EDTX & NDTX Monthly Wrap-Up — July 2018

Among the more interesting EDTX/NDTX opinions last month was a decision by Magistrate Judge Payne regarding §285 attorneys' fees. As a reminder, 35 U.S.C. §285 provides that, in an action for patent infringement, "[a] court in exceptional cases may award reasonable attorney fees to the prevailing party." In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Supreme Court held that an exceptional case is "one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated."[1]

In February 2015, Karl Hansen, through a newly-created entity, SyncPoint Imaging, LLC, sued Nintendo of America, Inc. and PixArt, Inc., in the Eastern District of Texas, for allegedly infringing U.S. Patent No. 6,275,214, of which Hansen is the inventor. Despite never winning on the merits, defendants were eventually granted dismissal with prejudice. Defendants moved, under §285, for over $2.5 million in attorneys' fees, alleging (1) that the lawsuit was frivolous and (2) plaintiff had committed acts of litigation misconduct. Defendants also asked the court to pierce the corporate veil and hold Hansen and his legal counsel jointly and severally liable for defendants' fees. The court held that plaintiff's misrepresentations regarding venue raised "serious issues," but did not warrant a finding of exceptionality. The court therefore denied defendants' fees motion, but warned that it would require Hansen and his counsel to show cause as to why they should not be otherwise sanctioned.

Before the lawsuit, defendant PixArt had licensed the '214 patent from Hansen for four years until 2012, when PixArt decided not to renew its license. SyncPoint's complaint asserted that PixArt subsequently infringed the '214 patent by selling object tracking technology, previously covered by the license, to Nintendo, which in turn integrated that technology into its Wii gaming system.

Nintendo moved to transfer the case to the Western District of Washington. SyncPoint opposed transfer, emphasizing its ties to Texas and arguing that Washington would be inconvenient for Hansen because he "resides in New Hampshire." SyncPoint's opposition was supported by a declaration from Hansen. At the fees hearing, however, Hansen admitted that, at the time that he signed the declaration, he was employed in California and spent the majority of his time there. Hansen's declaration also stated that several consultants conducted business at SyncPoint's offices in Texas, but each of the named consultants had, in one way or another, turned down any involvement with SyncPoint. Before the court ruled on venue, SyncPoint moved to stay the case pending completion of Hansen's bankruptcy proceedings. The court granted the stay. Hansen ended up losing the '214 patent to defendant PixArt during the bankruptcy. Consequently, after lifting the stay, the court dismissed the suit with prejudice, and defendants moved for their attorneys' fees.

The court denied defendants' §285 motion because it found that SyncPoint's claims were not objectively unreasonable. Defendants claimed not to infringe the '214 patent based on a claim construction issue that the court had resolved in defendants' favor. The court found that SyncPoint's infringement theory nevertheless "was not frivolous, and (at least before claim construction) had [a] reasonable prospect of prevailing."[2] The court also noted that there was no evidence that SyncPoint was exploiting the high cost of litigation to extract nuisance-value settlements from multiple targets.[3] On the contrary, "Hansen testified that he and his engineer son spent hundreds of hours investigating the Wii," and Hansen did not bring suit until he had determined that the Wii infringed his patent.[4] All in all, SyncPoint had asserted "a plausible infringement read against a carefully targeted defendant," but simply was not successful.[5]

The court found that, in this case, the "only arguable basis for an exceptionality finding [was] litigation misconduct, and the misconduct [was] concentrated around venue."[6] From the court's perspective, the "[m]ost troubling [was] the part of the declaration about SyncPoint's consultants."[7] The court found "no way around the conclusion that there really were no consultants," but it also noted "there is an absence of causation" for awarding fees—€”namely, "SyncPoint's venue representations did not cause the defendants to incur substantial attorneys' fees."[8] Consequently, the court denied defendants' motion and decided, instead, to "identify the responsible parties and craft an appropriate remedy."[9]

[1] 134 S.Ct. 1749, 1756 (2014).

[2] SyncPoint Imaging, LLC v. Nintendo of America, Inc., No. 2:15-cv-247, Dkt. 362  at 16 (E.D. Tex. July 9, 2018).

[3] Id. at 17.

[4] Id. at 15.

[5] Id. at 17.

[6] Id. at 18.

[7] Id. at 17.

[8] Id. at 17, 18 (citing Goodyear Tire & Rubber Co. v. Haeger, 137 S.Ct. 1178, 1186–90 (2017)).

[9] Id. at 18.