IP Law Daily Fees justified for defense against patent infringement suit made baseless by ‘Alice’
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Friday, December 8, 2017

Fees justified for defense against patent infringement suit made baseless by ‘Alice’

By Thomas Long, J.D.

Patent-owner Inventor Holdings, LLC, was properly ordered by the federal district court in Wilmington, Delaware, to pay attorney fees and costs incurred by retailer Bed Bath & Beyond in successfully defending against infringement claims, after the asserted patent was found to be ineligible under Section 101 of the Patent Act, the U.S. Court of Appeals for the Federal Circuit has held. The district court determined in an August 2015 decision that the patent embodied the ineligible abstract idea of paying for remote orders at local retailers. Bed Bath & Beyond subsequently filed a motion for an award of attorney fees, which the district court granted. Affirming the district court’s decision, the Federal Circuit agreed with the district court’s reasoning that, once the Supreme Court issued its decision in Alice Corp. v. CLS Bank International in June 2014. 134 S. Ct. 2347 (2014), the patent infringement claims were objectively without merit and should have been voluntarily withdrawn. It was not an abuse of discretion for the fee award to include fees incurred during the appeal of the ineligibility ruling, the Federal Circuit determined (Inventor Holdings, LLC v. Bed Bath & Beyond, Inc., December 8, 2017, Chen, R.).

The patent asserted by Inventor Holdings (IH) was U.S. Patent No. 6,381,582 ("the ’582 patent"), which described a method and system for processing payments for remotely purchased goods. The court granted a motion by Bed Bath & Beyond (BBB) to dismiss IH’s infringement claims on the pleadings, finding that the ’582 patent was invalid because the claims at issue embodied an abstract idea. Relying on the U.S. Supreme Court’s opinion in Alice—which was issued about two months after IH filed suit—the district court found that the two business problems that the patent allegedly solved were (1) offering customers more payment options in connection with remote orders and (2) processing those payments, without having to provide credit card information over the Internet, phone, or mail. Those problems related to conventional business practices; therefore, the core invention of the ’582 patent embodied an abstract idea. Furthermore, each of the claims of the ’582 patent lacked meaningful limitations on the abstract idea sufficient to make the claims patentable.

Following dismissal, BBB filed a motion seeking an award of its attorney fees and costs. In the district court’s view, the case was "exceptional" for purposes of the fee-shifting provision of 35 U.S.C. §285. IH's infringement suit was based on patent claims that were objectively invalid under current interpretations of 35 U.S.C. §101. According to the court, the ’582 patent was "dubious" even before the Alice decision; there was a strong argument that using a third-party intermediary to create a remote pay system was an abstract idea, in light of the Supreme Court’s opinion in Bilski v. Kappos, 561 U.S. 593 (2010). To this abstract idea, IH merely added a generic computer implementation, which was insufficient to establish patentability. Even though there was a presumption that the assertion of a granted patent was made in good faith, by the time Alice was decided, IH was on notice that its claims were not patent-eligible. The district court awarded BBB its attorney fees beginning from the date of the Alice decision, including fees incurred during the appeal of the Section 101 ruling. IH appealed the fee award to the Federal Circuit, which affirmed.

Exceptional case. The Federal Circuit concluded that the district court acted within the scope of its discretion in finding the case to be exceptional based on the weakness of IH’s Section 101 arguments and the need to deter similarly weak arguments in the future. IH argued that it was reasonable for it to believe that the ’582 patent was patent-eligible post-Alice based on the district court’s denials before Alice issued of Section 101 motions that had been filed by other defendants in the litigation. IH further argued that Alice did not fundamentally change Section 101 law, noting that the Supreme Court applied the same test in Alice that it previously set out in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 79 (2012). IH also contended that Section 101 was an evolving area of law and that the Section 101 inquiry in this case was therefore difficult.

The Federal Circuit deemed these arguments meritless, stating that the district court had correctly noted that IH’s claims were "dubious even before the Alice decision." The district court did not give reasons for denying the other defendants’ pre-Alice Section 101 motions, and IH cited no evidence that the district court ever endorsed the patent-eligibility of the asserted claims. Additionally, the Federal Circuit found that Alice was a significant change in the law as applied to the facts of this case. "Prior to Alice, the state of the law for computer-implemented business transaction inventions was less than clear," the court said. Post-Alice, a Section 101 defense previously lacking in merit could be meritorious. Although it was sometimes difficult to analyze patent eligibility under the framework prescribed by the Supreme Court in Mayo, there was no uncertainty or difficulty in applying the principles set out in Alice to reach the conclusion that the ’582 patent’s claims were ineligible, in the Federal Circuit’s view. The patent claims were directed to a fundamental economic practice, which Alice made clear was, without more, outside the patent system. In addition, as in Alice, IH was attempting to broadly monopolize an abstract idea as implemented using generic computer technology. "IH’s asserted claims were plainly invalid in view of Alice and its reasoning," the court said.

"It was IH’s responsibility to reassess its case in view of new controlling law," the court continued. Therefore, the district court did not abuse its discretion in awarding fees based on IH’s failure to reassess the weakness of its case under Alice and then confining the award to fees accrued after the Alice decision issued.

Appellate fees. IH argued that the district court abused its discretion in awarding appellate attorney fees. The Federal Circuit noted that it had previously held that Section 285 did not bar the trial court from awarding fees for the entire case, including subsequent appeals. "There were obvious issues with the ’582 patent’s claims that IH should have recognized post-Alice, and these issues persisted throughout the § 101 appeal," the court said. "The district court was in a position to readily assess these issues as a collective whole and did not abuse its discretion in awarding BBB its appellate attorney fees."

The case is No. 2016-2442.

Attorneys: Richard Charles Weinblatt (Stamoulis & Weinblatt LLC) for Inventor Holdings, LLC. Ricardo Bonilla (Fish & Richardson PC) for Bed Bath & Beyond, Inc.

Companies: Inventor Holdings, LLC; Bed Bath & Beyond, Inc.

MainStory: TopStory Patent FedCirNews

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