Source: http://www.bakerbotts.com/insights/publications/2018/11/counsel-liability-for-excessive-costs
Timestamp: 2019-04-21 09:17:23+00:00

Document:
Non-practicing entities often pursue a common strategy to obtain payments for their patents: obtain a low-cost patent with wide exposure, hire a law firm on a contingency fee basis, sue a large number of companies in a favorable venue, and accept low and early settlements. In Gust, Inc., v. Alphacap Ventures, LLC, the Federal Circuit in effect considers whether attorneys for a non-practicing entity took this strategy too far. Specifically, the court determines whether the claims advanced by the attorneys were “without color” and made in bad faith such that the attorneys themselves should be held liable under 28 U.S.C. § 1927 for costs incurred by the sued company. In holding that the attorneys were not liable, the Federal Circuit sheds light on the application of 28 U.S.C. § 1927 for patent suits.
The district court sent a stern warning to counsel representing non-practicing entities, holding attorneys liable for behavior that is sometimes common for non-practicing entities. However, the Federal Circuit found that the behavior of the attorneys in this case did not amount to assertion of bad faith claims without “color,” especially in light of the changing state of the law at the time of the suit. The Federal Circuit also found that that bringing or continuing frivolous litigation should be addressed under Rule 11, which does not expose attorneys to liability. Thus, while defendants that find themselves battling frivolous litigation against certain non-practicing entities can address such matters under Rule 11, tactics typical of such entities, without more, may be insufficient to hold their attorneys personally liable for the costs of such litigation.
1 Gust, Inc., v. Alphacap Ventures, LLC, No. 2017-2414, 2018 WL 4653696, at *1 (Fed. Cir. Sept. 28, 2018).
2 See generally Alice Corp. Pty. v. CLS Bank Int’l, 573 U.S. 208, 134 S. Ct. 2347, 189 L. Ed. 2d 296 (2014).
14 See generally Gust, Inc. v. AlphaCap Ventures, LLC, 226 F. Supp. 3d 232 (S.D.N.Y. 2016), reconsideration denied, No. 15CV6192 (DLC), 2017 WL 2875642 (S.D.N.Y. July 6, 2017), and rev’d, No. 2017-2414, 2018 WL 4653696 (Fed. Cir. Sept. 28, 2018).
15 Gust, Inc., 2018 WL 4653696 at *2 (internal marks omitted).
16 Id. at *3; cf. LaSalle Nat. Bank v. First Connecticut Holding Grp., LLC., 287 F.3d 279, 288 (3d Cir. 2002) (applying the Third Circuit test for sanctions under § 1927, concluding that “[t]he statute . . . limits attorney sanctions imposed thereunder to those situations where an attorney has: (1) multiplied proceedings; (2) unreasonably and vexatiously; (3) thereby increasing the cost of the proceedings; (4) with bad faith or with intentional misconduct.”).
21 Id. at *5 (internal marks omitted).
31 Id. at *8; see also VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), abrogated by TC Heartland LLC v. Kraft Foods Grp. Brands LLC, S.Ct. 1514, 197 L.Ed.2d 816 (2017).
35 See id. at *1.

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