The Software IP Report

No Attorney Fees for § 101 Dismissal: Data Scape Ltd. v. Spotify USA Inc.

Despite a refiled case and a subsequent dismissal for ineligible subject matter, plaintiff Data Scape escaped paying attorney fees to defendant Spotify in a recent decision from the Central District of California.  Data Scape Limited v. Spotify USA Inc. et al., No. CV 19-4367 PSG (SKx) (C.D. Cal. Dec. 3, 2019).

Data Scape is apparently a patent assertion entity, and Spotify is a well-known music streaming service. Spotify successfully convinced the district court to dismiss Data Scape’s claim for patent infringement, and then Spotify filed a motion for sanctions, the subject of this decision.

Because Spotify’s motion is based on Data Scape’s litigation conduct, the timeline of events is important. The dispute began with Data Scape filing an earlier suit for infringement of U.S. Patent Nos. 9,712,614; 9,380,112; 7,720,929; and 7,617,537, all in the same family. Spotify moved to dismiss the suit under § 101 for ineligible subject matter. Instead of filing a response, Data Scape filed an amended complaint. Spotify followed up with another motion to dismiss on much the same grounds. Three days before a response was due, a different judge in the same district dismissed a case filed by Data Scape against a different defendant, Western Digital, under § 101. The Western Digital court found two patents invalid for ineligible subject matter, the ’112 and ’537 patents. On the due date for a response in this case, Data Scape voluntarily dismissed the case against Spotify. The same day, Data Scape filed a new complaint dropping the ’929 and ’537 patents, still asserting the ’614 and ’112 patents, and adding U.S. Patent No. 10,277,675 (same family). Spotify filed another motion to dismiss, its third, again under § 101. The court granted Spotify’s motion, and the Western Digital court denied Data Scape’s motion to reconsider its dismissal.

Based on this set of facts, Spotify requested sanctions, namely attorney fees. There were several bases for the request for fees: 35 U.S.C. § 285, a patent law–specific provision awarding fees for “exceptional cases”; 28 U.S.C. § 1927, a provision awarding fees for vexatiously multiplying the proceedings; Fed. R. Civ. P. 11, prohibiting a filing that is frivolous or without foundation; and Fed. R. Civ. P. 41(d), a provision against dismissing and filing a claim based on the same action.

For the most part, the court treated all four bases together. Spotify made two primary arguments, the first of which is that dismissing and filing a new complaint—rather than moving to amend the original complaint—constituted improper litigation conduct. The court acknowledged that amending the complaint under Rule 15 was the proper procedure. But “[o]pting to file a new case dropping the two invalidated patents, as opposed to having three days to file both an opposition to Spotify’s motion in the [original] case and a motion for leave to amend, is not conduct that supports a fee award here” because “there is insufficient basis to assume some sort of negative intent, bad faith, or frivolousness.”

Spotify’s second argument was that Data Scape did not have a good-faith belief that its patents were valid, in particular because of the result in Western Digital invalidating some of the asserted patents. The court found this argument a closer call but still declined to award fees. Against Data Scape, the court noted that Data Scape copied large portions of its losing brief from Western Digital in this case and that currently asserted patent claims were similar to the claims in the dismissed patents from the same family. These facts suggested that Data Scape was judge-shopping. But despite that suggestion, the court found that the unsettled nature of the law under § 101 justified not awarding fees.

Lessons for Practice

The scales are generally tipped against awarding fees. In general, laying the groundwork for an award of attorney fees involves documenting the timeline of misconduct and trying to work the issue out without involving the court, and only then moving for fees. Nothing here indicates that Spotify failed to follow these tips, but as this case demonstrates, the law sets a high bar for getting fees.