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The Honorable Ricardo S. Martinez 

UNITED STATES DISTRICT COURT 

WESTERN DISTRICT OF WASHINGTON 

AT SEATTLE 

Eon-Net, L.P., 

Plaintiff, 

v. 

Flagstar Bancorp, 

Defendant. 

 CASE NO. C 05-2129 RSM 

DEFENDANT FLAGSTAR 

BANCORP’S MOTION FOR 

ATTORNEYS’ FEES AND COSTS 

ORAL ARGUMENT REQUESTED 

NOTE ON MOTION CALENDAR: 

MAY 8, 2009 

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TABLE OF CONTENTS

Page

BACKGROUND .............................................................................................................................1 

Eon-Net’s Complaint and Immediate Settlement Offer.......................................................1 

Flagstar Requests that Eon-Net Withdraw Its Baseless Complaint.....................................2 

Flagstar’s Motions for Summary Judgment and Rule 11 Sanctions....................................2 

The Federal Circuit Opinion ................................................................................................3 

Eon-Net Amends Its Complaint To Assert Infringement of Two Additional 

Patents..................................................................................................................................3 

Flagstar Discovers that Eon-Net Purposefully Destroyed Relevant Evidence ....................4 

This Court Rules that the Patents at Issue Relate to Hard Copy Documents ......................5 

Eon-Net’s Litigation Scheme...............................................................................................5 

ARGUMENT...................................................................................................................................6 

I. FLAGSTAR SHOULD BE AWARDED ATTORNEYS’ FEES PURSUANT TO 

SECTION 285......................................................................................................................6 

A. This Case Should Be Declared Exceptional. ...........................................................6 

1. Eon-Net’s Lawsuit Was Frivolous and Unjustified.....................................7 

2. Eon-Net Filed This Lawsuit for the Sole Purpose of Collecting a 

Nuisance Settlement.....................................................................................9 

3. Eon-Net Destroyed Evidence.....................................................................10 

4. Eon-Net Engaged in Other “Offensive Litigation Tactics.” ......................11 

B. Flagstar Should Be Awarded Its Attorneys’ Fees and Costs. ................................12 

II. RULE 11 SANCTIONS SHOULD BE IMPOSED...........................................................12 

CONCLUSION..............................................................................................................................13 

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TABLE OF AUTHORITIES 

Page

Cases 

Am. Standard, Inc. v. York Int'l Corp., 

244 F. Supp. 2d 990 (W.D. Wis. 2002) ...................................................................................10 

Aptix Corp. v. Quickturn Design Sys., Inc., 

269 F.3d 1369 (Fed. Cir. 2001)................................................................................................11 

Boyd's Bit Serv., Inc. v. Specialty Rental Tools & Supply, Inc., 

332 F. Supp. 2d 938 (W.D. La. 2004)................................................................................11, 12 

Eltech Sys. Corp. v. PPG Indus., Inc., 

903 F.2d 805 (Fed. Cir. 1990)................................................................................................7, 9 

Hughes v. Nov Am., Inc., 

724 F.2d 122 (Fed. Cir. 1984)....................................................................................................9 

Int'l Indus. & Devs. v. Farbach Chem. Co., 

145 F. Supp. 34 (S.D. Ohio 1956) ...........................................................................................10 

Kaehni v. Diffraction Co., 

342 F. Supp. 523 (D. Md. 1972)....................................................................................9, 10, 12 

Kahn v. Dynamics Corp., 

508 F.2d 939 (2d Cir. 1974).................................................................................................9, 10 

L.E.A. Dynatech, Inc. v. Allina, 

49 F.3d 1527 (Fed. Cir. 1995)..................................................................................................10 

Mathis v. Spears, 

857 F.2d 749 (Fed. Cir. 1988)....................................................................................................6 

Multi-Tech, Inc. v. Components, Inc., 

708 F. Supp. 615 (D. Del. 1989)........................................................................................6, 7, 9 

Realtek Semiconductor Corp. v. Marvell Semiconductor, Inc., 

No. C-04-4265, 2005 WL 3634617 (N.D. Cal. Nov. 21, 2005) ....................................6, 11, 12 

Synthon IP, Inc. v. Pfizer Inc., 

484 F. Supp. 2d 437 (E.D. Va. 2007) ....................................................................................6, 7 

Takeda Chem. Indus., Ltd. v. Mylan Labs., Inc., 

549 F.3d 1381 (Fed. Cir. 2008)..............................................................................................6, 7 

