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«Patent Trolls Beware: Ethics and Consequences in Filing Patent Suits Without a Sufficient Pre-Filing Investigation by Sid Leach Snell & Wilmer L.L.P. ...»

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Patent Trolls Beware: Ethics and Consequences in Filing Patent

Suits Without a Sufficient Pre-Filing Investigation

by Sid Leach

Snell & Wilmer L.L.P.

In October 2006, a jury returned a verdict in the case of Verve LLC v. Hypercom

Corp., awarding compensatory damages and punitive damages against a lawyer and his

law firm for abuse of process and malicious prosecution based upon patent infringement

actions that were filed without an adequate pre-filing investigation. That same month, in the case of Eon-Net, L.P. v. Flagstar Bancorp, Inc., an attorney and his law firm were sanctioned under Rule 11 of the Federal Rules of Civil Procedure for failing to conduct an adequate pre-filing investigation before filing a patent infringement action. On February 6, 2007, an administrative law judge at the International Trade Commission entered an order imposing sanctions on a lawyer and his law firm based, in part, upon the failure to conduct an adequate pre-filing investigation. These recent decisions underscore the importance of conducting an adequate pre-filing investigation before initiating patent infringement litigation. The failure to discharge this obligation can expose a lawyer and his firm to sanctions and potential liability for abuse of process or malicious prosecution.

This paper will discuss sanctions under Rule 11, 28 U.S.C. §1927, 35 U.S.C. §285, and a court’s inherent power, based upon the failure to conduct an adequate pre-filing investigation in a patent case. The paper will also cover potential liability for claims of abuse of process and malicious prosecution.


Rule 11 is of fundamental importance, because it provides a principal basis for sanctions relating to inadequate pre-filing investigations, serves as a guide star in the exercise of a court’s inherent power, and is used as the standard for evaluating the issue of probable cause in a malicious prosecution claim.

Under Rule 11, Fed.R.Civ.P., every paper filed with the court must be signed. The signature is a certification that the pleading complies with the requirements of the rule.

By signing a pleading, an attorney certifies, inter alia, that to the best of his or her knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, the allegations and factual contentions in the pleading have evidentiary support. Rule 11(b), Fed.R.Civ.P. The signer also certifies that the pleading is not being filed for any improper purpose. Id.

Rule 11 is intended to protect the integrity of the legal system. Pope v. Federal Express Corp., 138 F.R.D. 684, 691 (W.D. Mo. 1991); Navarro-Ayala v. Nunez, 968 F.2d 1421, 1426 (1st Cir. 1992) (“[C]ourts cannot function if lawyers and litigants are not forthright.”). Rule 11 is intended to ensure that any papers filed with the court are wellgrounded in fact, and not interposed for any improper purpose. Cooter & Gell v.

Hartmarx Corp., 496 U.S. 384, 392 (1990). The rule is principally designed to prevent baseless filings, id., and to deter misrepresentations in pleadings, Anderson v. County of Montgomery, 111 F.3d 494, 502 (7th Cir. 1997), overruled on other grounds, Dewalt v.

Carter, 224 F.3d 607 (7th Cir. 2000).

A. Evidentiary Support for Factual Contentions Prior to signing a complaint, a litigant must fulfill the affirmative duty to conduct a reasonable inquiry into the facts and the law. Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S. 533 (1991). “Whether or not this duty has been breached depends on the objective reasonableness of the litigant’s conduct under the totality of the circumstances.” Navarro-Ayala v. Nunez, 968 F.2d 1421, 1425 (1st Cir.

1992). Although Rule 11 allows allegations to be made, if specifically so identified, as likely to have evidentiary support after a reasonable opportunity for further investigation or discovery, this is not a license to make claims without any factual basis. Geisinger Medical Center v. Gough, 160 F.R.D. 467, 469 (M.D. Pa. 1994).

In a patent infringement case, the patentee must conduct a reasonable investigation to determine whether the products accused of infringement actually infringe the asserted patent. Antonious v Spalding & Evenflo Co., 275 F3d 1066, 1074 (Fed Cir 2002) (“[A]n attorney violates Rule 11(b)(3) when an objectively reasonable attorney would not believe, based on some actual evidence uncovered during the prefiling investigation, that each claim limitation reads on the accused device either literally or under the doctrine of equivalents.”). A patentee is required to demonstrate that an adequate pre-filing investigation was performed whenever it is challenged. View Engineering, Inc. v. Robotic Vision Systems, Inc., 208 F.3d 981, 986 (Fed. Cir. 2000) (“In bringing a claim of infringement, the patent holder, if challenged, must be prepared to demonstrate to both the court and the alleged infringer exactly why it believed before filing the claim that it had a reasonable chance of proving infringement.”).

