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US appeals court ruling smacks down a patent troll

$600,000 penalty to plaintiff and lawyers
Tue Aug 09 2011, 15:32

LAW FIRMS CONSIDERING filing patent and copyright trolling lawsuits in the hope of getting a quick settlement might want to think again.

A landmark ruling by the US Court of Appeals for the Federal Circuit in Eon-Net v. Flagstar not only went against a patent troll but also smacked down both the plaintiff and its lawyers with an award of attorneys fees and a fairly large Rule 11 sanction for filing a bogus lawsuit when the intent appeared to be only to get a company to pay out in a cash settlement to avoid having to go to court, according to Techdirt.

This ruling could become an interesting precedent not just in patent cases but potentially in copyright trolling cases as well, as the plaintiff and its lawyers have been ordered to pay out over $600,000.

According to the court, Eon-Net had filed over 100 patent infringement lawsuits and quickly followed up each one with an offer of settlement.

In this particular case, it was clear that Flagstar did not infringe the patents in question.

The appellate court's ruling is potentially very dangerous for copyright and patent trolls because of its finding of "baseless litigation in bad faith". As well as finding that Eon-Net filed an objectively baseless patent infringement action, the district court also determined that Eon-Net filed the lawsuit in bad faith and for an improper purpose.

Moreover, the district court ruled 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 many different 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.

The appeals court found that 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.

The court noted that it's no surprise that most companies agree to settle, but it points out that it's ridiculous that Flagstar had to shell out the best part of $500,000 in attorney fees and costs to litigate this case through claim construction.

Viewed against Eon-Net's $25,000 to $75,000 settlement offer range, it became obvious 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.

Therefore, those low settlement offers, which are less than 10 per cent of the costs that Flagstar expended to defend the lawsuit, effectively ensured that Eon-Net's infringement allegations remained unexposed, "allowing Eon-Net to continue to collect additional nuisance value settlements".

In the end, the appeals court agreed and upheld the district court's award of $141,984.70 for Rule 11 violations and another $489,150.48 in attorneys fees. µ


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