Monday, October 09, 2006

Lack of Pre-Filing Investigation Results in Harsh Lesson For Eon-Net

The Patent Hawk posted on a very interesting (and funny) ruling from the Western District of Washington in the case of Eon-Net, L.P. v. Flagstar Bancorp, Inc. (C05-2129MJP). In this case, Flagstar was one of numerous defendants that Eon-Net accused of infringing U.S. Patent No. 6,683,697 (the "'697 Patent")

The court considered a motion for sanctions pursuant to Fed. R. Civ. P. 11 by defendant Flagstar alleging that Eon-Net's litigation conduct violated the duty to (1) apply the claims of the asserted patent to the accused device, and (2) satisfactorily establish that a proper construction of the claims permits an argument that each element of the claims appears in the accused device(s). During the course of enforcing the '697 patent, Eon-Net sued Flagstar over software technology that was purchased from a company (Kofax) that had already licenced the '697 patent. Flagstar spent an entire year attempting to informally assist Eon-Net with its post-filing investigation of its web operations in an attempt to convince Eon-Net that it was not infringing and was licensed. Over a year after filing the complaint, Eon-Net finally agreed that the software did not infringe.

After reviewing Eon-Net's litigation conduct in great detail, the court decided that it had enough. Eon-Net sent out "fill-in-the-blank" demand letters to Flagstar and at least 24 other defendants alleging infringement, along with an offer for an "inexpensive settlement." Eon-Net's complaint and claim chart were virtually identical to its other complaints in other cases. Also, the claim charts were so broad that the court reasoned that they could be sent to any web-based business. And since no meaningful analysis was reflected in the claim charts, the court deemed them "essentially worthless." Nothing in the Eon-Net's complaint or claim charts identified infringement contentions or accused products.

Acknowledging that Eon-Net was unduly pressuring defendants to quickly settle in lieu of protracted litigation, the court concluded that Eon-Net's behavior was tantamount to extortion:

The Court is also very concerned with Eon-Net's continuing conduct. The Court was shocked to learn at oral argument that during the pendency of Flagstar's motion for Rule 11 sanctions, Eon-Net has filed eleven new identical Complaints . . . Plaintiffs conduct recalls Molski v. Mandarin Touch Restaurant, 359 F. Supp. 2d 924 (C.D.C d.2 005). A serial plaintiff under the Americans with Disabilities Act ("ADA") between 1998 and 2005, Mr. Molski filed more than 400 lawsuits under the ADA. In the great majority of his complaints, Mr. Molski alleged similar bodily injury on curbs, landscaping, stairs, and bathroom stalls. The court found his allegations to be "contrived." Mr. Molski's counsel sent letters to the (usually) unrepresented defendants advising them to quickly settle and avoid the high cost of litigation. Of 400 lawsuits, only one proceeded to trial and the jury unanimously found no violations of the ADA. The court found that the unusual number of settlements were indicative of an extortion scheme . . . The court also found Mr. Molski was using the federal courts to leverage his frivolous lawsuits against less powerful litigants.

This Court finds that indicia of extortion are present in this case. Dozens of parties (regardless of their actual business) have received the same complaint, claim chart, and settlement letter. From to, no website is safe from an Eon-Net suit for patent infringement. Like Molski, Eon-Net offers a nuisance settlement at the outset to avoid a hard look at the merits of its infringement claims. Given the extraordinary cost of patent litigation, even the finest patent attorney would need to think carefully before advising a client to spend hundreds of thousands of dollars in litigation when a $25,000, $50,000, or $75,000 settlement was on the table. Indeed, in the two other Eon-Net cases before this Court, and dozens before other courts, the plaintiffs have opted for the "cheap" standard offer of settlement. An appropriate sanction is required to deter future bad conduct.
After concluding that Eon-Net's allegations are "completely devoid of merit," the court awarded Flagstar attorney fees and costs. And to add insult to injury, the court also took the unusual step of ordering Eon-Net to forward a copy of the ruling to every defendant charged with infringing the '697 patent:

Within 5 days of this Order, Eon-Net shall provide a copy of this Order to every defendant charged with infringement of the '697 Patent for "collecting information over the internet" or "operating a website . . . pursuant to a claim of the '697 patent" and to the court in which the action was filed. This Court does not seek to intrude on the freedom of other district courts to consider the merits of Eon-Net's claims for infringement of the '697 Patent. However, those defending infringement claims, and the courts in which those actions are filed, are entitled to be made aware of this Court's review of Eon-Net's litigation tactics and misconduct. Regardless of he merits of Eon-Net's claims, Em-Net has chosen filing over investigation, and nuisance settlements to avoid the merits. Eon-Net's conduct violates the rules and other Defendants should be made aware.

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