1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

ZT IP, LLC,

Plaintiff,

v.

VMWARE, INC.,

Defendant.

§

§

§

§

§

§

§

§

§

Civil Action No. 3:22-CV-0970-X

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant VMware, Inc.’s (“VMware”) motion to dismiss 

for failure to state a claim [Doc. No. 13], VMware’s motion for sanctions [Doc. No. 25], 

and VMware’s motion for attorney’s fees [Doc. No. 27]. For the reasons explained 

below, the Court GRANTS the motion for attorney’s fees, DENIES the motion for 

sanctions, and FINDS AS MOOT the motion to dismiss. 

I. Factual Background

ZT IP, LLC (“ZT”) and VMware, both design and sell software, among other 

things. VMware, on May 13, 2002, released a software called ESX Server version 1.5 

(“ESX 1.5”) along with a user manual describing its features and functionality. The 

manual bears a 2002 copyright date. A year later, on May 20, 2003, an application 

for U.S. Patent No. 7,647,583 (“the ’583 patent”) was filed. The ’583 patent relates to 

a method and apparatus for emulating a hardware or software system using a 

computer. The U.S. Patent and Trademark Office issued the ’583 patent on January 

12, 2010, and it was later assigned to ZT, who is now the owner. On May 2, 2022, ZT 

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 1 of 12 PageID 936
2

filed this suit, alleging that VMware infringed on ZT’s ’583 patent with ESX 1.5. 

Within its complaint, ZT exclusively points to the ESX 1.5 user manual to show 

VMware’s alleged infringement. Somehow, amidst extensive references to the ESX 

1.5 user manual, ZT failed to notice that VMware released ESX 1.5 in 2002, a year 

before the ’583 patent application. This is where the questions before the Court today 

really begin.

After VMware received notice of ZT’s suit against it, VMware alleges that it 

“contacted ZT repeatedly (through in-house and outside counsel) to identify obvious 

deficiencies in the Complaint.”1 VMware explained to ZT’s counsel by using publicly 

available VMware documentation that ESX 1.5 predated the ’583 patent’s filing date. 

It then asked ZT to dismiss its complaint so that both parties could avoid unnecessary 

litigation expenses. ZT then requested another meeting but skipped it. VMware 

responded by reminding ZT (with evidence) of the ’583 patent’s invalidity and the 

unavailability of damages. ZT did not respond.

So, VMware retained outside counsel who (1) explained the issues again to ZT, 

(2) warned ZT that its conduct might lead to sanctions, and (3) reminded ZT that its 

counsel’s similar conduct led to a fee award in a prior case. ZT still did not heed 

VMware’s warnings, and VMware moved to dismiss for failure to state a claim. Ten 

days later, the message got through to ZT, and it filed a notice of dismissal for all its 

claims with prejudice. However, in its notice of dismissal, ZT included a request that 

1 Doc. No. 13 at 8.

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 2 of 12 PageID 937
3

“each party shall bear its own costs, expenses and attorneys’ fees.”2 VMware opposed 

this and subsequently moved for sanctions and attorney’s fees.

II. Legal Standards

Under 35 U.S.C. § 285, “[t]he court in exceptional cases may award reasonable 

attorney fees to the prevailing party.” “An exceptional case is simply one that stands 

out from others with respect to the substantive strength of a party’s litigating position 

(considering both the governing law and the facts of the case) or the unreasonable 

manner in which the case was litigated.”3 Patent litigants establish their entitlement 

to fees under Section 285 by a preponderance of the evidence standard.4 “District 

courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of 

their discretion, considering the totality of the circumstances.”5 In determining 

whether to award fees, district courts can consider a nonexclusive list of factors, 

including “frivolousness, motivation, objective unreasonableness (both in the factual 

and legal components of the case) and the need in particular circumstances to 

advance considerations of compensation and deterrence.”6 Additionally, “there is no 

precise rule or formula for making these determinations, but instead equitable 

discretion should be exercised in light of” such considerations.”7

2 Doc. No. 17 at 1.

3 WPEM, LLC v. SOTI Inc., 837 F. App’x. 773, 774 (Fed. Cir. 2020) (cleaned up).

4 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 557 (2014).

5 Id. at 554.

6 Id. at 554 n.6 (cleaned up).

7 Id. at 554 (cleaned up).

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 3 of 12 PageID 938
4

III. Analysis

The Court will address the motion for fees first before turning to the motion 

for sanctions.