In a patent case, Rule 11 “require[s], at a minimum, that an attorney interpret the asserted patent claims and compare the accused device with those claims before filing a claim alleging infringement.” Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295, 1300 (Fed. Cir. 2004). The attorney must have a reasonable basis for finding infringement of at least one claim of the patent by the accused device. View Engineering Inc. v. Robotic Vision Systems, Inc., 208 F.3d 981, 985-986 (Fed. Cir. 2000).

The claim interpretation should follow the standard canons of claim construction, comport with the plain meaning of the claim language, be reasonably supported by the intrinsic record, and not be inconsistent with the patent’s written description or prosecution history. See Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295, 1301 (Fed. Cir. 2004). In order to perform a proper claim construction analysis, the plaintiff must obtain a copy of the publicly available Patent and Trademark Office (“PTO”) file for the patent application that issued as the asserted patent. The importance of the PTO application file is two-fold. Changes made during prosecution of a patent application by amendment, or in an argument, can restrict the scope that will be given to a patent and can legally foreclose infringement claims against certain types of products. Festo Corp. v.

Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 739-40 (2002). Secondly, an argument made to the patent examiner in order to convince the examiner to allow the application to issue as a patent that ascribes particular significance to a term in a patent will be definitive for purposes of patent claim construction. Prima Tek II, L.L.C. v.

Polypap, S.A.R.L., 318 F.3d 1143, 1148-49 (Fed. Cir. 2003).

An attorney cannot simply rely upon his client’s pre-filing investigation and patent claim analysis. The attorney must perform his or her own independent claim analysis of the asserted patent. S. Bravo Systems, Inc. v. Containment Tech. Corp., 96 F.3d 1372, 1375 (Fed. Cir. 1996); Antonious v Spalding & Evenflo Co., 275 F3d 1066, 1072 (Fed Cir 2002).

In order to demonstrate that an adequate pre-filing investigation was conducted, an attorney may prepare claim charts comparing the elements of the patent claims to the available information describing the structure, function and operation of the accused products. Network Caching Technology, LLC v. Novell, Inc., No C-01-2079-VRW, 2002 U.S. Dist. LEXIS 26098, at *16 (N.D. Cal. Aug. 13, 2002) (“FRCP 11 requires that a plaintiff compare an accused product to its patents on a claim by claim, element by element basis...”.). However, there is clearly no requirement that claim charts be prepared. Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295, 1301 (Fed. Cir. 2004) (“[A] claim chart is not a requirement of a pre-filing infringement analysis, as the owner, inventor, and/or drafter of a patent ought to have a clear idea of what the patent covers without the formality of a claim chart.”). If claim charts are prepared and relied upon as evidence of a pre-filing investigation, the charts need to provide sufficient information to objectively show a good faith basis for concluding that the accused products infringe at least one claim of each asserted patent. View Engineering Inc. v. Robotic Vision Systems, Inc., 208 F.3d 981, 986 (Fed. Cir. 2000) (“Rule 11... [requires], at a bare minimum, [to] apply the claims of each and every patent that is being brought into the lawsuit to an accused device and conclude that there is a reasonable basis for a finding of infringement of at least one claim of each patent so asserted.”).

The information set forth in the claim charts should be sufficient to show that a reasonable effort was made to ascertain evidentiary support demonstrating that the accused products will meet the key limitations of the patent claims. Judin v. United States, 110 F.3d 780, 784 (Fed. Cir. 1997) (“[P]rior to the filing of the suit, neither Judin or his counsel had made a reasonable effort to ascertain whether the accused devices satisfied the two key claim limitations”); Antonious v Spalding & Evenflo Co., 275 F3d 1066, 1074 (Fed Cir 2002) (“[C]ounsel must make a reasonable effort to determine whether the accused device satisfies each of the claim limitations.”). Conclusory claim charts that merely mimic the language of the patent claims, without recitation of a sufficient evidentiary basis for the conclusions, are insufficient. Network Caching Technology, LLC v. Novell, Inc., No C-01-2079-VRW, 2002 U.S. Dist. LEXIS 26098, at *16-18 (N.D. Cal. Aug. 13, 2002). In the case of Eon-Net, P.L. v. Flagstar Bancorp, Inc., No. C05-2129MJP, slip op. (W.D. Wash. Oct. 4, 2006), the patentee argued that it examined information on the accused infringer’s web site, construed the claims of the patent, compared the asserted claims to the information available on the web site, and prepared a claim chart. Id., slip op., at 6. The court found the claim charts insufficient to establish under an objectively reasonable standard that an adequate pre-filing

investigation was performed. Id., slip op., at 11-15. In the Eon-Net case, the court said:

