P offers to settle for $429k; D says “no, the patent is invalid.”
- Offer 2: P offers to settle for $150k; D says “no, the patent is invalid” and also sent P a R.11 notification (alleging that the complaint was filed without sufficient investigation and thus in violation of R. 11).
- Offer 3: P offers to settle for $75k; D says “no, the patent is invalid.”
- Offer 4: P offers to dismiss the case with prejudice and grant a license if D agrees to dismiss its counterclaims and abandon its request for attorney fees; D says “no.”
P (WPEM) subsequently asked that its case be dismissed with prejudice. The district court dismissed the case, but also found it exceptional under 35 U.S.C. 285 and awarded attorney fees of $180k. The primary basis of the district court’s award was WPEM’s failure to conduct sufficient pre-filing investigation
and also continuing the case after learning of its frivolous case. The court wrote:
WPEM conducted no pre-filing investigation into the validity and enforceability of the Asserted Patent.
WPEM, LLC v. SOTI Inc., 2020 WL 555545 (E.D. Tex. Feb. 4, 2020).
UPDATE – I read through the district court case again and found that I had erred in my statement above (now with strikethrough). Rather, the district court particularly concluded that it “finds nothing exceptional about WPEM’s post-filing conduct.” The district court considered the progressive settlement offers, but did not find them improper in any way. Id.
On appeal, the Federal Circuit affirmed — giving deference to the district court’s judgment on exceptional case awards and finding no abuse of discretion. WPEM, LLC v. SOTI Inc., 2020-1483, 2020 WL 7238458, at *1 (Fed. Cir. Dec. 9, 2020)
WPEM’s argument on appeal was that a patentee need not conduct any investigation regarding the validity of its patents prior to filing a lawsuit because a patent is presumed valid and enforceable. Any invalidity defense is for the defendant. On appeal, the Federal Circuit did not disagree, but appears to have twisted the district court opinion somewhat.
Contrary to WPEM’s assertion, we do not read the district court’s opinion as failing to account for the presumptions of validity and enforceability. Instead, the court based its award of attorneys’ fees, in part, on the frivolous nature of WPEM’s infringement position (i.e., the substantive strength of WPEM’s litigation position)—an issue that could have easily been foreseen with an adequate pre-suit investigation (i.e., the unreasonable manner in which the case was litigated). As the court reasoned, because the Accused Technology is prior art to the ’762 patent, “if WPEM prevailed on its assertion that the Accused Technology is covered by the Asserted Patent, it would have had the effect of invalidating, rather than infringing, the Asserted Patent.” Because it is undisputed that the Accused Technology is prior art to the ’762 patent, see id., WPEM could not bring a successful infringement suit.
Id. The appellate decision makes logical sense but for the recognition that infringement analysis is a separate and distinct doctrine from anticipation and that the complaint (apparently) does a reasonable job of showing how the accused product actually practices the invention.
The patentee has now petitioned for en banc rehearing with the following two questions:
- When a plaintiff is not aware of any reason to question the validity of an issued United States Patent, is that plaintiff allowed to rely on the statutory presumption of validity when filing a patent infringement lawsuit?
- While invalidating the claims of a validly issued United States Patent requires clear and convincing evidence, is a District Court allowed to base a finding of exceptionality under §285 for an inadequate pre-suit investigation of patent validity using the lesser standard that the patent is likely invalid when the plaintiff is not aware of any reason to question validity?
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Fees on Fees: The defendant had asked for $267k in attorney fees, but the district court only knocked-off about $87k of that — but awarding $180k. That $90k portion was the amount SOTI’s attorneys racked-up in drafting and arguing its motion for fees. The district court refused to award fees-on-fees in this case.
The Court understands that, in pursuing a § 285 recovery, parties will inevitably incur additional attorneys’ fees. However, in this case a near doubling of the amount already incurred in fees is simply unreasonable. At some point, a party must be mindful of the use and conservation of judicial and party resources and cannot (after it realizes it will prevail) continue to incur fees far in excess of any proportional relationship to the fees incurred in the merits portion of the case.
WPEM, LLC v. SOTI Inc., 2020 U.S.P.Q.2d 38024 (E.D. Tex. 2020).
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