Source: https://www.patentdocs.org/2018/10/gust-inc-v-alphacap-ventures-llc-fed-cir-2018.html?cid=6a00d83451ca1469e2022ad3b52186200b
Timestamp: 2019-06-18 17:47:04
Document Index: 78980653

Matched Legal Cases: ['§ 285', '§ 1927', '§ 285', '§ 101', '§ 1927', '§ 1927', '§ 1927', '§ 101', '§ 101', '§ 101', '§ 101', '§ 1927', '§ 1927', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§101', '§ 101', '§ 101', '§ 101']

Patent Docs: Gust, Inc. v. AlphaCap Ventures, LLC (Fed. Cir. 2018)
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Gust, Inc. v. AlphaCap Ventures, LLC (Fed. Cir. 2018)
Almost two years ago, we covered a dispute in the Southern District of New York (which began in the Eastern District of Texas) involving plaintiff AlphaCap, a non-practicing entity that aggressively asserted its patents against a number of targets, including Gust. In short, when Gust didn't quickly settle, AlphaCap offered to dismiss its claims. But Gust wanted AlphaCap to pay its attorneys' fees or assign AlphaCap the patents. After some back-and-forth between the parties, the District Court dismissed the case but awarded Gust attorneys' fees under 35 U.S.C. § 285. Gutride Safier LLP, attorneys for AlphaCap, were held jointly and severally liable for these fees and costs under 28 U.S.C. § 1927.
Notably, the District Court stated that the case was "exceptional" under § 285 because the Supreme Court's Alice Corp. v. CLS Bank Int'l opinion "gave AlphaCap clear notice that the AlphaCap Patents could not survive scrutiny under 35 U.S.C. § 101." The basis of this conclusion was that "the claims were directed to crowdfunding, a fundamental economic concept and way of organizing human activity, and that this was an abstract idea." The District Court further held that "the claims did not include an inventive concept sufficient to render the abstract ideas patent eligible under Alice."
Regarding § 1927, the District Court found Gutride to have acted unreasonably and in bad faith during the dispute, because it was unwilling to recommend settlement "despite knowing that Alice doomed the claims and stating that the case was 'not worth litigating'."
Gutride brought this appeal to the Federal Circuit solely on the issue of its liability for the attorneys' fees. Judge Linn wrote the opinion of the Court and was joined by Judge Hughes. Judge Wallach dissented.
28 U.S.C. § 1927 states:
Applying the law of the Second Circuit, a successful motion under § 1927 requires that: (i) the case was "entirely without color", and (ii) was "brought in bad faith—that is, motivated by improper purposes such as harassment or delay." These determinations require a court to "provide a high degree of specificity in the factual findings."
Addressing the first prong, the Gutride referenced the "unsettled state of the law following the decision in Alice" as evidence that its case had color. Gust responded by contending that "the § 101 law post-Alice was settled, because all cases dealing with abstract ideas in patents cited the two-step Alice framework," and that "the claims here were not even questionably patent eligible."
The Federal Circuit agreed with Gutride, noting that there was a "relative paucity of § 101 cases that were decided by this court between Alice and AlphaCap's complaint in Texas." Indeed, several of the Federal Circuit's own cases from this time period "recognized the uncertainty in the application of Alice." The Court further observed that "[w]hen the applicable law is unsettled, attorneys may not be sanctioned merely for making reasonable arguments for interpreting the law." Instead, "it is particularly important to allow attorneys the latitude necessary to challenge and thus solidify the legal rules without the chill of direct economic sanctions." Also, according to the Court, Gutride made a colorable argument that the claims met the requirements of § 101 due to being analogous to DDR Holdings, LLC v. Hotels.com L.P., while Gust's analogy between the claims and those found ineligible in another Southern District of New York case was unpersuasive. Finally, the Court strongly disagreed with Gust that the mere existence of the two-step Alice framework implied that § 101 law was settled, and found the District Court's patent-eligibility analysis to be conclusory.
When applying the second prong, the District Court concluded that Gutride's actions constituted bad faith based on three grounds: (i) "Gutride knew that AlphaCap's patents were not patent eligible after Alice, and initiated the litigation anyway to extract a nuisance settlement"; (ii) Gutride's opposition to transferring the case to the Southern District of New York; and (iii) "Gutride's failure to end the case through settlement, dismissal, or a covenant not to sue."
Regarding Gutride's alleged knowledge that the patents were not eligible, the District Court put a fair amount of weight on Gutride's statement that "the case is 'not worth litigating'." But the Federal Circuit viewed this statement as a negotiating position, noting that "[i]n the context of advocating for settlement with the opposing party to settle, this is an inoffensive assertion that the calculus favors settlement, not an admission that the patents were invalid."
With respect to the nuisance settlement, the Federal Circuit was more sympathetic. It acknowledged that "AlphaCap bears relatively little risk and cost in filing its infringement actions, as compared with the relatively high costs incurred by defendants to defend the lawsuit." Thus, by "encouraging quick settlements at values far below the cost of defending an infringement action on the merits, AlphaCap was able to obtain not insignificant revenues without having to test the merits of its position." Nonetheless, the Court found that "Rule 11, with its procedural safeguards, already addresses attorneys' complicity in the filing of frivolous and improper litigation" and that "§ 1927 only applies to actions that result in unreasonable and vexatious multiplication of proceedings." Consequently, the Court ruled with Gutride on this issue.