To the extent Eon-Net went through the motions of a claim construction exercise, it recklessly defined terms to suit its purpose in spite of the specification’s language. … Eon-Net’s construction in spite of the evidence is an abuse of the protections afforded by the patent system and is the type of misconduct for which Rule 11 provides sanctions.

Id., slip op., at 14-15.

Rule 11 requires an investigation that is “reasonable under the circumstances.” S.A. Auto Lube, Inc. v. Jiffy Lube International, Inc., 842 F.2d 946, 948 (7th Cir. 1988);

In re Yagman, 796 F.2d 1165, 1182 (9th Cir. 1986). The Federal Circuit has not imposed an absolute requirement that a patentee must obtain or test a sample of the accused product prior to filing suit. The amount of investigation required in a particular case depends on both the time available to investigate and the probability that more investigation will turn up important evidence. S.A. Auto Lube, Inc. v. Jiffy Lube International, Inc., 842 F.2d at 948. However, if samples of the accused product are readily available, the case law suggests that a patentee should obtain samples and test them for infringement. Network Caching Technology, LLC v. Novell, Inc., No C-01VRW, 2002 U.S. Dist. LEXIS 26098, at *13-16 (N.D. Cal. Aug. 13, 2002) (reverse engineering, or its equivalent, of the defendant’s products is required); Centillion Data Systems, LLC v. Convergys Corp., No. 1:04-cv-0073-LJM-WTL, 2006 U.S. Dist. LEXIS 846, at *13-14 (S.D. Ind. Jan. 4, 2006) (“[T]he Court finds that Centillion’s factual inquiry was objectively unreasonable because Centillion, nor its lawyers, never actually tested the allegedly infringing products to see if they met each of the ‘270 patent’s limitations.”). At least one court has said that Rule 11 requires that the accused infringing products be fully investigated prior to filing suit. Eon-Net, P.L. v. Flagstar Bancorp, Inc., No. C05-2129MJP, slip op., at 9 (W.D. Wash. Oct. 4, 2006)(“A plaintiff in a patent infringement suit has an obligation to fully investigate accused products before filing suit.”). In one case, the Federal Circuit said that several hundred thousand dollars would not be an unreasonable investigation expense to ascertain that the infringement allegations have evidentiary support. View Engineering, Inc. v. Robotic Vision Systems, Inc., 208 F.3d 981, 985 & n.5 (Fed. Cir. 2000).

In the case of Judin v. United States, 110 F.3d 780 (Fed. Cir. 1997), the plaintiff patentee failed to perform an adequate pre-filing investigation. In that case, the Federal Circuit held that the trial court abused its discretion by not sanctioning Judin. Id. at 781.

Judin filed a complaint alleging patent infringement by U.S. Postal Service bar code scanners. Id. The patentee went to an industry exhibition, was familiar with trade publications, technical specifications, and commercial literature, and observed the accused product from a distance but did not attempt to obtain a sample of the accused product, and did not test the accused product. The Federal Circuit summarized the

patentee’s pre-filing investigation as follows:

Sometime prior to the filing of the complaint, Judin observed bar code scanners in use at a post office. He also attended a scanning industry exhibition and was familiar with trade publications, technical specifications, and commercial literature some of which suggested that Government agencies were purchasing bar code scanners. Judin did not ask the Postal Service for a sample of the device or otherwise try to obtain one.

Judin presented his observations to attorney Van Der Wall, who also observed from a distance the accused devices in use in a post office, but otherwise conducted no investigation. Neither Van Der Wall nor Judin contacted the Postal Service, or any manufacturer, in order to gain access to the accused devices or to inquire about their operation. Van Der Wall relied on Judin with respect to the factual basis of the complaint, believing that reliance on Judin was reasonable due to Judin’s experience, his credentials, and his time in industry. Van Der Wall stated that he examined one of the asserted patent claims and “saw no problem with it.” Id. at 781-82.

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