Telectron, Inc. v. Overhead Door Corp., 

116 F.R.D. 107 (S.D. Fla. 1987)..............................................................................................11

Yamanouchi Pharm. Co. v. Danbury Pharmacal, Inc., 

231 F.3d 1339 (Fed. Cir. 2000)..................................................................................................7 

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Statutes 

35 U.S.C. § 285................................................................................................................................6 

Fed. R. Civ. P. 54(d)(2)(C) ............................................................................................................12 

Other Authorities

7 Chisum on Patents § 20.3[4][b] (2007).........................................................................................1 

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Pursuant to Federal Rule of Civil Procedure 54(d)(2) and 35 U.S.C. § 285, Defendant 

Flagstar Bank moves for recovery of its attorneys’ fees and costs on the basis that this case is 

“exceptional.” In addition, pursuant to Federal Rule of Civil Procedure 11, Flagstar moves for 

sanctions to be imposed on Plaintiff Eon-Net, L.P.’s counsel on the grounds that this lawsuit was 

frivolous, baseless, and brought for an improper purpose.1

BACKGROUND

Eon-Net’s Complaint and Immediate Settlement Offer

On February 4, 2005, Eon-Net filed a complaint against Flagstar alleging willful2

infringement of U.S. Patent No. 6,683,697.3 (Docket Number (“DN”) 24, Part 4, ¶ 13.) 

Although the ‘697 Patent “is directed to a system for efficiently processing information 

originating from hard copy documents” (Baily Decl. ¶ 2, Exh. A, at 1:15-17), Eon-Net alleged 

that Flagstar was infringing the ‘697 Patent by “collecting information over the Internet” (DN 

24, Part 4, ¶ 10). 

Less than a month after filing the complaint, Eon-Net “offer[ed] Flagstar the opportunity 

to avoid the expense of litigation and quickly settle this matter.” (Baily Decl. ¶ 3, Exh. B.) EonNet presented Flagstar with a choice—(1) pay a nuisance settlement between $25,000 and 

$75,000 within 30 days or (2) pay many times that amount to defend a protracted lawsuit. (Id.) 

At the time Eon-Net filed suit against Flagstar, Eon-Net had filed at least eight other 

substantially identical complaints alleging willful infringement of the ‘697 Patent by “collecting 

information over the Internet.” (Id. ¶ 4.) Eon-Net appears to have offered the same nuisance 

settlement to each of the eight defendants. (E.g., id. ¶ 5, Exh. C.) It also appears that each 

defendant decided to pay the settlement rather than expend resources investigating or litigating 

 1

 Pursuant to Federal Rule of Appellate Procedure 4(a)(4)(B)(i), Eon-Net’s Notice of 

Appeal (DN 168) will become effective after an order resolving this Motion is entered. 

2

 “Willfulness” requires a showing that an accused infringer had actual knowledge of 

plaintiff’s patent rights and failed to exercise due care to avoid infringement. 7 Chisum on 

Patents § 20.3[4][b] (2007). A finding of willful infringement supports treble damages. Id.

3

 The ‘697 Patent is the fifth patent claiming priority to application number 07/672,865, 

filed on March 20, 1991. (Baily Decl. ¶ 2, Exh. A.) 

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the merits of Eon-Net’s claim. (Id. ¶¶ 4, 6, Exh. D.) 

Flagstar Requests that Eon-Net Withdraw Its Baseless Complaint

Rather than pay a nuisance settlement, Flagstar investigated Eon-Net’s claim of 

infringement and found that it used software from Kofax Image Products, Inc. in connection with 

its website. (Baily Decl. ¶ 7, Exh. E.) Flagstar also discovered that its use of that software was 

already licensed under the ‘697 Patent. (Id. ¶¶ 7, 8, 10, Exh. G.) 

In light of this information, Kofax and Flagstar requested that Eon-Net withdraw its 

complaint. (Id. ¶¶ 13, 14, Exhs. J, K.) Flagstar notified Eon-Net that it intended to seek Rule 11 

sanctions and that it considered Eon-Net’s lawsuit to be a baseless, “bad faith shakedown suit.” 

(Id. ¶¶ 14, 15, Exhs. K, L.) Nonetheless, Eon-Net continued to prosecute its claims. (E.g., id. ¶ 

16, Exh. M.) 

By this time, Eon-Net had filed at least sixteen other substantially identical infringement 

actions. (Id. ¶ 17, Exh. N.) It appears that none of the sixteen defendants litigated the merits of 

Eon-Net’s infringement claims. (Id. ¶¶ 17-19, Exhs. O, P.) 

