Gust, Inc. v. AlphaCap Ventures, LLC, 1-15-cv-06192 (NYSD December 8, 2016, Order) (Cote, USDJ)
Monday, December 12, 2016
Assertion of Frivolous Claims in Light of Alice Warrants 28 U.S.C. § 1927 Sanctions Against Counsel Despite Covenant Not to Sue
Following dismissal of defendant's patent claims after defendant provided a covenant not to sue, the court granted plaintiff's motion for sanctions against counsel under 28 U.S.C. § 1927 because the asserted infringement claims were frivolous in light of Alice Corporation Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014). "As experienced patent counsel, [defendant's] attorneys were well aware of Alice and its implications for [defendant's] Patents. Realizing that they could not defend [defendant's] Patents against a § 101 validity challenge, they chose nonetheless to file this contingency-fee lawsuit, as one of ten in the Eastern District of Texas, in the expectation that they could obtain quick settlements of relatively modest amounts from every major firm in the internet crowdfunding arena. When [plaintiff] resisted, counsel immediately acknowledged that [defendant's] claims were 'not worth litigating' and offered to dismiss the Texas Action with prejudice. . . . They resisted a motion to change venue, twice demanded documents from [plaintiff], and engaged in the prosecution of the Texas Action. Only . . . after the Texas Action was consolidated with the New York Action and as [plaintiff] prepared its § 101 motion, did [defendant] serve the Covenant. . . . [Defense] counsel’s decision to proceed with the litigation for as long as it did, and to make it expensive for [plaintiff] to defend against the litigation, reflects counsel’s tactical and bad faith motivation."