EMG Technology, LLC v. Etsy, Inc., 6:16-cv-00484

EMG Technology, LLC sued Etsy for infringement of U.S. Patent Nos. 6,600,497 and 7,194,698 on June 2, 2016.
Etsy moved to dismiss under Fed. R. Civ. P. 12(b)(6), arguing the claims are directed to patent-ineligible subject matter under 35 U.S.C. § 101.
The magistrate judge and then Judge Schroeder concluded the claims were directed to the abstract idea of displaying information in a hierarchical tree format and lacked an inventive concept; final judgment of invalidity under § 101 entered March 3, 2017.
After judgment, Etsy moved under 35 U.S.C. § 285 to declare the case exceptional and recover attorneys’ fees, arguing EMG’s claims were objectively unreasonable (post-Alice) and that EMG, as an NPE, pursued low-dollar settlement extractions.
The court evaluated the totality of circumstances under Octane Fitness and found (1) the primary authority relied on by the court (Apple v. Ameranth) issued after this case’s briefing and argument, and (2) § 101 law post-Alice is malleable and difficult to apply at the pleading stage.
The court concluded Etsy failed to show the case “stands out” in strength of position or unreasonable litigation conduct and denied the § 285 fee motion.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the case is "exceptional" under 35 U.S.C. § 285	EMG argued its suit was reasonable given evolving § 101 law and reliance on then-available precedent	Etsy argued EMG’s claims were objectively unreasonable post-Alice and facially patent-ineligible	Court held not exceptional; denied fees
Whether EMG’s prior settlements and NPE status show abusive litigation	EMG said settlements were business judgments and prior PTAB review was not instituted	Etsy argued EMG pursued low-dollar settlements to extract fees and avoid CBM costs, evidencing improper motive	Court found prior settlements and CBM petitions did not show abusive conduct or objective unreasonableness

Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (U.S. 2014) (standard for exceptional case under § 285 and totality-of-the-circumstances test)
Alice Corp. v. CLS Bank Int'l, 134 S. Ct. 2347 (U.S. 2014) (two-step test for patent-eligible subject matter under § 101)
Apple Inc. v. Ameranth, Inc., 842 F.3d 1229 (Fed. Cir. 2016) (Federal Circuit decision found instructive by the court regarding similar claimed invention)
Jacobellis v. Ohio, 378 U.S. 184 (U.S. 1964) (notion that some legal standards are difficult to define—"I know it when I see it" approach cited regarding malleable § 101 analysis)