Flagstar’s Motions for Summary Judgment and Rule 11 Sanctions

On May 4, 2006, Flagstar moved for summary judgment and for Rule 11 sanctions. (DN 

39, 42.) This Court granted Flagstar’s motions (DN 73, 79, 88), ruling that Eon-Net had 

“asserted frivolous claims” (DN 88, at 1). 

Specifically, the Court found that Eon-Net had “failed to proffer a reasonable 

construction for its ‘697 Patent.” (DN 73, at 1.) The Court noted that “[a]ny reasonable 

construction must necessarily include a reference to the hard copy documents contained in every 

definition in the specification.” (DN 79, at 14.) The Court found Eon-Net’s contrary position 

that “most, if not all, HTML form usage on the internet infringes the ‘697 Patent” was 

“unrealistic” and “illogical,” stating: 

“Eon-Net’s claim construction position—which excludes a reference to hard copy 

documents—ignores the plain language of the disclosure. Most importantly, it 

ignores what the inventor defined as the invention. To the extent Eon-Net went 

through the motions of a claim construction exercise, it recklessly defined terms 

to suit its purposes in spite of the specification’s language. The specification 

unambiguously defines the invention of the ‘697 Patent as a system for extracting 

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information from hard copy documents. Eon-Net’s construction in spite of the 

evidence is an abuse of the protections afforded by the patent system and is the 

type of misconduct for which Rule 11 provides sanctions.” (Id. at 2 n.2, 12, 13, 14-15.) 

The Court also found that “Eon-Net asserted and maintained baseless claims of patent 

infringement in hopes of quick settlement.” (Id. at 18.) Indeed, the Court found “indicia of 

extortion” based on Eon-Net’s practice of filing baseless lawsuits for the purpose of collecting 

“nuisance settlements.” (Id. at 17.) 

While Flagstar’s motions were pending, Eon-Net continued filing baseless infringement 

complaints. (Baily Decl. ¶ 20.) By the time the district court issued its rulings, Eon-Net had 

filed at least twenty seven other substantively identical lawsuits. (Id.) 

The Federal Circuit Opinion

Eon-Net appealed this Court’s rulings, and the Federal Circuit issued its opinion 

affirming in part, vacating in part, and remanding on September 27, 2007. (DN 105.) 

The Federal Circuit stated that the grounds on which summary judgment was granted 

“may ultimately prove an appropriate basis for granting summary judgment” and that “it may be 

true that ultimately Eon-Net’s suit was for an improper purpose.” (Id. 8, 13.) The Federal Circuit 

found, however, that “the district court should have given Eon-Net an opportunity to fully 

present its arguments . . . even if the district court ultimately would have reached the same 

conclusion.” (Id. 9.) Accordingly, the Federal Circuit remanded the case so that this Court could 

consider in full any arguments Eon-Net might present with respect to claim construction. (Id. at 

16.) 

While the appeal was pending, Eon-Net modified its strategy with respect to its moneymaking scheme. Rather than filing baseless suits to force nuisance settlements, Eon-Net began 

sending form letters to various companies, asserting that each company’s website “incorporate[d] 

the invention claimed in the Patents” and “offering a non-exclusive license to the Patents on a 

fully paid-up basis for a reasonable, one-time license fee.” (Baily Decl. ¶ 21, Exhs. Q-S.) 

Eon-Net Amends Its Complaint To Assert Infringement of Two Additional Patents

While Flagstar’s motions for summary judgment and sanctions were being considered, 

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two additional patents claiming priority to application number 07/672,865 were issued to EonNet—Patent Nos. 7,075,673 and 7,184,162. (Baily Decl. ¶¶ 22, 23, Exhs. T, U.) Those patents 

share the same specification as the ‘697 Patent. (Id.) 

On December 14, 2007, Eon-Net filed its Second Amended Complaint, which alleged 

that Flagstar was infringing the ‘673 Patent and the ‘162 Patent by “operating the Flagstar 

Website.” (DN 108.) Flagstar maintained that Eon-Net’s allegations were “legally and factually 

baseless.” (Baily Decl. ¶ 24, Exh. V.) 

Flagstar Discovers that Eon-Net Purposefully Destroyed Relevant Evidence

Prior to submitting briefs on claim construction with respect to the three patents at issue, 

the parties engaged in limited discovery. On June 23, 2008, Flagstar took the Rule 30(b)(6) 

deposition of Eon-Net’s corporate designee Mitchell Medina. (Baily Decl. ¶ 25, Exh. W, at 

11:5-10.) During that deposition, Dr. Medina confirmed that Eon-Net, and the related entity 

Millennium, existed solely for the purpose of bringing infringement lawsuits involving certain 

patents, including the three at issue in this case. (Id. at 33:3-7, 36:23-37:4, 61:10-13.) 

