Patent Assertion Entities Hit With Rule 11 Sanctions and Section 285 Attorneys’ Fees in Separate Delaware District Court Cases

Much attention has been said about the role 35, U.S.C. § 285 in combating vexatious litigations brought by patent assertion entities (“PAE”) following the Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014). Overshadowed by the Supreme Court’s ruling is the imposition of sanctions under Federal Rule of Civil Procedure 11. Not anymore. In a recent federal court case before Judge Richard G. Andrews, of the District of Delaware, the patent assertion entity (PAE) plaintiff was hit with R. 11 sanctions, resulting in the dismissal of all pending actions. This ruling illustrates that courts have multiple avenues to exercise their discretion on how to approach PAE actions, and offers insights as to how defendants can thwart PAE litigants that bring baseless patent infringement claims.

In Vehicle Operation Technologies LLC. v. American Honda Motor Co. Inc.,  et al., C.A. Nos. 13-537-RGA; 13-538-RGA; 13-539-RGA; 13-540-RGA; 13-541-RGA; 13-542-RGA; 13-712-RGA, Sept. 12, 2014, PAE Vehicle Operation Technologies (VOT) filed suit against Honda, BMW, Ford, GM, Nissan, Porsche, and Mitsubishi for allegedly infringing U.S. Patent No. 7,145,442 (“the ‘442 patent”), a patent regarding vehicle display systems. During the initial scheduling conference, BMW noted that a claim scope disavowal during the prosecution of the ‘442 patent that made the case ripe for immediate dismissal. BMW and other defendants subsequently sought and were granted leave to file R. 11 motions.

The court took a two step approach in determining whether VOT’s attorneys violated R. 11. First, the court set out to determine whether there was a prosecution disclaimer in the ‘442 patent, and if so, whether said disclaimer would read out any of the defendants’ allegedly infringing displays, thus precluding the possibility of infringement. Second, the court proceeded to determine whether an objective pre-suit investigation would have uncovered the prosecution disclaimer.

The court determined that there was a prosecution disclaimer in the ‘442 patent, whereby the inventor “specifically disclaimed any type of display other than a ‘dedicated display.’” In order to overcome prior art, the inventor unequivocally indicated that said dedicated displays necessarily had to present the claimed information at all times making the “displayed the claimed information at all times” limitation a required element in every claim of the ‘442 patent. Because none of the defendants’ products had such dedicated displays, they could not be literally infringing any of the ‘442 patent claims.

Next, the court found that an objective pre-suit investigation should have included a review of the prosecution history of the ‘442 patent, which would have uncovered the prosecution disclaimer, thus leading “an attorney to the conclusion that the only plausible reading of the aforementioned disclaimers was to limit the scope” of key claim terms. Other evidence considered by the court was that fact that information regarding the defendants’ allegedly infringing products were readily accessible to the public and that despite detailed communications from defendants “that the accused products could not possibly infringe[,]” VOT’s attorneys’ insisted on litigating the matter. These facts were viewed negatively by the court and VOT’s attorneys were perceived to have “simply turned a blind eye to the actual vehicles that they were accusing of infringement.”

Finding that VOT’s attorneys did in fact violate R. 11, the court granted the defendants’ Motion for R. 11 Sanctions and dismissed the lawsuit with prejudice. The court reluctantly denied the motions as they related to seeking monetary damages against VOT’s attorneys, as VOT’s substitute pro hac vice and local counsel were not properly noticed. However, the court did note that had pro hac vice and local counsel been properly noticed, “the [c]ourt would certainly have found monetary sanctions appropriate against all of the Plaintiff’s attorneys in this case.”

Though not awarded in VOT, prevailing parties can be awarded attorney’s fees under R. 11 similar to § 285. However, there are some differences between the two. Although both have been established to deter abusive litigation practices, the primary purpose of § 285 is to provide compensation to a party forced to endure an exceptional case while R. 11 sanctions penalizes parties for cases that should not have been filed in the first place. Furthermore, an evaluation of under R. 11 is determined using the law of the regional circuit while evaluations under § 285 are made using Federal Circuit law.

Gibbons will continue to monitor courts’ application of R. 11 and §285 in PAE cases.