Federal Circuit Reverses Attorney Fees Award Under 28 USC 1927 To Alleged Patent Infringer

GUST, INC. v. ALPHACAP VENTURES, LLC, Appeal No. 2017-2414 (Fed. Cir. Sept. 28, 2018).  Before Wallach, Linn, and Hughes.  On appeal from S.D.N.Y. (Senior Judge Cote).  (Attorney Sanctions For Violations Of 28 USC §1927)

Background:

AlphaCap hired a law firm on a contingency basis (Gutride) to represent it in a patent infringement suit against ten internet crowdfunding companies.  AlphaCap and the companies except Gust settled for less than $50,000 each.  AlphaCap and Gust continued to engage in settlement discussions, Gust continuing to allege that AlphaCap’s patents were invalid under 35 USC §101 in view of Alice v. CLS Bank.  The settlement discussions ultimately bogged down, resulting in Gust filing a Declaratory Judgment action, but offering to dismiss it if AlphaCap, inter alia, dismissed its patent infringement suit with prejudice and paid all of Gust’s attorneys’ fees.  AlphaCap refused.  Ultimately, the district count dismissed all of Gust’s and AlphaCap’s claims but granted Gust’s motion for attorneys’ fees and other expenses under 35 USC §285 and 28 USC §1927, finding the case “exceptional” in that AlphaCap and Gutride’s litigation conduct was unreasonable and taken in bad faith, thus holding Gutride and AlphaCap jointly and severally liable for fees totaling over $500,000.

The court’s rationale was that it was objectively unreasonable to believe that AlphaCap’s patents were not invalid for claiming patent-ineligible subject matter under Alice; that the case was brought “to extract a nuisance settlement from Gust” and that a venue transfer from the Eastern District of Texas to the Southern District of New York was frivolously opposed, even though the Texas venue was distant from Gust’s Delaware home.  Gutride appealed to the Federal Circuit.  (AlphaCap did not appeal.)

Issue/Holding:

Did the district court err in awarding fees against Gutride? (continue reading)

Summary by:  Harris Pitlick

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