Dr. Medina also testified that Eon-Net had instituted a “document retention policy” that 

explicitly provided that no documents would be retained for any length of time. (Id. at 61:10-15, 

62:6-23, 63:17, 214:24-215:16.) Dr. Medina explained that the policy was specifically instituted 

in anticipation of Eon-Net bringing infringement suits like this one: 

“[A]s Millenium and Eon-Net have evolved into patent enforcement companies 

which are involved in the business of litigation, we have adopted a document 

retention policy which is that we don’t retain any documents.” (Id. at 61:10-15.) 

In part on the basis of Dr. Medina’s admissions, Flagstar brought a Motion for Sanctions 

Related to Eon-Net’s Destruction of Documents. (DN 138.) In its briefing on that Motion, 

Flagstar demonstrated that, as a result of Eon-Net’s so-called “document retention policy,” 

Flagstar had been denied access to various categories of documents and things that had once 

existed and that would have been highly relevant to the issues of claim construction, noninfringement, invalidity, and unenforceability. (Id. at 3; DN 145, at 2-3.) Flagstar requested that 

the Court sanction Eon-Net for its willful litigation misconduct by dismissing its claims against 

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Flagstar. (DN 138, at 8.) 

This Court heard oral argument on Flagstar’s Motion for Sanctions on October 27, 2008. 

The Court noted “concerns about Eon-Net’s good faith” but proceeded with the Markman

hearing and heard Eon-Net’s arguments on claim construction. (DN 149, at 5, 9.) In its Order 

on Claim Construction, the Court noted that the “motion for sanctions . . . remains pending and 

will be addressed by the Court at a later time.” (DN 162, at 1 n.2.) 

This Court Rules that the Patents at Issue Relate to Hard Copy Documents

This Court issued its Order on Claim Construction on March 4, 2009. (DN 162.) In that 

Order, the Court described “the crux” of the dispute on claim construction to be “whether the 

‘697 Patent and its continuation patents are limited to a methodology for processing hard copy 

documents.” (Id. at 13.) The Court ruled that the patents were so limited, finding “that the ‘697 

and successive patents describe an invention for ‘information processing methodology’ directed 

to information derived from hard copy documents.” (Id. at 13, 16.) The Court also noted that 

Eon-Net had asserted claim construction positions that would make the scope of the patents at 

issue “so broad as to appear limitless.” (Id. at 16.) 

In light of the Order on Claim Construction, the parties stipulated that Flagstar did not 

infringe the patents in suit (DN 165), and judgment was entered for Flagstar (DN 167). 

Eon-Net’s Litigation Scheme

To date, Eon-Net has filed more than 45 lawsuits alleging infringement of the patents at 

issue in this case. (Baily Decl. ¶¶ 4, 17, 20, 26, Exhs. N, X.) Eon-Net has also sent form 

letters—alleging infringement and requiring payment of a minimal fee to avoid a lawsuit—to an 

unknown number of companies.4 (Id. ¶ 27, Exh. Y.) Countless of Eon-Net’s targets chose to 

pay the fee to avoid the expense and distraction of defending a patent infringement lawsuit. 

(E.g., id. ¶¶ 4, 6, 17, 19, 28, Exhs. D, P, Z, AA.) 

Flagstar has now incurred the time (more than 4 years) and expense (hundreds of 

 4

 The number is likely large. Flagstar is aware of one day on which Eon-Net sent at least 

fourteen such letters. (Baily Decl. ¶ 27, Exh. Y.) 

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thousands of dollars) to litigate the issues relating to the scope of Eon-Net’s patents. As a result, 

it has now become feasible for other companies faced with Eon-Net’s threats of baseless but 

expensive litigation to defend Eon-Net’s claims. (E.g., id. ¶ 29, Exh. BB.) 

ARGUMENT

I. FLAGSTAR SHOULD BE AWARDED ATTORNEYS’ FEES PURSUANT TO 

SECTION 285. 

