Patent Trolls Put on Notice Over Generic Infringement Letters
A young litigator uses an obscure federal rule to get a patent troll's suit tossed
Xenia P. Kobylarz
IP Law & Business
December 14, 2006
Quinn Emanuel's Melissa Baily
This summer, Melissa Baily convinced a judge to toss a patent case filed against her client, Flagstar Bancorp. It was Baily's first victory as lead counsel in a patent case, but that's only part of the story. The summary judgment ruling obtained by Baily, a sixth-year associate at Quinn Emanuel Urquhart Oliver & Hedges in San Francisco, did more than just strike a severe blow to Eon-Net, a notorious patent-holding company. The ruling also puts so-called patent trolls on notice: Sending out generic infringement letters may be a tactic on its way out.
Based in the British Virgin Islands, Eon-Net is run by an evangelical minister-cum-inventor, who holds several patents (including one on a device for collecting "canine waste"). In March 2005 the company filed a patent suit in New Jersey against Flagstar, a $16 billion savings bank based in Michigan. The bank was one of 32 companies sued separately by Eon-Net for infringing a patent that, the company claims, covers technology that allows online shoppers to enter information into Web sites and have it transferred to the Web retailer's computer. Eon-Net, which also has pending litigation against JetBlue Airways and Liz Claiborne Inc., had successfully extracted settlement money from ING Bank and Sony Corp. over the same patent.
Eon-Net's enforcement method involved filing a complaint followed by a letter offering a settlement ranging from $25,000 to $75,000. But Flagstar, which has never been sued before for patent infringement, refused to settle. "We are a bank, and we face a lot of potential litigation, and we know we are not infallible. But when we are faced with a completely frivolous litigation, our philosophy is to fight," says Flagstar's chief legal officer, Matthew Roslin. The bank did want to keep litigation costs down, however, so the longtime Quinn Emanuel client took something of a chance on Baily, a graduate of Harvard University Law School, with an undergraduate degree in chemistry from Stanford University. Baily has been involved in patent cases before, but only in supporting roles.
Baily knew what she had to do: Make the suit go away quickly and save her client money. One idea: consolidate the case along with other companies targeted by Eon-Net. At the time, Quinn Emanuel was representing two other defendants, CoolAnimal Stuff.com and Drugstore.com. That didn't work out. After successfully moving all three cases out of New Jersey to Seattle, CoolAnimal and Drugstore.com settled.
Baily moved on to Plan B. While investigating the case, she found that Eon-Net's attorney, Jean-Marc Zimmerman, a partner at Zimmerman, Levi & Korsinsky, had used nearly identical complaints and demand letters in all 32 suits. "It was obvious that the attorney didn't do a factual investigation before filing the complaint," Baily says. "He claimed the patent covers the processing of information, but he never bothered to find out what Flagstar actually does to process customer information and he failed to identify the infringing product."
Baily decided to ask Western District of Washington Judge Marsha Pechman to sanction Eon-Net under Federal Rule of Civil Procedure 11, which prohibits the filing of claims that are "frivolous." Such sanctions are rarely granted under 9th Circuit law, which does not consider a claim to be frivolous unless it is both baseless and made without a reasonable inquiry. Baily had to show that Eon-Net's complaints were frivolous and baseless. And to prove that prior to discovery was not easy.
In August, Pechman dismissed the case on summary judgment, saying that Eon-Net failed to present enough evidence of patent infringement against Flagstar. Then, in October, Pechman granted Flagstar's motion for Rule 11 and ordered Zimmerman and his firm to pay Flagstar's legal fees, which, according to Baily, were more than $100,000. Pechman also required Eon-Net to notify all the other defendants it has accused of infringing its patent of her ruling. So far, of the 32 patent cases Eon-Net has filed, 24 have settled and eight are still pending. JetBlue's lawyers at Kenyon & Kenyon had no comment on Pechman's ruling; other companies that settled before the ruling did not return calls for comment.
Zimmerman, Eon-Net's lead counsel in all of its patent suits, also did not return calls for comment. The company's founder, Mitchell Medina, a former New Jersey resident whose other patent-holding company, Millennium LP, sued more than 70 businesses in the 1990s for infringing its patent on latches and fasteners, is in Nairobi, Kenya, running an organization that promotes computer literacy, according to the New Jersey Star-Ledger.
As for Baily, she can't wait until her next patent case. "I'm only 28 years old," she says. "This is a pretty good experience."
AI
