The Software IP Report

Complaint Alleging Business Methods Patent Infringement Results in Exceptional Case Finding and Fee Award

After granting a Rule 12 motion for judgment on the pleadings of invalidity of US Patent No. 6,381,582, and after the Federal Circuit affirmed that judgment without comment, a Delaware District Court found an exceptional case under 35 U.S.C. § 285 and ordered the plaintiff to pay the defendant’s fees and costs.  Inventor Holdings, LLC v.  Bed Bath & Beyond Inc., No. 14-448-GMS (D. Del. May 31, 2016).

The plaintiff had filed its lawsuit two months before the Supreme Court’s June 19, 2014, decision in Alice Corp. Pty. v. CLS Bank Int’l., 134 S. Ct. 2347 (2014).  Over a year after Alice, on August 21, 2015, the court found that the claims of the ’582 patent solved “business problems,” and granted the defendant’s motion to dismiss for invalidity.  In particular, the court had found that the patent addressed the problems of providing additional payment options for remote customer orders, and “processing those payments without having to provide credit card information over the Internet, phone, or mail.”  The court found that “retailers have long sought to provide their customers with convenient, flexible payment options and to protect their customers’ financial information,” and that the claimed invention was an abstract idea because it was directed to a “fundamental economic [or] conventional business practice.”

Turning to the question of whether the present case was “exceptional” under Section 285, the court noted that it had “broad discretion” under Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), to find an exceptional case given the “totality of circumstances.”  Here, the plaintiff argued “persuasively” that it’s assertion of the ’582 patent’s validity “had some merit at the outset of litigation.”  There is a presumption that “infringement of a duly granted patent is made in good faith,” and moreover, “the ’582 patent had already survived early motions to dismiss” under the Mayo/Alice patent-eligibility test in other litigation.  However, “by the time of the Alice decision,” the plaintiff had “notice that it’s claims, much like the claims in Bilski and Alice, covered an abstract idea.”  Whatever merits existed when the complaint was filed, “by the time of the Alice decision, the business method claims in the ’582 Patent were objectively ineligible under § 101.”

The court then turned to the plaintiff’s argument that “the mere fact that its validity arguments did not prevail does not make this exceptional case under § 285.”  The court agreed, repeating that the present case “is an exceptional case because following the Alice decision, [the plaintiff’s] claims were objectively without merit.”  Further, “an award of attorneys’ fees in this case is necessary to deter wasteful litigation in the future.”

The court did order the defendant to submit a new calculation of its fees, limiting the calculation to fees incurred after the Alice decision.  Further, the court denied a request to award experts’ fees, explaining that “[a]n award of attorneys’ fees is sufficient to achieve the goals envisioned by section 285.”