905 F.3d 1321
Fed. Cir.2018Background
- AlphaCap (a non-practicing entity) sued Gust and nine other crowdfunding-related defendants for patent infringement in Jan. 2015; nine defendants settled for small amounts, Gust litigated.
- Gutride Safier LLP represented AlphaCap on contingency; litigation ran through venue disputes, claim construction, transfer from E.D. Tex. to S.D.N.Y., and later a covenant not to sue by AlphaCap.
- Gust sought fees under 35 U.S.C. § 285 and 28 U.S.C. § 1927; the district court found the case "exceptional" under § 285 and awarded fees jointly and severally against AlphaCap and Gutride under § 1927 for multiplying the proceedings.
- The district court relied on Alice-based § 101 analysis, AlphaCap’s forum choice (E.D. Tex.), Gutride’s settlement posture (statement the case was "not worth litigating"), opposition to transfer, and delay in covenant not to sue to find Gutride acted in bad faith and that claims lacked color.
- On appeal Gutride challenged only the § 1927 joint-and-several sanction; the Federal Circuit applied the Second Circuit’s more exacting abuse-of-discretion review and reversed the § 1927 award as an abuse of discretion.
Issues
| Issue | Plaintiff's Argument (AlphaCap/Gutride) | Defendant's Argument (Gust) | Held |
|---|---|---|---|
| Whether § 1927 applies based on the filing of a baseless complaint | Filing and pursuit were defensible given unsettled § 101 law; counsel can test evolving law | Filing and continuation were frivolous and aimed at nuisance settlements; § 1927 sanctions appropriate | Reversed: filing a baseless complaint is not the proper basis for § 1927; Rule 11 addresses baseless filings |
| Whether AlphaCap's patent-eligibility position lacked "color" under § 1927 | Claims were colorable after Alice; reasonable arguments existed about templates and semi‑homogeneous profiles | Claims were directed to abstract crowdfunding ideas and plainly ineligible under Alice | Reversed: eligibility arguments were colorable in the post-Alice, evolving landscape |
| Whether Gutride acted in bad faith and unreasonably/vexatiously multiplied proceedings | Opposing transfer, venue discovery, and other litigation conduct were reasonable litigation tactics; settlement choices are client decisions | Counsel knew claims were doomed, resisted transfer, prolonged discovery, and delayed covenant to extract settlements | Reversed: district court abused discretion; factual findings relied on improper hindsight and client decisions cannot be imputed to counsel for § 1927 |
| Whether counsel’s venue strategy and delay in covenant justified joint-and-several liability under § 1927 | Venue choice was proper (personal jurisdiction existed); opposing transfer and engaging in agreed venue discovery were permissible | Filing in E.D. Tex. and resisting transfer were tactics to pressure defendants into settlements | Reversed: venue strategy and client settlement decisions do not by themselves establish the bad-faith multiplication required by § 1927 |
Key Cases Cited
- Alice Corp. v. CLS Bank Int'l, 573 U.S. 208 (2014) (two-step test for patent-eligibility under § 101)
- Eisemann v. Greene, 204 F.3d 393 (2d Cir. 2000) (requirements for sanctions and need for specific factual findings)
- Advanced Magnetic Closures, Inc. v. Rome Fastener Corp., 607 F.3d 817 (Fed. Cir. 2010) (§ 1927 requires claims "entirely without color" and brought in bad faith)
- Oliveri v. Thompson, 803 F.2d 1265 (2d Cir. 1986) (resolve doubts in favor of non-movant when imposing sanctions)
- DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014) (example of computer-implemented claims held eligible)
- buySAFE, Inc. v. Google, Inc., 765 F.3d 1350 (Fed. Cir. 2014) (generic computer implementation does not confer eligibility)
- Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343 (Fed. Cir. 2014) (data collection/recognition claims treated as abstract idea)
- Sussman v. Bank of Israel, 56 F.3d 450 (2d Cir. 1995) (an attorney need not sue in the most convenient forum)