The Software IP Report

Patent Plaintiff Sanctioned Under Rule 11

The Northern District of Illinois has sanctioned a patent plaintiff that refused to withdraw a complaint of patent infringement, and did not perform an investigation, even after the defendant gave clear notice that its business method was different than the claimed business method. Smart Options, LLC v. Jump Rope, Inc., No. 12 C 2498 (N.D. Ill. Feb. 11, 2013).

Smart Options, the plaintiff, alleged that Jump Rope, the defendant, infringed claims of United States Patent No. 7,313,539. The patent claims covered a website in which consumers could pay a “reservation price” for an “option” to purchase a good, service, or ticket. However, Jump Rope’s smart phone application embodied a system in which a consumer could, upon purchasing a “Jump,” obtain the right “to skip the line at an event or facility.”

After Smart Options filed its complaint, Jump Rope sent it a Rule 11 letter stating that:

Plaintiff alleges violation of a patent that covers providing options on the right to purchase goods or services at a future time. Defendant’s software application, however, does not provide options or charge option fees. Rather, it allows someone to buy the service provided — a right to “jump the line” at an event or facility. Plaintiff and its counsel could have and easily should have discovered this, as the iPhone/Android application they accuse is free to download.

In granting a summary judgment motion of non-infringement, the Court agreed with Smart Options’ position. As the court explained, “[b]ecause Jump Rope sells a good or service, not a ‘right’ to obtain a good or service, Jump Rope does not sell ‘options’ under the ‘539 patent.”

Jump Rope’s Rule 11 motion alleged “that Smart Options did not sufficiently investigate its claims or construe the claim terms prior to bringing suit.” Smart Options countered “that it had a reasonable, non-frivolous basis to assert its infringement claim,” but “failed to offer evidence of specific investigative steps it took before filing.” Although a declaration from Smart Options’ counsel stated that he had analyzed the claims against Jump Rope’s application, the declaration outlined no steps or actions taken, or any “specific evidence of investigative measures.”

The Court criticized Smart Options’ decision to rely on “Terms of Use on Jump Rope’s website — not even the terms of service on the application itself — rather than using the application to purchase a Jump.” A patent owner is not required to obtain an alleged infringer’s product before bringing suit. However, Smart Options’ failure to do so here was problematic because its “portrayal of the Jump Rope application [was] factually inaccurate” and based on mistaken assumptions.

Smart Options also argued it was entitled to rely on a prior court’s claim construction. However, this argument was a red herring; the prior court had construed very few claim terms. Therefore, there was no way Smart Options could have performed its infringement analysis entirely using claim constructions from the prior court.

Smart Options did not use Jump Rope’s product before filing suit, or even after Jump Rope brought its Rule 11 motion. Jump Rope’motion was granted, and it was given leave to file a fee petition.