Iris Connex, LLC v. Dell Inc., 2-15-cv-01915 (TXED January 25, 2017, Order) (Gilstrap, USDJ)
Friday, January 27, 2017
Non-Party Owner of Undercapitalized Plaintiff Held Personally Liable for 35 U.S.C. § 285 Attorney Fees Award
Following summary judgment of noninfringement and post-judgment discovery regarding plaintiff's real party in interest, the court granted defendant's motion for attorney fees under 35 U.S.C. § 285 and found that those fees could be imposed on non-parties. "[Plaintiff] is the first level of two shell corporations which were intended to shield the real actor . . . from personal liability. The Court is persuaded that [the sole shareholder of plaintiff's parent company] and those in active concert with him exploited the corporate form to operate largely in secret and to insulate the true party in interest from the risk associated with dubious infringement suits—that risk being fee shifting under Section 285. . . . [T]he Court concludes that the statutory text, current case law, and statutory purpose behind the Patent Act and Section 285 all support assessing direct Section 285 liability against non-parties, so long as (1) the actor is responsible for conduct that makes the case exceptional, (2) the actor is afforded due process, and (3) it is equitable to do so. . . . [I]f we assume that Section 285 permits recovery only against the originally named non-prevailing party, then the law has perversely incentivized third parties to act in ways that stand out from established litigation norms. This would foster the very type of litigation that the statute was meant to deter. . . . The lack of deterrence caused by empty shell plaintiffs negates the incentive to vigorously defend against meritless claims when there are no practical means by which to recover costs. . . . [T]he Court is persuaded that [this case] never would have been filed but for [the sole shareholder's] calculated assumption that he could insulate himself personally from the possible application of Section 285."