Opinion ID: 4316515
Heading Depth: 2
Heading Rank: 1

Heading: The “Color” of AlphaCap’s Claims

Text: The district court held that Gutride’s continued contention that AlphaCap’s claims were patent-eligible lacked color. Fees Op., 226 F. Supp. 3d at 251; id. at 241– 45 (concluding that AlphaCap’s position on § 101 was objectively unreasonable in the context of 35 U.S.C. § 285). The district court based its fee award in part on the baselessness of AlphaCap’s position in filing this suit, id. at 248 (“Realizing that they could not defend the AlphaCap Patents against a § 101 validity challenge, they chose nonetheless to file this contingency-fee lawsuit.”), and on Gutride’s insistence on continuing the litigation. Gutride first argues that the district court erred by supporting its fee award under § 1927 with the baselessness of AlphaCap bringing its complaint, which, it contends, is only an appropriate consideration under Rule 11. Gutride also argues that AlphaCap’s position that the patents at issue are not invalid under § 101 were colorable within the unsettled state of the law following the decision in Alice. Gust responds that the district court properly considered the baselessness of AlphaCap’s claims in support of its determination that AlphaCap and Gust continued the litigation in bad faith, see Reconsideration Op. at 16, and that one of the requirements of a § 1927 award—that “the offending party’s claims were entirely without color,” Eisemann, 204 F.3d at 396—requires consideration of the baselessness of the offending party’s claims. Gust also argues that the § 101 law post-Alice was settled, because all cases dealing with abstract ideas in patents cited the two-step Alice framework. Finally, Gust argues that the claims here were not even questionably patent eligible. GUST, INC. v. ALPHACAP VENTURES LLC 9 We agree with Gutride that neither the filing of this case nor Gutride’s continuation of the litigation support a § 1927 award. On its face, § 1927 only applies to actions that result in unreasonable and vexatious multiplication of proceedings. This necessarily excludes a filing of a baseless complaint, which is properly analyzed under Fed. R. Civ. P. 11. Jensen v. Phillips Screw Co., 546 F.3d 59, 65 (1st Cir. 2008) (“[A]n unbroken band of cases across the courts of appeals hold[s] that a lawyer cannot violate section 1927 in the course of commencing an action,” and therefore holding that the failure to vet or investigate a claim cannot give rise to a § 1927 sanction); Zuk v. E. Pa. Psychiatric Inst., 103 F.3d 294, 297 (3d Cir. 1996) (holding that § 1927 award is unavailable for failing to adequately investigate the facts and law prior to filing a complaint); DeBauche v. Trani, 191 F.3d 499, 511 (4th Cir. 1999). Although the Second Circuit has not stated this explicitly, it has stated that the primary purpose of § 1927 is “to deter unnecessary delays in litigation.” Oliveri, 803 F.2d at 1273 (emphasis added) (quoting H.R.Conf. Rep. No. 1234, 96th Cong., 2d Sess. 8, reprinted in 1980 U.S. Code Cong. & Ad. News, 2716, 2782). Coupled with the clear language of § 1927, we conclude that the Second Circuit would join the “unbroken band of cases” excluding baseless filing of a complaint from supporting an award under § 1927. We also agree with Gutride that AlphaCap’s position on patent eligibility was colorable, particularly given the relative paucity of § 101 cases that were decided by this court between Alice and AlphaCap’s complaint in Texas. ‘‘[A] claim is entirely without color when it lacks any legal or factual basis.’’ Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 337 (2d Cir.1999) (internal quotation marks omitted). When the applicable law is unsettled, attorneys may not be sanctioned merely for making reasonable arguments for interpreting the law. Secs. 10 GUST, INC. v. ALPHACAP VENTURES LLC Indus. Ass’n v. Clarke, 898 F.2d 318, 321–22 (2d Cir. 1990), abrogated on other grounds recognized by Mareno v. Rowe, 910 F.2d 1043, 1047 (2d Cir. 1990). This is just another way of saying that the domain of colorable arguments is broader when the law is unsettled. During the pendency of this litigation, the abstract idea law was unsettled. AlphaCap filed suit in January of 2015, just seven months after the Supreme Court decided Alice. Between Alice and AlphaCap’s complaint in Texas, this court in a majority opinion cited Alice only seven times. Several of those cases recognized the uncertainty in the application of Alice. See Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343, 1347 (Fed. Cir. 2014) (“The Supreme Court has not ‘delimit[ed] the precise contours of the ‘abstract ideas’ category.’”); DDR Holdings, 773 F.3d at 1256 (same); id. at 1255 (“Distinguishing between claims that recite a patenteligible invention and claims that add too little to a patent-ineligible abstract concept can be difficult, as the line separating the two is not always clear.”). Moreover, Gust is simply incorrect that because all abstract idea cases after Alice applied the two-step Alice/Mayo framework, patent eligibility after Alice was settled. In view of the evolving nature of § 101 jurisprudence during the merits stage of this lawsuit, 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. See In re Pennie & Edmonds LLP, 323 F.3d 86, 