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IP, Patent

Leave Patent Licensing To The Professionals

Another chapter in the ongoing Eon-Net saga closed last month with the CAFC, in a rare move, upholding the sanctions issued against Eon-Net and its lawyer Jean-Marc Zimmerman.  Previously, the CAFC vacated the original award of sanctions, advising the trial court that it was too quick on the draw.  However, during the oral argument, Mr. Zimmerman agreed with the characterization that Eon-Net, owned by Mitchell Medina, was “in business to litigate.”  That being the case, one might expect the company to be more respectful of the litigation process, including the requirement to come prepared.  Instead, the court provides entertaining war-stories about lawyers outsmarting themselves, revealing too much of their client’s good graces, and blindly following the client over a cliff.

Lawyers are perhaps more likely than others to fall victim to their own hubris. Patent attorneys, often achieving advanced degrees in engineering or science before studying the law, probably think themselves more capable than all others.  I’m not saying these folks are arrogant … just really, really confident.  Overconfidence can lead an attorney to underestimate  a judge not experienced in patents, engineering, or scientific principles. However, a “too clever” argument can easily set off a judge’s BS detector.  And when it does, it taints everything you do.

So things did not get off to a good start for Eon-Net. It won its original appeal by successfully arguing that the court was wrong to dispose of the case “without affording Eon-Net notice and the opportunity to present argument on … the appropriate construction of the ‘697 patent.” So, when the trial judge complied with the CAFC’s order to hold a Markman hearing, imagine its surprise when Eon-Net claimed that “there are no claim terms in the patents-in-suit that need to be construed by the Court.”  On appeal, Eon-Net tried to defend its actions by pointing out that the court is “not obligated to construe every recited claim term.” (As an aside, I wonder if the idiom about hard cases making bad law ought to be extended to include short-sided counsel.)

Things quickly got worse when it was discovered that Zimmerman mistakenly served (with his own signature) a client’s written responses to an interrogatory, rather than his formally prepared response. In other words, the lawyer accidentally let his client tell the truth.  The interrogatory sought the patent owner’s position on the ordinary level of skill in the art (one of the factors to consider when determining patentability). Evidently, Mr. Medina’s responded that “the skill in the art required is that sufficient to converse meaningfully with Mitchell Medina.” (Another aside, you know those things that you think but usually know better than to say, or better yet, write down? There is a reason for that.)

Zimmerman, naturally, tried to blame the help, which is also a bad move. Lawyers ought to recognize that Lawyers are responsible for those who work under them, not vice-versa.  The attempt to delegate the blame prompted a stern rebuke from the trial judge:

In light of the fact that Mr. Zimmerman’s signature appears on the offensive interrogatory responses, this attempt to place blame on his legal assistant is not well-taken. Had this document been a pleading or motion filed with the Court, rather than in interrogatory response sent to the opposing party, counsel could have been found subject to Rule 11 sanctions for his conduct.

Fundamentally, the court viewed Eon-Net’s entire case as a frivolous shake-down due to a combination of factors. First, the claim construction argument required to support their infringement claim was deemed “objectively baseless” (despite the fact that the CAFC itself mentioned, and then ignored one of Eon-Net’s strongest arguments).  Second, Eon-Net desperately sought to avoid litigation by requesting settlement, in some cases, less than .075% of a company’s annual revenue in exchange for a patent that, by their own argument, covered web-based e-commerce.  Third, it cost more than ten times the amount Eon-Net was offering to ferret out the baselessness of their claims. Fourth, Eon-Net’s battle was highly asymmetric because it had little expense and virtually nothing other than validity of its patents, at risk.  Finally, the court accused Zimmerman of dereliction of his obligations by “merely follow[ing] the direction of his client” rather than conducting his own analysis.

Ultimately, the “teaching point” of the written opinion is that, in addition to examining the accused product, “[a] reasonable pre-suit investigation … also requires counsel to perform an objective evaluation of the claim terms when reading those terms on the accused device.”  Of course, apart from being a dereliction of your obligations to the court, failing to do so would also be manifestly reckless lest you find yourself, your firm, your partners, and your clients mired in a dog of a case with no reasonable claim construction arguments.  Viewing the spectrum of claim construction arguments between “incorrect” and “objectively baseless,” Eon-Net’s position may have fallen closer to one side than the other, but left out of this decision is any direction on where the cut-off line should fall to push a case over the cliff and declaring it frivolous, rather than just being a loser.

As far as where Eon-Net’s case itself falls, I’m not sure that the claim construction position was entirely baseless.  Ultimately, Eon-Net lost because the trial and appellate courts both agreed that the invention as a whole was directed to scanning hard-copy documents, while Eon-Net’s infringement read relied on HTML web-forms to capture electronic documents.  The CAFC specifically mentions an interesting argument raised by Eon-Net, but then remarkably never addresses it in the decision.

Eon-Net argues that the United States Patent & Trademark Office has allowed claims in related patent applications that expressly recite that the claimed “document” or “file” is “not derived from scanning a hard copy document,” which, according to Eon-Net, shows that the “document” and “file” terms are not limited to information originating from a hard copy document.

This is a common prosecution strategy.  The “related patent application” is, presumably, a continuation application that relies on the same disclosure.  In Eon-Net’s view, then, the patent office would only have allowed this claim if the underlying specification supported an embodiment where something other than a hard-copy document was used.  This doesn’t mean that Eon-Net’s construction is necessarily correct, but without hearing any rebuttal from the court, I’m personally struggling to understand how their claim construction position is baseless.

What’s more, this case leaves trial courts with a lot of discretion to declare any given party’s claim construction position to be baseless.  However, since the CAFC has been routinely reviewing underlying claim construction arguments without deference, why should the trial courts get any deference to say which arguments are or are not baseless?

The truth is, a lot of cases are filed and then settled for far less that what it costs to litigate, but that, in itself, doesn’t make them frivolous.  In fact, it most cases the behavior (known elsewhere as the simple act of “compromise”) is entirely rational, particularly when highly meritorious cases can lose at trial for any variety of reasons. Therefore, patent owners ought to continue exploring ways to compromise claims and reduce inefficiencies. The lesson is, rather, that if an opponent opts in favor of litigation, for whatever reason, then patent owners need to proceed professionally, competently, and aggressively (and price future settlements accordingly).

Professionalism and competence cannot be underestimated. One place you absolutely cannot cut corners is in patent analysis.  Settlements quickly become characterized as extortion, rather than compromise, when the person representing your interests can’t muster a coherent explanation to a direct question about the identity of the accused product.  Once that particular steamroller picks up momentum, you’re better off getting out of the way than trying to stop it.

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