Section 285 provides that “courts in exceptional cases may award reasonable attorney 

fees to the prevailing party.” 35 U.S.C. § 285. “The purpose of Section 285 is to reimburse a 

party injured when forced to undergo an ‘exceptional’ case.” Mathis v. Spears, 857 F.2d 749, 

753 (Fed. Cir. 1988). By providing for reimbursement of attorneys’ fees, Section 285 serves to 

“prevent[] gross injustice where a party has demonstrated bad faith and misconduct during 

litigation,” Takeda Chem. Indus., Ltd. v. Mylan Labs., Inc., 549 F.3d 1381, 1388 (Fed. Cir. 

2008), and to deter the “improper bringing of clearly unwarranted suits,” Mathis, 857 F.2d at 

754, 758. Multi-Tech, Inc. v. Components, Inc., 708 F. Supp. 615, 620 (D. Del. 1989). 

“[D]etermining whether attorney’s fees should be awarded under § 285 is a two-step 

process.” E.g., Synthon IP, Inc. v. Pfizer Inc., 484 F. Supp. 2d 437, 441 (E.D. Va. 2007). First, 

“the district court must make a factual determination as to whether the prevailing party has 

established by clear and convincing evidence that the case is exceptional.” Id. Then, “the 

district court must exercise its discretion in determining whether an award of attorney’s fees is 

appropriate in the circumstances.” Id. As described below, Eon-Net’s frivolous lawsuit against 

Flagstar is clearly “exceptional” and Flagstar’s request for attorneys’ fees should be granted. 

A. This Case Should Be Declared Exceptional. 

“A case may be deemed exceptional when there has been some material inappropriate 

conduct related to the matter in litigation.” Realtek Semiconductor Corp. v. Marvell 

Semiconductor, Inc., No. C-04-4265, 2005 WL 3634617, *3 (N.D. Cal. Nov. 21, 2005); Synthon, 

484 F. Supp. 2d at 441. The Federal Circuit has recognized “many varieties” of such 

inappropriate conduct, including vexatious or unjustified litigation, misconduct during litigation, 

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conduct that violates Federal Rule of Civil Procedure 11, “offensive litigation tactics,” and 

frivolous filings. Yamanouchi Pharm. Co. v. Danbury Pharmacal, Inc., 231 F.3d 1339, 1346-47 

(Fed. Cir. 2000); Synthon, 484 F. Supp. 2d at 441; Takeda, 549 F.3d at 1387; see also MultiTech, 708 F. Supp. at 620. “In assessing whether a case qualifies as exceptional, the district 

court must look at the totality of the circumstances.” Yamanouchi, 231 F.3d at 1347; Eltech Sys. 

Corp. v. PPG Indus., Inc., 903 F.2d 805, 811 (Fed. Cir. 1990). 

This case should be declared exceptional on at least four independent grounds: (1) EonNet’s lawsuit was frivolous and unjustified, (2) Eon-Net’s lawsuit was filed for an improper 

purpose, (3) Eon-Net purposefully destroyed relevant evidence, and (4) Eon-Net engaged in 

other litigation misconduct. Taken together—and in light of Eon-Net’s general contempt for the 

judicial system that it has repeatedly sought to exploit5

—an exceptional case finding is clearly 

warranted here. 

1. Eon-Net’s Lawsuit Was Frivolous and Unjustified.

Eon-Net’s claim of patent infringement in this case depended entirely on the notion that 

the patents in suit could be interpreted to encompass any “collection of information over the 

Internet” (DN 24, Part 4, ¶ 13) and any electronic commerce (Baily Decl. ¶ 25, Exh. W, at 

131:24-132:5). Such a position was “manifestly unreasonable,” and Eon-Net’s pursuit of 

infringement claims based on that position makes this case exceptional. Eltech, 903 F.2d at 811; 

Multi-Tech, 708 F. Supp. at 620, 622, 623 (finding case exceptional where infringement claims 

were based on unreasonably broad view of patent scope). 

Eon-Net’s patents relate only to “processing information originating from hard copy 

documents.” (Baily Decl. ¶ 2, Exh. A, at 1:15-17.) As noted in Flagstar’s briefing on claim 

construction, the shared specification of the patents in suit repeatedly and consistently defined

 5

 For example, Eon-Net viewed its deposition as “an inconvenience and a bother,” testified 

that it was “sick of . . . haggling over stupidities and trivialities which is the name of the game in 

litigation,” and maintained that Flagstar should not defend this lawsuit “when Flagstar is a 

money-losing bank that spent a multiple of our license fees on this litigation which, A, it is not 

going to win and, B, is quixotic at best.” (Baily Decl. ¶ 25, Exh. W, at 134:20-135:6, 166:5-9, 

146:11-17; see also id. at 11:21-22, 13:6-9, 24:23-25:28, 57:8-10.) 