90–91 (2d Cir. 2003) (“If the sanction regime [on lawyers] is too severe, lawyers will sometimes be deterred from making legitimate submissions on behalf of clients out of apprehension that their conduct will erroneously be deemed improper.”). The claims here when filed were not within the nar- row universe of sanctionable arguments under § 1927, and we agree with Gutride that the district court abused GUST, INC. v. ALPHACAP VENTURES LLC 11 its discretion in concluding that “the AlphaCap Patents do not fall in that interstitial area where doubt may reasonably exist” about their eligibility. Reconsideration Op. at 11 n.3. First, the eligibility of the claims at issue is not precluded simply because they are directed to software based business methods. Our case law recognizes that there is no bright line exclusion of software patents or business method patents from patent eligibility. Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 715 (Fed. Cir. 2014) (“[W]e do not purport to state that all claims in all software-based patents will necessarily be directed to an abstract idea.”); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1354 (Fed. Cir. 2014) (recognizing that Bilski v. Kappos, 561 U.S. 593, 611 (2010) did not create a general business method exception for patent eligibility). Gutride argues that the claims require a data collection template using a semi-homogenous profile, and that this at least colorably supported patent eligibility throughout the pendency of the litigation. Gutride focuses on the independent claims in the ’208 patent to support its colorable eligibility argument. Claim 1 of the ’208 patent claims “A method for managing resource consumer information,” comprising: “defining, by at least one processor, a data collection template of fields for a semihomogenous profile desired by a resource provider,” “customizing the template in real time,” “maintaining an electronic database system by a trusted third party who is neutral,” storing certain information, and allowing the creation of distinct portfolio records for different types of portfolios. ’208 patent, col. 25, ll.5–39. Gutride analogizes this claim to the claims found patent eligible in DDR Holdings. The invention in DDR Holdings allowed a host mer- chant website to maintain the look and feel of the host website when hyperlinking to outside merchants’ product pages. DDR Holdings, 773 F.3d at 1257–58. We held the claims to be patent eligible because they “do [not] recite a 12 GUST, INC. v. ALPHACAP VENTURES LLC commonplace business method aimed at processing business information, applying a known business process to the particular technological environment of the Internet, or creating or altering contractual relations using generic computer functions and conventional network operations.” Id. at 1259. This court distinguished Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014) because the claims in DDR Holdings did not “broadly and generically claim ‘use of the Internet’ to perform an abstract business practice (with insignificant added activity),” but rather “specify how interactions with the Internet are manipulated to yield a desired result—a result that overrides the routine and conventional sequence of events ordinarily triggered by the click of a hyperlink.” DDR Holdings, 773 F.3d at 1258. Gutride argues that both the invention at issue here and that of DDR Holdings use semi-homogenous structures to balance users’ needs for individualized ads (in DDR Holdings) or loan requirements (here) against the efficiency of a single form document. We find this argument somewhat dubious because the basis for DDR Holdings was not semi-homogeneity itself, but the maintenance of the look and feel of internet hyperlinks. Our task here, however, is to determine whether Gutride, in the nearly immediate aftermath of Alice, vexatiously and unreasonably multiplied the proceedings in this litigation by continuing a litigation premised on arguments lacking any color. Gutride’s arguments for patent eligibility were not so lacking in color to support such a conclusion. Gust argues that the Southern District of New York’s conclusion in Kickstarter, No. 11-cv-6909, 2015 WL 3947178, that claims directed to internet crowdfunding were ineligible, supports the district court’s conclusion that AlphaCap’s position lacked color. This argument is inapposite. First, the claims found ineligible in Kickstarter were in patents unrelated to those at issue here. GUST, INC. v. ALPHACAP VENTURES LLC 13 Second, much of the confusion in abstract idea law after Alice is in the proper categorization of what a claim is directed to. The district court in Kickstarter categorized the claims as directed to “crowd-funding” or similar concepts. Id. at . The patents at issue here do not discuss crowdfunding, and the district court did not compare the claims here to those at issue in Kickstarter. The district court’s conclusion that Gutride’s patent eligibility position lacked color was built on improper hindsight as to the state of the law and a conclusory analysis of the claims at issue. Under the exacting standard of review applicable in this § 1927 case, we conclude that the district court abused its discretion by holding that Gutride’s position with respect to patent eligibility lacked color.