Eon–net Lp v. Flagstar Bancorp

• Decision Date: 27 September 2011
• Docket Number: No. 2009–1308.,2009–1308.
• Citation: 653 F.3d 1314,99 U.S.P.Q.2d 1522
• Parties: EON–NET LP, Plaintiff/Sanctioned Party–Appellant,andZimmerman & Levi, L.L.P. and Jean–Marc Zimmerman, Sanctioned Parties–Appellants,v.FLAGSTAR BANCORP, Defendant–Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

653 F.3d 1314

99 U.S.P.Q.2d 1522

EON–NET LP, Plaintiff/Sanctioned Party–Appellant,andZimmerman & Levi, L.L.P. and Jean–Marc Zimmerman, Sanctioned Parties–Appellants,

v.FLAGSTAR BANCORP, Defendant–Appellee.

No. 2009–1308.

United States Court of Appeals, Federal Circuit.

July 29, 2011.Rehearing and Rehearing En Banc Denied Sept. 27, 2011.

Jean–Marc Zimmerman, Zimmerman, Levi & Korsinsky, LLP, of Westfield, NJ, argued for sanctioned party-appellant and sanctioned parties-appellants.Melissa J. Baily, Quinn Emanuel Urquhart & Sullivan, LLP, of San Francisco, CA, argued for defendant-appellee. Of counsel was Kevin A. Smith.Before LOURIE, MAYER, and O'MALLEY, Circuit Judges.LOURIE, Circuit Judge.

Eon–Net LP (“Eon–Net”), along with its counsel, Zimmerman & Levi, L.L.P. and Jean–Marc Zimmerman (collectively, “Zimmerman”), appeal from the final judgment of the United States District Court for the Western District of Washington in favor of Flagstar Bancorp (“Flagstar”). See Eon–Net LP v. Flagstar Bancorp, No. 2:05–CV–2129, Judgment (ECF No. 200) (W.D.Wash. Jun. 21, 2010) (“ Final Judgment ”). The judgment follows the district court's entry of the parties' stipulated order of noninfringement of Eon–Net's patents, specifically U.S. Patents 6,683,697 (“the '697 patent”), 7,075,673 (“the ' 673 patent”), and 7,184,162 (“the '162 patent”), Eon–Net LP v. Flagstar Bancorp, No. 2:05–CV–2129, Stipulation and Order (ECF No. 166) (W.D.Wash. Apr. 6, 2009) (“ Noninfringement Order ”), which the district court entered after it construed the claims of the asserted patents, Eon–Net LP v. Flagstar Bancorp, No. 2:05–CV–2129, Order on Claim Construction (ECF No. 162), 2009 WL 691131 (W.D.Wash. Mar. 4, 2009) (“ Claim Construction Opinion ”). After entering the stipulation, the district court also found the case to be exceptional under 35 U.S.C. § 285, Eon–Net LP v. Flagstar Bancorp, No. 2:05–CV–2129, Order (ECF No. 188) (W.D.Wash. Jan. 4, 2010) (“ Exceptional Case Order ”), and that Eon–Net and Zimmerman violated Federal Rule of Civil Procedure 11, Eon–Net LP v. Flagstar Bancorp, No. 2:05–CV–2129, Supplemental Order (ECF No. 195) (W.D.Wash. May 17, 2010) (“ Supplemental Order on Fees and Costs ”); Eon–Net LP v. Flagstar Bancorp, 239 F.R.D. 609 (W.D.Wash.2006) ( “ Rule 11 Sanctions Order ”). The district court awarded Flagstar $489,150.48 in attorney fees and costs pursuant to § 285 and $141,984.70 in sanctions for Eon–Net's and Zimmerman's violation of Rule 11. Supplemental Order on Fees and Costs, at 11.

Because the district court correctly construed the claims of the asserted patents, did not commit clear error in its exceptional case finding under 35 U.S.C. § 285, and did not abuse its discretion in invoking Rule 11 sanctions, we affirm.

Background

This patent case relates to document processing systems. Eon–Net owns the ' 697, '673, and '162 patents, which are part of a larger patent family that issued from continuation and divisional applications of a parent patent application filed in 1991 (the “Patent Portfolio”). The listed inventors include Mitchell Medina, Robert Leech, and Catherine Elias, and the inventors are principals of Eon–Net, which is one of a number of patent-holding companies formed to enforce various patents within the Patent Portfolio. Exceptional Case Order, at 1. The first five patents that issued were assigned to Eon–Net's companion corporation, Millennium L.P. (“Millennium”), the '697, '673, and '162 patents were assigned to Eon–Net, and subsequent patents were assigned to another related entity, Glory Licensing LLC (“Glory”). Id. at 1–2.

