Federal Circuit Affirms Amazon Fee Award in Case Gutted by Claim Construction Order

January 10, 2021

The Federal Circuit has just upheld an attorney fees award for Amazon in litigation brought by Virginia Innovation Sciences, Inc. (VIS). Ruling on January 5, the appellate court agreed that the case became “exceptional” under Octane after a Markman order destroyed the NPE’s remaining claims, faulting the plaintiff for pushing ahead afterward without a viable infringement theory. Along the way, the Federal Circuit also more broadly clarified the significance of summary affirmances under Rule 36, explaining that a decision to uphold a ruling without providing an opinion is not a reflection of whether a case was “close, frivolous, or noncontroversial”.

The underlying campaign has spanned two districts and has taken multiple trips to and from the Federal Circuit since its launch over ten years ago, with two distinct iterations of the plaintiff suing Amazon and other defendants. The original plaintiff, VIS, added Amazon to the first leg of the campaign with a July 2016 complaint filed in the Eastern District of Virginia (1:16-cv-00861), the one addressed by the Federal Circuit in its January 2021 attorney fees decision. That plaintiff then filed a smaller, overlapping complaint against Amazon in that same venue in August 2017. However, subsequent litigation in the campaign—including two additional suits against Amazon—occurred in the Eastern District of Texas. Initial plaintiff VIS was merged into a Texas successor entity, Innovation Sciences, LLC, controlled by the same individual, Anne Wong (a/k/a Tiehong Wang), one of the asserted patents’ named inventors. That shift, as detailed in prior RPX coverage, triggered a related battle over multiple defendants’ request to transfer Texas the cases back to Virginia, with some movants arguing that Wong’s relocation to Texas and VIS’s merger into the new Texas entity was a deliberate attempt to manipulate venue and defeat any convenience transfer.

Meanwhile, the NPE’s first Virginia case against Amazon hit the first of multiple substantive speedbumps in January 2017, when District Judge Liam O’Grady ruled that all eight patents asserted in VIS’s initial complaint (7,899,492; 8,050,711; 8,903,451; 8,948,814; 9,118,794; 8,712,471; 9,286,853; 9,355,611)—each belonging to a 46-patent family broadly pertaining to signal conversion for external displays—are directed to patent-ineligible subject matter. More specifically, Judge O’Grady concluded that under Alice, the patents are drawn to the abstract idea of “sending video from a mobile device to a different screen” without reciting additional elements that render them patent-eligible—observing that the asserted patent family’s “sweeping universe of preemption is its downfall”. The Federal Circuit summarily affirmed that decision in April 2018.

Claim construction then proceeded for three additional patents added by VIS via amended complaint one week later (8,135,398; 9,369,844; RE46,140). In August 2018, the court issued a Markman order resolving disputes over 11 terms from those patents, in part construing the ‘398 patent in a manner that undermined VIS’s infringement claims, holding that VIS’s proposed constructions as to the ‘844 patent “runs contrary to the overwhelming thrust of the patent”, and ruling that the ‘140 patent “lacked detail concerning a term that was directly related to whether the patent was eligible under § 101” (as later summarized by the court). VIS stipulated to noninfringement of the ‘844 patent, and Judge O’Grady then heard the parties’ summary judgment motions, ruling for Amazon on noninfringement of the ‘398 patent and invalidating the ‘140 patent based on the Markman order.

Ruling on appeal of that decision in July 2019, the Federal Circuit affirmed as to the ‘398 and ‘140 patents and affirmed all but one of the disputed constructions for the ‘844 patent. The appellate court vacated and remanded the stipulated judgment of infringement for that last patent, confirming that VIS had failed to articulate a viable infringement theory but concluding that it was “left with no choice but to remand” because the stipulation did not specify which of the appealed constructions had been dispositive. The parties then stipulated to the full dismissal of the lawsuit in November 2019. Following that dismissal, the court initially declined to consider Amazon’s motion for attorney fees under Octane, as appeals were not yet exhausted, but then ruled on the company’s renewed motion in February 2020 after VIS’s Supreme Court certiorari window had closed.