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the purported invention to involve the processing of hard copy documents. This Court agreed 

that “the specification read as a whole suggests that the very character of the invention requires 

the limitation to hard copy documents to be a part of every embodiment.” (DN 162, at 13; see 

also DN 79, at 13 (“The invention is repeatedly described as being ‘directed to a system for 

efficiently processing information originating from hard copy documents.’”).) 

Despite overwhelming intrinsic evidence, however, Eon-Net took a near limitless view of 

the activities encompassed by its patents. Eon-Net asserted, for example, that its patents covered 

all “websites implementing e-commerce.” (Baily Decl. ¶ 25, Exh. W, at 131:24-132:5; see also id.

at 161:18-23 (asserting that Eon-Net’s patents also apply to bar-coding); id. at 92:16-17 (testifying 

that “the entire world has exploded in implementations of the Eon-Net invention”).) Such a view 

was objectively baseless. (E.g., DN 162, at 16 (noting that “the scope for which plaintiff argues is 

so broad as to appear limitless” and noting previous observation that Eon-Net’s interpretation of its 

patents would imply that it “own[s] the web”); see also DN 79, at 13 (“The disclosure of the ‘697 

Patent contains nothing that supports Eon-Net’s unrealistic scope for the ‘697 claims.”); id. at 12 

(“Eon-Net’s argument that the ‘697 Patent covers far more than the specification’s definition of 

‘the invention’ borders on the illogical. There is no support for Eon-Net’s argument.”).) 

Moreover, Eon-Net admitted at deposition that it simply ignored the relevant law 

governing claim construction in urging its position regarding the breadth of its patents. For 

example, to arrive at Eon-Net’s construction of the claim term “file,” Mitchell Medina “c[a]me 

up with a reasonably concise statement of what was in [his] mind when [he] wrote ‘file,’” 

without reference to any intrinsic evidence. (Baily Decl. ¶ 25, Exh. W, at 14:3-15:8 (“I was not 

studying the patent when I came up with that definition.”); see also id. at 129:4-6 (testifying that 

there was no support in the specification for Eon-Net’s proposed construction of “file”).) Of course, 

what was in Mitchell Medina’s mind in 1999, when he wrote the claims of the ‘697 Patent, has 

nothing to do with the proper construction of those claims. The relevant question is only how 

one of ordinary skill in the art of the patents in 1991, the relevant priority date, would construe 

the term “file” in light of the intrinsic evidence. Eon-Net’s wholesale disregard of hornbook law 

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regarding claim construction is clear evidence of Eon-Net’s bad faith. (See DN 79, at 15 (“EonNet ignored . . . the basic canons of claim construction in evaluating the ‘697 Patent.”).) 

Eon-Net’s pursuit of this case despite all of the intrinsic evidence, which “indicates 

unequivocally” that the patents at issue are limited to methods of processing hard copy 

documents, “is evidence that the plaintiff’s actions were taken at the very least with gross 

negligence.” Multi-Tech, 708 F. Supp. at 622 (“We find that continuing to advance this case in light 

of the well-documented prosecution history, which indicates unequivocally that thermoplastic 

materials were excluded from the scope of the patent, is evidence that the plaintiff’s actions were 

taken at the very least with gross negligence. This factor makes this case exceptional.”); Eltech, 903 

F.2d at 811 (“Where, as here, the patentee is manifestly unreasonable in assessing infringement, 

while continuing to assert infringement in court, an inference is proper of bad faith, whether 

grounded in or denominated wrongful intent, recklessness, or gross negligence.”). Eon-Net’s 

allegation of infringement, predicated on its unreasonable interpretation of its patents, was 

frivolous, was asserted without sufficient justification, and was prosecuted in bad faith. On this 

basis alone, this case should be declared exceptional. Multi-Tech, 708 F. Supp. at 622; Eltech, 903 

F.2d at 811; see also Kaehni v. Diffraction Co., 342 F. Supp. 523, 533, 537 (D. Md. 1972) (finding 

case exceptional where “plaintiffs’ allegations are completely groundless” in light of the 

“narrowness of the claims granted”); Kahn v. Dynamics Corp., 508 F.2d 939, 944 (2d Cir. 1974) 

(affirming finding that case was exceptional where plaintiff “failed to use reasonable and 

responsible care in assessing his claims prior to and during suit and that suit was commenced and 

prosecuted in bad faith on the part of plaintiff”); Hughes v. Nov Am., Inc., 724 F.2d 122, 125 (Fed. 