A. The Asserted Patents

The asserted patents are entitled “Information Processing Methodology” and disclose a system and method for inputting information from a document, storing certain portions of the inputted document information in memory according to content instructions, and formatting the stored document information for use by a computer program, effectuating a paperless office. Claim 1 of the '697 patent is representative of the claims on appeal, claiming a “multimode information processing system for inputting information from a document or file on a computer into at least one application program according to transmission format instructions.” Specifically, claim 1 reads:

1. A multimode information processing system for inputting information from a document or file on a computer into at least one application program according to customizable transmission format instructions, and to operate in at least one of:

a. a definition mode wherein content instructions are used to define input information from within said document or file required by said at least one application program; and

b. an extraction mode to parse at least a portion of said document or file to automatically extract at least one field of information required by said at least one application program and to transfer said at least one field of information to said at least one application program according to said customizable transmission format instructions.

'697 patent, col.15, ll.46–61 (emphases added). The claimed invention is directed to a “system for efficiently processing information originating from hard copy documents,” id. col.1 ll.15–17,¹ and Figure 1 of the written description shows a preferred embodiment where the document (100) is scanned into memory for processing by a computer that contains a number of application units that utilize the information obtained from the scanned document:

Image 1 (4.28" X 3.96") Available for Offline Print

In Figure 1, the scanner extracts information from a hard copy document and stores that information in either its memory (220) or the computer's main memory (250). Id. col.4 ll.55–67. The computer then reads the document information from either memory and selects portions of the document information according to content instructions, which define the portions of the document information that a particular application unit requires. Id. col.5 ll.8–15. After the computer has obtained the selected portions of the document, it formats the selected portions into the format required by a particular application unit according to transmission format instructions and creates an input file for use by the application unit. Id. col.5 ll.16–51.

The written description provides an example that more concretely describes the patented system. In the example, a small business can create electronic copies of its business records and use computer applications such as Quicken® to manipulate information contained in those hard copy documents. Id. col.14 l.53–col.15 l.5. In this example, the system first obtains information from hard copy business records using content instructions that indicate the portions of the documents that contain information that can be used by Quicken®, such as the portions of an invoice that contain the payee address or invoice amount. Id. col.5 ll.8–15, col.14 ll.53–63. The computer then formats the selected information into a format recognized by Quicken® and creates an input file that a user can open in the Quicken® application. Id. col.5 ll.16–51, col.14 ll.53–63. After launching Quicken® and opening the input file, the user can manipulate the information obtained from the hard copy documents to manage accounts, write checks, and prepare business records. Id. col.14 l.53–col.15 l.5.

B. The Litigation

The Patent Portfolio has a long litigation history, beginning in 1996. Exceptional Case Order, at 2. Between 1996 and 2001, Millennium filed four lawsuits asserting various claims of the Patent Portfolio. Id. at 2 n. 3. After 2001, Zimmerman began to represent Millennium as its litigation counsel, and, in the course of his representation, Zimmerman filed a large number of lawsuits alleging infringement of the Patent Portfolio. Id. at 3–4. By the time the district court found that Eon–Net's conduct presented an exceptional case under 35 U.S.C. § 285, Zimmerman had filed over 100 lawsuits on behalf of Eon–Net or its related entities asserting infringement of the Patent Portfolio. Id. at 2–4. Almost all of these cases resulted in early settlements or dismissals. Id. at 4.

Eon–Net sued Flagstar in 2005, alleging that the processing of information entered by customers on Flagstar's website infringed various claims of the ' 697 patent. Early in the case, Flagstar moved for summary judgment of noninfringement because it utilized document processing technology provided by Kofax Image Products, Inc., who held a license to the '697 patent. Id. At the same time, Flagstar filed a motion for sanctions pursuant to Federal Rule of Civil Procedure 11 on the basis that Eon–Net failed to investigate or identify allegedly infringing products and that Eon–Net asserted baseless infringement claims. Id. at 5. The district court granted both motions, concluding that the written description limited the asserted claims to processing information originating from a hard copy document, that Eon–Net's position that the claims covered the processing of information entered on a website was baseless, and that Eon–Net failed to investigate or identify allegedly infringing products prior to filing suit. Id. at 4–7. The district court accordingly assessed attorney fees and costs against Eon–Net and Zimmerman for their violation of Rule 11. Id. at 5; see also Eon–Net LP v. Flagstar Bancorp, No. 2:05–CV–2129, 2006 WL 3749903, Judgment by Court (ECF No. 89) (W.D.Wash. Dec. 19, 2006).

Eon–Net and Zimmerman appealed. On appeal, we vacated and remanded both the summary judgment ruling and the imposition of sanctions because the district court failed to afford Eon–Net notice and the opportunity to present its infringement and claim construction arguments during the briefing on the motions. Eon–Net LP v. Flagstar Bancorp, 249 Fed.Appx. 189, 198 (Fed.Cir.2007) (“ Eon–Net I ”). Without a full claim construction analysis, including a consideration of Eon–Net's claim construction argum...