Expired Patent, Exploding Sanctions: A Costly Litigation Lesson for VDPP and its Attorney

In a recent decision out of the Southern District of Texas, Judge Lee Rosenthal found the patent infringement case brought by VDPP against Volkswagen to qualify for sanctions under the Patent Act 35 U.S.C. § 285.  The court also relied upon 28 U.S.C. § 1927 and its inherent powers to directly sanction VDPP’s attorney William P. Ramey (Ramey LLP). VDPP, LLC v. Volkswagen Group of America, Inc., No. H-23-2961 (S.D. Tex. July 11, 2024).

• VDPP Sanctions Memo
• VDPP Dismissal Memo

VDPP’s US Patent No. 9,426,452 claims a system for presenting video content to a viewer wearing electrically controlled spectacles. The system involves reshaping portions of a video stream frame, stitching together frames from different streams, and blending the modified frames with a bridge frame. The spectacles worn by the viewer have independently controlled left and right lenses that can be switched between light and dark states, allowing the video content to be displayed to the viewer in a particular manner, such as by placing both lenses in a dark state while viewing the video.  Although the patent appears to be focused on spectacles, VS’s the alleged infringing apparatus is the Surround View system in the dashboard camera.

Back in March 2024, the dismissed the case on two primary grounds – both stemming from the fact that the asserted patent had expired in January 2022, more than a year before the lawsuit was filed.  Although the complaint requested injunctive relief, that was obviously out of the question because equitable relief is not available for ‘infringement’ that occurs after a patent is expired. Lans v. Dig. Equip. Corp., 252 F.3d 1320 (Fed. Cir. 2001).   This also rules out any ongoing damage award.

With regard to back damages, the court concluded that those were also not available because VDPP failed to comply with the marking and notice requirements under 35 U.S.C. § 287(a). Although non-practicing entities are ordinarily not required mark their products (since they have no products), VDPP had licensed the patent to at least 11 others, including Facebook and ACER, without requiring them to mark the associated products.

Under the statute, authorizing unmarked products is considered to be a “failure so to mark” with the result that “no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.”  Although filing a lawsuit qualifies as notice, the lawsuit here was filed only after expiration.  Because VDPP did not require marking of its authorized products and did not provide actual notice to VW, the result is that no back damages are available. This left no basis to recover any damages from Volkswagen.  A court’s jurisdiction is based upon an available remedy. With the absence of one here, the court dismissed the case.

VDPP’s made the argument in its briefing that the notice provisions of § 287 did not apply to the ‘452 patent because the claims were directed to processes or methods.  One problem with that argument is that the claims are all directed to a “system” or “apparatus”, not a process.  The district court also noted that “to the extent that there is a tangible item to mark by which notice of the asserted method claims can be given, a party is obliged to do so if it intends to avail itself of the constructive notice provisions of section 287(a).” (quoting Am. Med. Sys., Inc. v. Med. Eng’g Corp., 6 F.3d 1523 (Fed. Cir. 1993)).

The ‘452 patent included both system and apparatus claims. Id. Because the patent claimed an apparatus, VDPP and its licensees were required to comply with the marking statute to recover pre-suit damages, regardless of whether VDPP asserted infringement of only the apparatus claims or the system claims as well. Id. The presence of apparatus claims in the ‘452 patent rendered the § 287 notice provisions applicable.

In the July 11, 2024 sanctions order, the court concluded that was improper for Ramey and VDPP to file a lawsuit having these fundamental flaws.  In addition, the court noted several other problems, including that VDPP falsely represented in its initial disclosures that there were no settlement agreements related to the ‘452 patent. In fact, there were 11 such agreements, 7 of which were signed by VDPP’s own president.

In finding the case exceptional under § 285, the court noted the frivolousness and objective unreasonableness of VDPP’s infringement claims and litigation positions. The court noted that VDPP also persisted in asserting claims precluded by the expiration of the ‘452 patent and its inability to plead marking compliance, despite clear contrary law.  The district court also highlighted VDPP’s broader pattern of abusive litigation practices, including filing dozens of lawsuits asserting the ‘452 patent, most of which settled early without merits examination.

his track record, along with prior instances of VDPP’s counsel being sanctioned, underscored the need for deterrence against Ramey in addition to VDPP.  But, in prior cases the Federal Circuit has ruled that Section 285 does not authorize cross-case damages; nor does it authorize a requirement that a party’s attorney pay the attorney fees. See Dragon Intellectual Property LLC v. DISH Network L.L.C. and Sirius XM Radio Inc. (Fed. Cir. May 20, 2024).

Invoking its authority under 28 U.S.C. § 1927 and its inherent powers, the district extended the attorney fee liability to VDPP’s counsel.  While § 285 authorizes fee shifting from the losing party to the prevailing party, 28 U.S.C. § 1927 allows the court to hold attorneys personally liable for excessive costs and fees. The statute provides that “[a]ny attorney … who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” Id.  The court found that VDPP’s counsel unreasonably and vexatiously multiplied the proceedings by persisting in objectively baseless arguments and litigation misconduct.  Finally, federal courts have the inherent power to “fashion an appropriate sanction for conduct which abuses the judicial process.” Chambers v. NASCO, Inc., 501 U.S. 32 (1991).  The court determined that VDPP’s pattern of misconduct, including its repeated misrepresentations to the court, warranted sanctions under this standard as well.