The Court also sided with Gutride regarding its resistance to the transfer. Driving this conclusion was the fact that the Eastern District of Texas was a proper venue, that Gust had agreed to venue discovery, and because "at least some third-party users were found to reside in the Eastern District of Texas." Supporting these points, the Court observed that "an attorney need not bring a case in the most convenient forum, but only a proper forum."
Finally, the Court also agreed with Gutride that failure to settle is not evidence of bad faith. Notably, "[t]he decision to settle or grant a covenant not to sue is wholly committed to clients, not their attorneys." Thus, Gutride could not be held liable for its client's decision.
For these reasons, the Court sided with Gutride and reversed the award of fees under § 1927.
Judge Wallach's Dissent
Writing in dissent, Judge Wallach faulted the majority for reversing the District Court. A significant part of Judge Wallach's beef was based on the § 101 issues. He disagreed that the law regarding patent-eligibility was unsettled, stating it was that "the framework with which we have consistently assessed patent eligibility under § 101 since its rendering."
Attacking the claims, Judge Wallach found them "directed to data organization and use of customizable profiles to facilitate patronage," which in his view were clearly abstract ideas. While the majority found that § 101 jurisprudence as a whole was evolving, Judge Wallach stated that no claims similar to AlphaCap's were determined eligible by the Federal Circuit during the litigation. In his words:
The Asserted Claims merely recite a series of steps for storing and organizing investment data that could all be performed by humans without a computer, and Gutride's attempt to assert otherwise was frivolous given that the abstract idea here is not meaningfully different from the ideas found to be abstract in other cases before the Supreme Court and our court involving methods of organizing human activity.
He also found additional elements lacking an inventive concept under Alice, as they were all involving conventional and generic terms. Thus, with respect to § 101 as a whole, Judge Wallach concluded that "[t]he Patents-in-Suit clearly do not fall in that interstitial area where doubt may reasonably exist." Judge Wallach was silent regarding the fact that he and the majority coming to two different conclusions when applying Alice to the claims suggests that the law surrounding § 101 is still unsettled.
Determining that the District Court did not abuse its discretion in finding that AlphaCap's case lacked a colorable basis, Judge Wallach moved on to bad faith.
Particularly, he found no flaw in the District Court's assessment of Gutride being "motivated by improper purposes such as harassment or delay." He did not address the majority's position that Rule 11 controlled, and instead found "we must holistically consider Gutride's entire course of conduct in order to determine if it acted in bad faith by delaying dismissal of its suit, when it had knowledge of the suit's frivolous nature." Further, he found that the "not worth litigating" statement occurred early enough in the case that Gutride could have pushed to settle the dispute much earlier. Judge Wallach saw this as a "bad faith attempt to multiply the proceedings."
Turning to venue, Judge Wallach pointed to evidence that Gutride claimed that Gust had ties to the Eastern District of Texas, could not establish that said ties existed, and only after discovery was able to show that Gust had some users in the district. This, apparently, was enough for Gutride to fail the bad faith sniff test.
Consequently, Judge Wallach would have affirmed the District Court.
Regarding overly-aggressive litigation and the venue issue, Gutride may have indeed pushed the envelope. On whether its conduct rises to the level of bad faith, the majority was probably correct to err on the side of caution. Judge Wallach, on the other hand, gave more deference to the District Court.
But the majority was clearly correct to conclude that § 101 jurisprudence was too murky during the time of the litigation (early 2015 – late 2016) to conclude that AlphaCap's case was without color.
In 2015, the Federal Circuit found no claims patent-eligible under § 101. But this does not imply that all business method and software claims involving data manipulation were categorically ineligible -- it merely suggests that the Court did not hear a case with claims that passed the test. Also, not long prior to this time frame, there were multiple federal judges commenting on the record that Alice was hard to apply in practice. Judge Wu of the U.S. District Court for the Central District of California criticized Alice for setting forth an "I know it when I see it" test. Judge Pfaelzer, a colleague of Judge Wu, wrote that the Supreme Court's patent-eligibility cases "often confuse more than they clarify [and] appear to contradict each other on important issues."
More recently, Judge Wallach's Federal Circuit colleague, Judge Plager, wrote that the post-Alice §101 inquiry "renders it near impossible to know with any certainty whether the invention is or is not patent eligible." And these are just a few examples of judicial confusion. There are more. The law was not settled during the case, and is even less settled now.
Thus, it is hard to agree with Judge Wallach. Moreover, with a § 101 challenge being routinely raised against any asserted software or business method patent, the impact of penalizing plaintiffs and their attorneys for exercising such a patent would be to shut off nearly all software or business method litigation.
That is not to say that bad actors should not be punished. But contending that § 101 is settled law to do so is absurd. The only thing settled about patent-eligibility in the last four years is that it is unsettled.
Panel: Circuit Judges Wallach, Linn, and Hughes
Opinion by Circuit Judge Linn; dissenting opinion by Circuit Judge Wallach
Posted at 11:59 PM in Damages, Federal Circuit, Patentable Subject Matter | Permalink
"But contending that § 101 is settled law to do so is absurd."
Never were truer words said. That Wallach does not see it that way shows that we've gone from the surreal to the absurd in terms of the nonsensical and broken Mayo/Alice framework foisted on us by Our Judicial Mount Olympus.
Posted by: EG | October 01, 2018 at 05:34 AM
Law WRITING (no matter the Constitutional delegation) has occurred.
That law writing suffers from Void for Vagueness.
Someone should tell the Emperor that winter is approaching.
Posted by: Skeptical | October 01, 2018 at 06:22 AM