District Court Reconsiders Award of Attorneys' Fees in View of Notice of Allowance for Continuation Application and Unsettled Legal Landscape Regarding § 101
By Donald Zuhn --
Earlier this month, in Garfum.com Corp. v. Reflections by Ruth d/b/a Bytephoto.com, Chief Judge Jerome B. Simandle of the U.S. District Court for the District of New Jersey issued an opinion granting Plaintiff Garfum.com Corporation's motion for reconsideration of the Court's earlier finding that the case was exceptional under 35 U.S.C. § 285, and determined that no award of attorneys' fees and costs would be made to Defendant Reflections by Ruth d/b/a Bytephoto.com. In its motion for reconsideration, Garfum.com had requested that the Court reconsider its finding of exceptionality in light of new evidence and new caselaw regarding 35 U.S.C. § 101.
After Garfum.com filed suit against the Defendant, Bytephoto.com responded by filing a motion to dismiss Garfum.com's infringement action, on the grounds that Garfum.com's patent was directed to unpatentable subject matter under 35 U.S.C. § 101. Garfum.com then executed a covenant not to sue, and filed a motion to voluntarily dismiss the complaint and counterclaims, which the District Court granted. Bytephoto.com countered with a motion for attorneys' fees under 35 U.S.C. § 285, asserting that Garfum.com's arguments against its motion to dismiss were meritless under § 101 and contrary to the text of the asserted patent, and that Garfum.com's litigation conduct was unreasonable. The Court granted Bytephoto.com's motion for attorneys' fees, finding that Garfum.com's case "did not have substantive strength since it 'should have been obvious' that its claims did not have an inventive concept in a post-Alice environment under 35 U.S.C. § 101," and that Garfum.com "'propound[ed] unreasonable [litigation] positions in support of validity under § 101, and then dismiss[ed] the case to avoid a decision on the merits.'" In finding the case to be exceptional, the District Court rejected Garfum.com's argument that the U.S. Patent and Trademark's allowance of a continuation application of the asserted patent demonstrated that its case had substantive strength and was litigated reasonably, stating that the allowance of the continuation application could not "provide cover" for Garfum.com's litigation positions "without any mention of 35 U.S.C. ¶ 101 in the notice of allowance."
Following the parties' briefing on Bytephoto.com's motion for attorneys' fees, Garfum.com filed a second Request for Continued Examination and an Information Disclosure Statement in the continuation application, citing all of the § 101 briefings from the instant case. The USPTO issued a third Notice of Allowance less than two weeks before the District Court issued its opinion granting Bytephoto.com's motion for attorneys' fees.
In granting Garfum.com's motion for reconsideration, the District Court noted that Garfum.com's motion was "not a mere disagreement with the Court's initial decision, but a good faith effort to present evidence to the Court that was either not previously available or overlooked at the time of the March 2016 Opinion." The Court explained that it had "overlooked the substantive strength of Plaintiff's litigation position because of the uncertainty of the state of the law regarding 35 U.S.C. § 101." The Court agreed with Garfum.com's argument that the USPTO's allowance of the continuation application of the asserted patent, which contained "nearly identical claims," countered the Court's prior finding that it "should have been obvious" to Garfum.com that there was no inventive concept in the asserted claims.
The Court also noted that Garfum.com had submitted several persuasive intervening cases in support of its motion for reconsideration, including YYZ, LLC v. Pegasystems, Inc., No. 13-581, 2016 WL 1761955, at *1 (D. Del. May 2, 2016) (stating that "the § 101 analysis is an evolving state of the law and a difficult exercise, which does not lend itself to, e.g., shifting fees pursuant to 35 U.S.C. § 285"); Papst Licensing Gmbh & Co. KG v. Xilinx Inc., No. 16-925, 2016 WL 4398376, at *2-*4 (N.D. Cal. Aug. 18, 2016); Device Enhancement LLC. v. Amazon.com., Inc., No. 15-762, 2016 WL 2899246, at *7 (D. Del. May 17, 2016); Clarilogic, Inc. v. FormFree Holdings Corp., No. 15-41 (S.D. Cal. Apr. 27, 2016); Credit Card Fraud Control Corp. v. Maxmind, Inc., No. 14-3262, 2016 WL 3355163 at *2 (N.D. Tex. Apr. 7, 2016); and EON Corp. IP Holdings, LLC v. FLO TV Inc., No. 10-812, 2014 WL 2196418, at *2 (D. Del. May 27, 2014). The District Court also noted that since issuing an opinion in DDR Holdings, LLC v. Hotels.com, the Federal Circuit had "opined in three additional instances on § 101 since briefing was completed in this case, furthering the uncertainty in this area of jurisprudence." The three cases referred to by the District Court are Enfish, LLC v. Microsoft Corp., 822 F.3d 1327 (Fed. Cir. 2016), BASCOM Global Internet Services v. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016), and McRO, Inc. v. Bandai Namco Games America Inc., 837 F.3d 1299 (Fed Cir. 2016).
In looking at the district court decisions cited by Garfum.com and the additional Federal Circuit decisions, the District Court noted that "while this Court had stated that it should have been obvious to Plaintiff that it did not have a § 101 case in a post-Alice environment, the law has since sufficiently evolved so that Plaintiff may have had an arguable or plausible inventive concept under § 101." The District Court also indicated that "[a]fter a thorough review and upon further reflection, the Court concludes that Plaintiff's conduct in this case was not unreasonable -- this is not one of the rare patent cases in which attorneys' fees are warranted by the manner of litigation." The Court concluded that "under the totality of the circumstances, Plaintiff's case was not 'exceptional' under § 285," adding that "[i]n light of the unsettled legal landscape regarding patentability under § 101 after Alice, coupled with the PTO's allowance of nearly identical claims, '[t]his is one of the rare instances where reconsideration is appropriate.'"
Opinion by Chief District Judge Simandle