Unwillingness of Plaintiff to Test Merits of Claims Tests Court’s Patience

Shipping and Transit, LLC v. Hall Enterprises, Inc., C.D. Cal. (July 5, 2017) (Judge Andrew J. Guilford)

Plaintiff Shipping & Transit, LLC (“S&T”) is a non-practicing entity that filed hundreds of patent lawsuits in 2016 alone, alleging infringement of three patents directed to monitoring and reporting the location of a vehicle. One of these patents was asserted in more than 400 cases, and the other two patents were asserted in more than 90 cases. However, S&T would routinely settle or dismiss a case with prejudice prior to a ruling on the merits where a defendant challenged the validity of the patents.

In this case, Defendant Hall Enterprises, Inc. asked S&T to voluntarily dismiss the case due to perceived patent validity issues. After S&T refused, Hall Enterprises moved for judgment on the pleadings arguing that all of the claims asserted against it were invalid under 35 U.S.C. § 101 due to ineligible subject matter. Only then did S&T move to dismiss its own claims with prejudice.

Judge Andrew Guilford of the Central District of California granted S&T’s motion. Hall Enterprises then filed for costs and fees as the prevailing party, arguing that S&T’s § 101 position was unreasonable, that S&T “litigated in an unreasonable manner by seeking to exploit the high cost of litigation to extract an unwarranted settlement,” and that it only dismissed the case after Hall Enterprises was forced to incur the expense required to prepare a § 101 motion.

In order to determine whether the underlying litigation was “exceptional” so as to warrant an award of fees, the Court evaluated the substantive strength of S&T’s patent infringement positions by using the two-part test outlined in Alice Corp. Pty. Ltd. v. CLS Bank, Int’l, 134 S. Ct. 2347, 2355 (2014). Using this test, the Court found that each of S&T’s asserted claims was directed to an abstract concept and further lacked any inventive concept. Given this conclusion, the Court then found that S&T’s litigation conduct also was objectively unreasonable so as to be exceptional in light of the Supreme Court’s separate decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014), and the cases that applied that decision to invalidate comparable claims.

As part of this Octane Fitness analysis, the Court agreed with the position S&T proffered in defense of its actions that filing a large number of cases alone does not necessarily demonstrate unreasonable litigation behavior. However, the Court was troubled that S&T repeatedly dismissed its own lawsuits to evade a ruling on the merits yet continued to file new lawsuits advancing the same claims against new defendants. The Court found that S&T’s litigation history “reflects an aggressive strategy that avoids testing its case on the merits and instead aims for early settlements falling at or below the cost of defense,” often in the range of $10,000 to $25,000. Based on the totality of the circumstances, the Court found this to be an exceptional case and granted Defendant’s motion for reasonable attorney’s fees and costs. To promote efficient resolution, the Court also indicated that because it was already familiar with the case, it was inclined to immediately award Hall Enterprises $20,000, if the parties agreed that this was a proper amount.

As this decision demonstrates, plaintiffs should perform a thorough pre-litigation analysis of the strengths and weaknesses of any asserted claims, including with respect to challenges directed to patentable subject matter, and be prepared to litigate cases on the merits if they file a multitude of lawsuits. Otherwise, plaintiffs risk that a court will view the lawsuits as more akin to legal extortion than a legitimate enforcement of patent rights. Defendants seeking fee awards for unreasonable litigation conduct, on the other hand, should consider a plaintiff’s action in preceding cases to establish an “exceptional” case under a totality of the circumstances as set forth in Octane Fitness.