Judge Sleet finds case exceptional, awards attorneys’ fees.

Judge Gregory M. Sleet recently granted a defendant’s motion for attorneys’ fees, finding that the totality of the circumstances warranted characterizing the case as exceptional under 35 U.S.C. § 285 and Octane FitnessSummit Data Sys., LLC v. EMC Corp., et al., C.A. No. 10-749-GMS (D. Del. Sept. 25, 2014).  The plaintiff, Summit, had alleged induced infringement against the sole remaining defendant, NetApp, whose end-user customers were alleged to directly infringe by using NetApp products with Microsoft software.  However, just months prior to filing its complaint, Summit had licensed the asserted patents (indirectly, through a patent aggregator) to Microsoft, meaning that no end-user could directly infringe the asserted patents.  Summit did not disclose the existence of this license agreement until more than a year and a half after filing suit, and soon thereafter agreed to dismiss the lawsuit.

As the Court explained, Summit “forfeited its right to pursue [its induced infringement theory] against NetApp when it entered into the Licensing Agreement . . ., which provided Microsoft with a license to the asserted patents.”  Id. at 6.  The Court rejected Summit’s arguments that NetApp carried the burden of proving a license or patent exhaustion defense, and that Summit could reasonably assume NetApp induced infringement through some other, non-Microsoft-based configuration:  “For over two years, Summit proceeded on an infringement theory that rested on Microsoft’s software being a necessary component.  Summit cannot rely on reasonable assumptions and guesses that NetApp infringes the asserted patents in one way or another.  And NetApp need not establish an affirmative defense when Summit’s sole theory of infringement was unfounded.”  Id. at 7.

The Court added that “Summit’s practice of extracting settlements worth a fraction of what the case would cost to litigate supports a finding of exceptionality.”  Id.  In this case, Summit had settled with a number of other co-defendants for amounts ranging from $60,000 to $170,000.  Id. at 3.  The Court explained that the “Federal Circuit has looked to ‘nuisance value settlements’ to determine whether a case is exceptional.”  Id. at 8 (quoting Eon-Net LP v. Flagstar Bancorp, 653 F.2d 1314, 1327-28 (Fed. Cir. 2011)).  In light of this, and the license issue, the Court found that the totality of the circumstances supported a finding that the case was exceptional.

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