Cir. 1984) (affirming finding that case was exceptional where “even a cursory reading of the 

[patent] claim makes obvious the fact of noninfringement”). 

2. Eon-Net Filed This Lawsuit for the Sole Purpose of Collecting a Nuisance 

Settlement.

Immediately after it filed the complaint in this case, Eon-Net offered to settle its claims 

for between $25,000 and $75,000. (Baily Decl. ¶ 3, Exh. B.) As this Court noted previously, 

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“given the extraordinary cost of patent litigation, even the finest patent attorney would need to 

think carefully before advising a client to spend hundreds of thousands of dollars in litigation 

when a $25,000, $50,000, or $75,000 settlement was on the table.” (DN 79, at 17.) Indeed, 

Flagstar immediately understood the action to be a “bad-faith shakedown” and conveyed as 

much to Eon-Net. (Baily Decl. ¶ 15, Exh. L.) 

What is more, Eon-Net has extracted nuisance settlements and minimal “license fees” 

from countless companies by threatening protracted and expensive litigation. (Id. ¶¶ 4-6, 17-21, 

27, 28, Exhs. C, D, O, P, Y-AA.) Especially in light of Eon-Net’s objectively unreasonable 

position with respect to the scope of its patents, it is clear that the true purpose of Eon-Net’s 

litigation scheme was to profit from asserting—or threatening to assert—baseless claims of 

infringement. Such conduct makes this case exceptional. Kaehni, 342 F. Supp. at 537 (declaring 

case exceptional where, in light of “the narrowness of the [patent] claims granted,” it was clear that 

the “true purpose” of the lawsuit was “harassment”); Kahn, 508 F.2d at 944 (affirming declaration of 

exceptional case where “the trial court inferred that Kahn’s purpose in commencing this litigation 

was to force [defendant] to obtain a non-exclusive license under the ‘503 patent by threatening 

[defendant] with a suit, the defense of which would entail considerable expenses”); Am. Standard, 

Inc. v. York Int’l Corp., 244 F. Supp. 2d 990, 997 (W.D. Wis. 2002) (finding “plaintiffs’ litigation 

tactics were in bad faith to force defendants into settlement and away from their legitimate defenses” 

and declaring case exceptional); see also L.E.A. Dynatech, Inc. v. Allina, 49 F.3d 1527 (Fed. Cir. 

1995) (affirming finding of exceptional case where plaintiff “used litigation to impose expenses on a 

competitor”); Int’l Indus. & Devs. v. Farbach Chem. Co., 145 F. Supp. 34, 35-37 (S.D. Ohio 1956) 

(finding case exceptional where plaintiff mailed 8,000 letters containing baseless infringement 

allegations). 

3. Eon-Net Destroyed Evidence

As detailed above and in Flagstar’s Motion for Sanctions (DN 138), Eon-Net deliberately 

destroyed all evidence regarding the patents in suit when it decided to embark on its litigation 

plan. By discarding documents for the explicit purpose of making them unavailable for 

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discovery in suits like this one, Eon-Net “consciously [sought] to undermine the very 

foundations of [the] discovery process.” Telectron, Inc. v. Overhead Door Corp., 116 F.R.D. 

107, 128 (S.D. Fla. 1987). Eon-Net’s bad faith in this regard supports a finding that this case is 

exceptional. Aptix Corp. v. Quickturn Design Sys., Inc., 269 F.3d 1369, 1375 (Fed. Cir. 2001) 

(affirming finding that case was exceptional because of discovery misconduct); Realtek, 2005 

WL 3634617, at *6-*7 (finding case exceptional where plaintiff failed to comply with discovery 

obligations in connection with interrogatory responses and deposition scheduling); Boyd’s Bit 

Serv., Inc. v. Specialty Rental Tools & Supply, Inc., 332 F. Supp. 2d 938 (W.D. La. 2004) (finding 

case exceptional in part because plaintiff “failed to adhere to discovery deadlines”). 

4. Eon-Net Engaged in Other “Offensive Litigation Tactics.”

Beyond destroying evidence, Eon-Net engaged in other litigation misconduct. For 

example, Eon-Net attempted to prevent Flagstar from obtaining the license agreement that 

covered Flagstar’s use of Kofax software, the only activity that could conceivably be related to 

the subject matter of the patents in dispute. (Baily Decl. ¶¶ 9, 11, 12, Exhs. F, H, I; see DN 79, at 4-5 

(noting that “Eon-Net instructed Kofax not to comply with the subpoena” seeking the license 

agreement and “later threatened Kofax with a lawsuit for complying with the subpoena”).) 