A. Motion for Fees

To receive attorney’s fees under Section 285, VMware must be a prevailing 

party and the case must be exceptional. ZT does not dispute that VMware is a 

prevailing party under Section 285.8 Therefore, the award of attorney’s fees hinges 

on whether the case is exceptional.

The Court today does not hold that an exceptional case is one in which a 

plaintiff conducted a diligent pre-filing investigation but failed to uncover 

information demonstrating that its claims lack merit. Instead, the Court today looks 

at ZT’s own evidence and sees that ZT conducted an inadequate investigation because 

it did not see what clearly stood before it: the obvious and essential fact that VMware 

released ESX 1.5 in 2002. ZT did not understand its own submissions of claim charts 

which referenced documents that read “2002” in direct reference to ESX 1.5. 

Furthermore, it is clear that even if ZT could not somehow locate the 

documents it cited that demonstrated a 2002 release date, or if ZT could not access 

the readily available public information on the internet showing the 2002 release date 

of ESX 1.5, ZT could have undoubtedly uncovered this information in less than a 

minute after being alerted to it by VMware. VMware provided all the information for 

8 ZT dismissed its own claim with prejudice, and “[t]he dismissal of a claim with prejudice . . . 

is a judgment on the merits under the law of the Federal Circuit.” Power Mosfet Techs., L.L.C. v. 

Siemens AG, 378 F.3d 1396, 1416 (Fed. Cir. 2004).

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 4 of 12 PageID 939
5

ZT to quickly realize that it had no claim and that it should have dropped the suit 

before any of the parties spent unnecessary fees. Put another way, this case is 

exceptional because it extends beyond an ordinary patent suit in which a party 

conducts an adequate pre-filing investigation, discovers claim-ending deficiencies, 

and promptly dismisses the claims or discloses the deficiencies to the other party so 

that it does not incur unnecessary fees.

VMware argues that the case is exceptional. It claims that one of the reasons 

this case is exceptional is because “ZT lacked a good-faith basis to bring this action 

and did not conduct an adequate pre-suit investigation.”9 Specifically, VMware 

argues that ZT unreasonably continued pursuing its claims even after extensive 

notice from VMware that its claims could not progress.

VMware correctly points out that a long-established principle of patent law is 

that “that which infringes if later anticipates if earlier.”10 In simpler terms, if 

VMware’s product, ESX 1.5, predates ZT’s allegedly infringed patent, then ESX 1.5 

did not infringe. Based on the information before the Court, ESX 1.5 predates ZT’s 

’583 patent.

11 Moreover, as VMware points out, readily available public materials 

show that ESX 1.5 predates the ’583 patent.12 Furthermore, if ZT were to argue that 

it somehow could not find the public information (which is almost an objective 

9 Doc. No. 27 at 14.

10 Polaroid Corp. v. Eastman Kodak Co., 789 F.2d 1556,1573 (Fed. Cir. 1986) (quoting Peters

v. Active Mfg. Co., 129 U.S. 530, 537 (1889)).

11 The Court notes that it considers these issues only in an analysis of the strength of ZT’s 

litigation position and expresses no opinion on the ultimate merits of these issues.

12 Doc. No. 27 at 15.

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 5 of 12 PageID 940
6

impossibility), it still inadvertently proved it had access to some relevant information 

because its own claim charts attached to the complaint contain citations to materials 

bearing a 2002 copyright date.13 Either ZT frivolously cited a document that it did 

not review, or ZT reviewed the document and saw the date but ignored it. 

And whether it acted in ignorance or negligence, ZT looks worse because of its 

counsel’s previous failure in a similar situation. Two years ago, in another patent 

suit in the Eastern District of Texas, ZT’s counsel William Ramey represented 

plaintiff WPEM, LLC.14 There, Judge Gilstrap wrote the following:

Additionally, and crucially, the Court finds that WPEM 

conducted absolutely no pre-filing investigation into the validity or 

enforceability of the Asserted Patent. Even the most cursory of such 

investigations would have revealed the grounds for invalidity and 

unenforceability SOTI now asserts. Having failed to conduct a pre-filing 

investigation, the Court finds that WPEM has unreasonably subjected 

SOTI to the costs of litigation and should properly bear its attorneys’ 

fees.15

ZT finds itself in a similar position today with Ramey again serving as counsel. 

The standard for an exceptional case does not change based on counsel’s previous 

failures; however, a previous warning about certain pre-filing failures aids the Court 

in finding frivolousness, motivation, and the need to advance considerations of 

compensation and deterrence. Here, it is clear that ZT’s counsel should have been 

aware enough to recognize the importance of scrutinizing pre-filing materials (or 

13 Doc. No. 1-1 at 3 (ZT’s complaint cites VMware’s User’s Manual ESX Server Version 1.5,

which has a 2002 copyright stamp).

