The US Court of Appeals for the Federal Circuit upheld an attorneys’ fees award after the patent owner brought successive patent infringement suits attempting “to refile to wipe the slate clean” after the first court was poised to issue an adverse merits ruling. Realtime Adaptive Streaming, LLC v. Netflix, Inc., Netflix Streaming Services, Inc., Case Nos. 21-1484; -1485; -1518; -1519 (Fed. Cir. July 27, 2022) (Newman, Chen, JJ.) (Reyna, J., concurring-in-part, dissenting-in-part).
Realtime brought three patent infringement suits against Netflix alleging infringement of six different patents and the same accused products. Realtime first sued in Delaware, and Netflix moved to transfer to California for convenience (which Realtime vehemently opposed as an unfair burden) and to dismiss for failure to state a claim, arguing that four of the six patents were ineligible under 35 U.S.C. § 101 for being directed to an ineligible abstract idea. After briefing, the magistrate judge issued a report and recommendation finding the four patents ineligible under § 101. The court also denied the motion to transfer. Meanwhile, Netflix filed corresponding petitions for inter partes review (IPR) of the asserted patents, all of which were instituted by the Patent Trial & Appeal Board. Realtime moved to amend its complaint—for support pointing to five related patents that were subsequently found invalid under § 101 by the same judge—then voluntarily dismissed the Delaware action before the district court judge could rule on the magistrate judge’s report and recommendation.
The very next day, Realtime filed two new suits against Netflix in California asserting the same six patents, divvying up the four § 101-challenged patents as separate from the other two. Netflix moved to transfer both cases back to Delaware and moved for attorneys’ fees. Realtime opposed, this time arguing that California was more convenient than Delaware. However, before the California court could rule on the motion to dismiss, Realtime again voluntarily dismissed the California actions without prejudice.
Netflix renewed its motion for attorneys’ fees for the California actions, IPRs and related Delaware action. The district court awarded attorneys’ fees for the California actions under § 285 and, in the alternative, the court’s equitable powers. The district court declined to award attorneys’ fees for the related actions, IPRs or costs under Fed. R. Civ. P. 41(d). Realtime appealed the fee award, and Netflix cross-appealed the denial of fees for related proceedings.
The Federal Circuit affirmed, finding no abuse of discretion in awarding fees pursuant to equitable powers or in denying fees for related proceedings. Because the district court’s “inherent power to impose sanctions in the form of attorneys’ fees is not a substantive patent question,” the Federal Circuit considered the issue under the Ninth Circuit’s framework that “the court must find that the sanctioned behavior ‘constituted or was tantamount to bad faith.’” As for fees under § 285, “a district court ‘may award’ attorneys’ fees to ‘the prevailing party’ in ‘exceptional cases’”—an analysis unique to patent law and therefore governed by Federal Circuit precedent.
In affirming the award of fees, the Federal Circuit pointed to the district court’s appropriate finding of “impermissible forum shopping” to invoke equitable powers because “Realtime was aware ‘that its lawsuit in Delaware was undeniably tanking,’ making its decision to ‘run off to another jurisdiction in hopes of getting a more favorable forum totally unjustified,’ and ‘improper.’” Realtime argued that its voluntary dismissals rendered Netflix not a prevailing party for purposes of § 285, but the Court avoided this issue by finding that the district court’s ruling was supported under equitable powers regardless of whether § 285 applied.
Judge Reyna concurred-in-part and dissented-in-part. He concurred that the district court did not abuse its discretion in awarding fees under its inherent powers to sanction, but offered a dissenting opinion “that the district court did not err in determining that two voluntary dismissals without prejudice is sufficient to confer prevailing party status under 35 U.S.C. § 285.” As Judge Reyna recounted, it was undisputed that claims were brought in both Delaware and California, and those claims were voluntarily dismissed in both actions. He explained that in his view, “the second voluntary dismissal operates as an adjudication on the merits” and this affects a “judicially sanctioned change in the relationship” between the parties, which matters because here it was the “result of judicial imprimatur.” In Judge Reyna’s view, “[i]nterpreting our case law to require an affirmative order or act by the court puts form over substance” and therefore would “would hold that a second voluntary dismissal of the same claims is sufficient to confer prevailing party status on the nonmoving party.”