Network Signatures Inc v. State Farm Mutual Automobile Insurance Company CAFC

August 7, 2012 - Judge James Selna of the Central District of California denied Defendant State Farm’s request for attorneys’ fees after its motion for summary judgment of patent unenforceability was granted against Plaintiff Network Signatures (NSI) [NPE] due to inequitable conduct.  State Farm argued that, “The inequitable conduct, NSI’s pattern and pursuit of baseless litigation, NSI’s litigation conduct warrant the case being exceptional, . . . [and] the Court should award attorneys’ fees to repair the manifest injustice imposed on it in defending the case.”  The Court began its analysis by noting that while inequitable conduct may be sufficient grounds by itself to declare a case exceptional and award attorneys’ fees, “[t]he conduct here is not so culpable that the case is exceptional,” because the conduct in question, intentionally misleads the PTO by claiming the patentee unintentionally failed to pay the patent’s maintenance fees when, in fact, there “is no dispute that [assignee] deliberately decided to abandon . . . the patent,” was done by the previous owner of the patent.  More importantly, the Court addressed State Farm’s claims that NSI’s pursuit of “baseless litigation” and “litigation conduct” did not meet the precedential standard of Eon-Net v. Flagstar Bancorp, 653 F.3d 1314, 1327 (Fed. Cir. 2011).  The Court found that it was not bad faith for a patentee to “vigorously enforce its patent rights or offer standard licensing terms”.  However, in light of already finding that the claim construction position taken by the patentee was objectively baseless, the Court found that by offering to settle for orders of magnitude less than litigation defense costs, bad faith could be inferred.  Here the disparity between the settlement offer and fees being sought is smaller, and the Court is not presented with the same extensive alternate grounds to find the case exceptional.  Perhaps, in light of an extremely objectively baseless position, these facts could support bad faith under Eon- Net.  However, as detailed below, the Court finds the position was not objectively baseless”.  Network Signatures has filed over 60 suits since July 2006, typically alleging that the defendants’ websites infringe a patent related to network authentication using SSL encryption.  Network Signatures has reached settlements with a number of companies including Ace Hardware, Bank of America, Lowe’s Home Improvement Centers, Morgan Stanley & Co., and The Bank of New York Mellon Companies.  The patent-in-suit was issued to the US Navy in 1996, and the US Navy entered into an exclusive license agreement with Metrix Services in 2004.  Metrix Services transferred its entire right, title, and interest to Network Signatures in 2006.  6/13, Central District of California, Judge James V. Selna, 8:2011cv00982.

June 21, 2012 – Judge James V. Selna of the Central District of California granted defendant State Farm‘s motion for summary judgment that plaintiff Network Signatures’ asserted patent is unenforceable.  The judge held US Patent No. 5,511,122 unenforceable for inequitable conduct after the prosecution counsel “intentionally misled” the PTO by claiming the patentee unintentionally failed to pay the patent’s maintenance fees when, in fact, there “is no dispute that [assignee] deliberately decided to abandon . . . the patent.”  The judge found that Network Signature’s counsel “knew that the [asserted] patent had been abandoned as a result of a deliberate decision of the [assignee],” and because of this concluded that the “[prosecution counsel] knew that this information was material to the PTO’s decision [to revive the patent] . . . [and] also knew that the unadorned statement of unintentionality would normally be accepted on his duty of candor.  The Court concluded that the [prosecution counsel] knew the [patentee's expression of interest in licensing the patent after it had been abandoned] would be tantamount to inequitable conduct rendering Network Signature’s patent unenforceable.  A patent owner is required to pay maintenance fees (that differ for small and large entities) at 3.5, 7.5, and 11.5 years after issuance with a six month grace period for each that requires only a $130 surcharge.  If the patent owner fails to pay the fee within the six month grace period, the patent expires.  However, a patent owner may revive a patent for delay in payment under 37 CFR 1.378(c) after paying a fee and making a statement that the failure to pay was unintentional.  Quite often, this is all that is required.  Network Signatures has filed over 60 suits since July 2006, typically alleging that the defendants’ websites infringe a patent related to network authentication using SSL encryption.  Network Signatures has reached settlements with a number of companies including Ace Hardware, Bank of America, Lowe’s Home Improvement Centers, Morgan Stanley & Co., and The Bank of New York Mellon Companies.  The patent-in-suit was issued to the US Navy in 1996, and the US Navy entered into an exclusive license agreement with Metrix Services in 2004.  Metrix Services transferred its entire right, title, and interest to Network Signatures in 2006.  6/13, Central District of California, Judge James V. Selna, 8:2011cv00982.