Dec. 2011/Jan. 2012 / Intellectual Property
Federal Circuit Opens Door To Bad-Faith Penalties Against NPEs
In July 2011 the U.S. Court of Appeals for the Federal Circuit issued an opinion addressing a situation in which an NPE litigated in “bad faith” by exploiting the high cost of defending complex litigation to extract nuisance value settlements from defendants. The opinion (Eon-Net LP v. Flagstar Bancorp) suggests that the Court of Appeals for the Federal Circuit considers the underlying business strategy of many NPEs – to leverage the high cost of patent litigation to extract settlements – as itself constituting evidence of bad faith.
The NPE, Eon-Net, accused Flagstar of infringing its patents, which were directed to methods of processing information from documents. Flagstar refused to pay the licensing fee and fought the lawsuit.
The district court dismissed the infringement claims, leveled $141,000 in sanctions and awarded Flagstar $489,000 to cover its attorney fees and legal costs. The fees and sanctions were based on the district court’s finding that the Eon-Net suit was “objectively baseless” and that Eon-Net had brought the case in bad faith.
Flagstar took a significant financial risk when it spent nearly $500,000 to avoid paying $75,000. The strategy worked, as Flagstar’s decision to fight a meritless claim eventually allowed it to recoup its fees and more.
More importantly, the company has sent a message to other NPEs, and it should benefit from that for years to come. Perhaps most important of all, the authors say, NPEs in general have reason to look at this decision as a warning that there are risks and consequences to bringing meritless cases.