14 See WPEM, LLC v. SOTI Inc., No. 2:18-CV-00156-JRG, 2020 WL 555545 (E.D. Tex. Feb. 4, 

2020), aff’d, 837 F. App’x 773 (Fed. Cir. 2020).

15 Id. at *3.

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 6 of 12 PageID 941
7

conducting an adequate pre-filing investigation in general) before bringing suit. If 

ZT performed a simple search on the internet or looked at the materials it cited, it 

would have seen information showing a May 13, 2002, release date of ESX 1.5. ZT, 

however, did not do this.

Furthermore, part of ZT’s infringement claim included ESX 1.5’s service 

console. As VMware points out, publicly available information shows that it removed 

the service console in 2010. As 35 U.S.C. § 286 points out, “no recovery shall be had 

for any infringement committed more than six years prior to the filing of the 

complaint or counterclaim for infringement in the action.” Therefore, if ZT had 

adequately investigated its claims to see that VMware removed the service console in 

2010, it would have recognized that it could not recover damages. But ZT missed this 

piece of information.

Yet VMware argues that this case is exceptional not just because the ESX 1.5 

predates ZT’s allegedly infringed patent, or because ZT failed to see that the service 

console was removed ten years ago. It argues this case is exceptional because of the 

various occurrences within the litigation leading up to ZT’s notice of dismissal. 

Specifically, VMware highlights the timing of events and ZT’s (and ZT’s counsel’s) 

conduct.

ZT filed its complaint on May 2, 2022. A month later, on June 1, 2022, both 

parties conducted a conference in which VMware alerted ZT to the fact that ESX 1.5 

was commercially released over a year before the ’583 patent’s priority date.16 ZT 

16 Doc. No. 27 at 10.

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 7 of 12 PageID 942
8

does not dispute that VMware’s in-house counsel presented documents (as well as 

public links) showing the commercial release date and explained that VMware 

removed the service console in 2010. ZT admits in its response that it asked for a 

follow-up meeting one week later, but it failed to mention (and failed to deny), that it 

did not show up to that very meeting. The day after ZT failed to show up to the 

meeting, VMware’s in-house counsel wrote ZT to inform it that VMware would have 

to move forward with its defenses; again, VMware noted the publicly available 

information regarding the release date of ESX 1.5.17 ZT did not respond to this, nor 

did it respond to another letter that VMware wrote it five days later, on June 13, that 

again explained how ZT lacked a good-faith basis to bring the claim and that VMware

would pursue recovery of fees and costs if ZT did not dismiss the suit.18 ZT does not 

dispute any of this.

On June 21, VMware served ZT with a draft of its Rule 11 motion.19 ZT still 

did not dismiss the case. On July 8, VMware filed its motion to dismiss, and ZT did 

not respond. Five days later, on July 13, VMware requested a meet and confer in 

advance of filing its Rule 11 motion, and though ZT did not initially respond, it finally 

did—breaking six weeks of silence—and the two parties agreed to meet and confer on 

July 18. ZT does not dispute what occurred at the meeting nor does it dispute its 

counsel’s use of expletives directed at VMware during the conference. ZT dismissed 

its complaint with prejudice less than thirty minutes after the conclusion of the call.

17 Id. at 6–7.

18 Id. at 7.

19 Id.

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 8 of 12 PageID 943
9

These undisputed facts serve to underline the exceptional nature of this case. 

Put bluntly, ZT had ample opportunities to recognize the frivolousness of its position 

or, at least, to keep VMware apprised of its analysis of the claims. However, ZT did 

not need to spend weeks to realize that what VMware told it and showed it was true. 

The half-hour that elapsed between the final conference call and ZT’s filing of its 

dismissal underscores the simplicity of the resolution. ZT did not need all the time it 

took. ZT did not need to avoid responding to VMware. ZT needed to conduct an 

adequate pre-filing investigation and act diligently when it became aware that its 

investigation was inadequate. The Court does not require perfection of pleadings, 

but it demands diligence on the part of the parties. For these reasons, this case is 

exceptional, and the Court GRANTS VMware’s motion for attorney’s fees.