As another example, Eon-Net refused to comply with this Court's claim construction 

procedures. On the date on which the parties had agreed to identify claim terms to be construed, 

Eon-Net asserted that no terms needed construction “since the claim terms have their ordinary 

and customary meaning that the terms would have to a person of ordinary skill in the art in 

question at the time of the invention.” (Baily Decl. ¶ 30, Exh. CC.) When requested to 

“describe the level of ordinary skill in the art that Eon-Net contends is applicable for purposes of 

claim construction,” however, Eon-Net responded: 

“Eon-Net answers that the skill in the art required is that sufficient to converse 

meaningfully with Mitchell Medina.” (Id. ¶ 31, Exh. DD.) 

Such a response is, of course, meaningless and improper. Even on the date that the parties had 

agreed to exchange proposed claim constructions, Eon-Net refused “to send over” any proposed 

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constructions. (Id. ¶¶ 32, 33, Exhs. EE, FF.) 

 Such delay tactics and gamesmanship support a finding that this is an exceptional case. 

Boyd’s, 332 F. Supp. 2d at 943 (considering the “conduct of counsel” and “tactics of the parties” 

“relevant in the determination of whether exceptional circumstances are present”); Realtek, 2005 

WL 3634617, at *7 (same). 

B. Flagstar Should Be Awarded Its Attorneys’ Fees and Costs. 

If a court deems a case exceptional, it may exercise its discretion to award attorneys’ fees 

and costs. E.g., Kaehni, 342 F. Supp. at 536. This Court should exercise its discretion to award 

Flagstar its attorneys’ fees and costs in this case.6 Flagstar did “everything in its power to end 

the litigation and avoid its enormous cost, and, in light of plaintiff’s wholly unjustified conduct, 

it would be unconscionable and grossly unjust to now require [Flagstar] to bear the burden of 

that cost.” Id. 

II. RULE 11 SANCTIONS SHOULD BE IMPOSED. 

Attached as Exhibit 1 hereto is Flagstar’s Motion for Sanctions, which was initially filed 

on May 4, 2006. (DN 42.) Flagstar requests that its Motion for Sanctions be reconsidered and 

granted on the bases described in this Court’s October 4, 2006 Order on Sanctions and December 

19, 2006 Order Setting Sanctions—namely, that Eon-Net’s counsel failed to objectively evaluate 

the scope of the ‘697 Patent and that the complaint was filed “to extort quick settlement” rather 

than for any proper purpose. (DN 79, at 11-15, 16-17; DN 88, at 2.) Eon-Net has now had “an 

opportunity to fully present its arguments” (DN 105, at 9); Eon-Net has offered nothing but 

confirmation that sanctions are appropriate in this case.7

 6

 Should this Court grant this Motion, Flagstar requests leave to submit briefing regarding 

the amount of attorneys’ fees and costs to be reimbursed. See Fed. R. Civ. P. 54(d)(2)(C) (“The 

court may decide issues of liability for fees before receiving submissions on the value of 

services.”). 

7

 If this Court finds both (1) that Eon-Net should be required to reimburse Flagstar for its 

attorneys’ fees and costs pursuant to 35 U.S.C. § 285 and (2) that Eon-Net’s counsel should be 

sanctioned pursuant to Federal Rule of Civil Procedure 11, Flagstar requests that Eon-Net and 

Eon-Net’s counsel be held jointly and severally liable for payment of any fees and costs 

awarded. 

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CONCLUSION

For the foregoing reasons, Flagstar respectfully requests that the Court grant its Motion 

for Attorneys’ Fees and Costs. 

DATED: April 22, 2009 QUINN EMANUEL URQUHART OLIVER & 

HEDGES, LLP 

 By: /s/Melissa J. Baily 

 Melissa J. Baily 

 Charles K. Verhoeven 

50 California Street, 22nd Floor 

San Francisco, California 94111 

(415) 875-6600 

 Jon Steiger 

865 South Figueroa Street, 10th Floor 

Los Angeles, California 90017-2543 

(213) 443-3000 

 

Bradley S. Keller 

Jofrey M. McWilliam 

Byrnes & Keller LLP 

1000 Second Avenue, 38th Floor 

Seattle, Washington 98104 

(206) 622-2000 

Attorneys for Defendant Flagstar Bancorp 

Case 2:05-cv-02129-RSM Document 172 Filed 04/22/09 Page 17 of 17