In that order, Judge O’Grady held that Amazon had shown the case was exceptional under the Supreme Court’s Octane decision, which provides that “an infringement lawsuit which was substantively weak when it was filed can become exceptional when claim construction renders the claims therein baseless” (citation omitted). VIS’s case was substantively weak before claim construction, held Judge O’Grady, given that the majority of the patents ultimately fell due to Alice. However, he also determined that the case had not been “baseless” until the claim construction hearing, since before that point the defendant had not challenged the eligibility of the ‘398 and ‘844 patents and because an initial Alice motion against the ‘140 patent had not succeeded.

Judge O’Grady then proceeded to detail how each remaining claim had been rendered baseless after the Markman hearing. In particular, he pointed out that the court’s claim construction order put VIS on notice that the ‘140 patent “was legally insufficient either as patent ineligible subject matter or because it lacked a written description”, with the patent’s ultimate invalidation under Alice a “clear and necessary consequence of the claim construction”. As a result, the court found that VIS’s continued assertion of the patent “after the Markman order issued was unreasonable”.

Judge O’Grady reached the same conclusion for the other two patents as well, first faulting VIS for pursuing “two meritless arguments” precluded by the court’s Markman order “in an attempt to relitigate” its claim asserting the ‘398 patent. In particular, he noted that NPE explicitly declined to identify an “external source” for certain “multimedia content items” as required by the court’s construction of that patent. Moreover, despite the court’s holding that a “multimedia content item” must be in the same format received from the source, VIS “continued to rely upon an infringement theory in which the format differed from that of the source”. This disparity rendered the NPE’s positions on that patent “both substantively weak and unreasonable”. As for the ‘844 patent, Judge O’Grady noted that “the Markman order cast significant doubt on the patent's validity under 35 U.S.C. § 112”, further faulting the plaintiff for its inability to provide a viable infringement theory on appeal and for unnecessarily prolonging that appeal by providing an unclear stipulation of dismissal.

The case having become “exceptional” after the court’s claim construction order, Judge O’Grady then proceeded to determine “reasonable attorney fees” under Section 285. After finding no fault with Amazon’s accounting of its attorneys’ hourly billing, the court concluded by awarding $722.7K in attorney fees for work performed after claim construction.

The Federal Circuit agreed with the district court in its January 5 ruling on appeal (2020-1639), declining to find that Judge O’Grady had abused his discretion as asserted by VIS. Rather, the Federal Circuit found that the court had properly considered the “totality of the circumstances”, having identified two independent bases for the court’s exceptionality ruling: first, its proper reliance on its earlier Alice ruling in determining that the case was “weak at inception”; and second, its consideration of the effect of the Markman order on the remaining claims. “On this record, we find no abuse of discretion in the district court’s conclusion that ‘[VIS’s] litigation positions were so substantively weak after the claim construction occurred that this case stands out from others’”.

Before concluding, however, the Federal Circuit took the opportunity to weigh in on the issue of summary affirmances under Rule 36, which was not directly at issue in this case but has been a point of contention in the debate over how the court has handled Section 101 rulings. The Federal Circuit did so here by highlighting the defendant’s characterization of its earlier Alice affirmance, which stated that the Federal Circuit found the district court’s “ruling uncontroversial enough to merit summary affirmance under Federal Circuit Rule 36”. While noting that the issue had indeed not been close in this particular case, the court cautioned against the broader reading of a Rule 36 affirmance as a comment on the merits of a case, stating that it “categorically rejects” the implied argument “that an affirmance by this court under Federal Circuit Rule 36 provides any information about whether a case was close, frivolous, or noncontroversial”. Rather, the court explained that a Rule 36 affirmance merely means that a lower court’s judgment had been correct. “In essence”, the Federal Circuit concluded, “the rule embodies a recognition of the reality that not every case has precedential value, and, especially in the context of Rule 36, not every case requires an opinion”.

More coverage of this campaign’s various twists and turns can be found elsewhere on RPX Insight, including Judge O’Grady’s October 2019 transfer ruling (see here) and a dispute over standing in the campaign’s Texas leg (see here).