B. Motion for Sanctions

VMware argues that ZT’s actions deserve sanctions. Under Rule 11, the Court 

may grant sanctions when a party improperly certifies a document filed with the 

court that (1) “is not being presented for any improper purpose, such as to harass, 

cause unnecessary delay, or needlessly increase the cost of litigation”; (2) “the claims, 

defenses, and other legal contentions are warranted by existing law”; (3) “the factual 

contentions have evidentiary support”; and (4) “the denials of factual contentions are 

warranted on the evidence or, if specifically identified, are reasonably based on belief 

or a lack of information.”20 Courts have a duty to “impose the least severe sanction 

20 FED R. CIV. PROC. 11(b).

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 9 of 12 PageID 944
10

adequate” to deter future conduct.21 In determining whether a pleading violates Rule 

11(b), courts use an objective standard of reasonableness focusing on the attorney’s 

conduct at the time the pleading presented to the court was signed.22 However, the 

moving party has the burden to overcome the “presumption that pleadings are filed 

in good faith.”23

Despite a previous warning to ZT’s counsel in a similar situation and despite 

the unnecessary delays ZT’s counsel caused, as the Court seeks to impose the least 

severe sanction to deter future conduct, it finds that fees are sufficient to deter future 

conduct. Therefore, the Court DENIES the motion for sanctions.

III. Award of Attorney’s Fees

The Court has discretion to determine the amount of the attorney’s fees 

award.24 “In determining the reasonableness of the award, there must be some 

evidence to support the reasonableness of, inter alia, the billing rate charged and the 

number of hours expended.”25

The Court reviewed the bills VMware submitted and finds that the billing rates 

were reasonable.26 The Court also finds the number of hours expended defending the 

suit to its voluntary dismissal was reasonable. However, the Court finds that the fees 

21 Akin v. Q-L Invs., Inc., 959 F.2d 521, 535 (5th Cir. 1992).

22 Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 873–74 (5th Cir. 1988).

23 Tompkins v. Cyr, 202 F.3d 770, 788 (5th Cir. 2000).

24 Lam, Inc. v. John-Manville Corp., 718 F.2d 1056, 1068 (Fed. Cir. 1983).

25 Id.

26 Doc. No. 28.

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 10 of 12 PageID 945
11

incurred while pursuing the sanctions motion after the dismissal were not 

proportional. 

VMware’s invoices reflect that it incurred $104,914.80 in attorney’s fees with 

approximately $48,378.71 on the sanctions and fees motions.27 “[R]easonable 

attorney’s fee[s] within the context of Rule 11 must be considered in tandem with the 

rule’s goals of deterrence, punishment, and compensation.”

28 To that end, 

“reasonableness” “necessarily embraces an inquiry by the court as to the extent to 

which the nonviolating party’s expenses and fees could have been avoided or were 

self-imposed.”29 “A party seeking Rule 11 costs and attorney’s fees has a duty to 

mitigate those expenses,” and “[i]f a litigant fails to do so, the district court may 

exercise its discretion and [] reduce the award accordingly.”30

Here, both parties recognize that ZT voluntarily withdrew its lawsuit on July 

18, 2022, thirty minutes after the parties ended their conference call.31 However, 

after that, VMware incurred at least another $25,568.91 pursuing the present 

sanctions motion.32 In light of the Court’s denial of the motion for sanctions, the 

Court finds that a reasonable amount of fees incurred on or after July 18, 2022 for 

the sanctions motion is $12,784.46. This sum represents one-half of the amount 

27 Doc. No. 25 at 6; Doc. No. 28 at 4–19.

28 Thomas, 836 F.2d at 879.

29 Id.

30 Id.

31 Doc. No. 36 at 3; Doc. No. 25 at 9.

32 Doc No. 28-1–3. This number represents the sum of billing entries on July 18, 2021 or later 

that refer directly to “Rule 11.”

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 11 of 12 PageID 946
12

VMware had billed for work on the sanctions motion on or after July 18, when ZT 

voluntarily dismissed its case. The solution to ZT spending too little time 

investigating its case is not VMware’s spending too much time after the case was 

dismissed. The Court finds this amount more reasonably represents a proportional 

additional amount of recoverable fees. Accordingly, the Court finds that VMware is 

entitled to total fees of $92,130.35.

IV. Conclusion

The Court GRANTS VMware’s motion for attorney’s fees. The Court 

AWARDS VMware attorney’s fees in the total amount of $92,130.35, which shall be 

due and payable in full by ZT within 30 days from the issuance of this Order.

IT IS SO ORDERED this 6th day of February, 2023.

___________________________________

BRANTLEY STARR

UNITED STATES DISTRICT JUDGE

Case 3:22-cv-00970-X Document 43 Filed 02/06/23 Page 12 of 12 PageID 947