Gust, Inc. v. AlphaCap Ventures, LLC et al. (Gutride Safier LLP)

Docket No. 2017-2414

September 28, 2018

Brief summary: DC award of fees under § 1927 (“baseless complaint”) against Gutride reversed.

Summary: Gutride (a law firm representing AlphaCap) appealed the DC’s “award of fees under 28 USC § 1927, making Gutride jointly and severally liable for all expenses incurred by Gust, Inc. in defending the instant lawsuit, including attorneys’ fees and costs.” AlphaCap hired Gutride on a contingency basis, and sued ten internet crowdfunding companies for” infringement of AlphaCap’s US 7,848,976; 7,908,208; and 8,433,630, and nine companies settled “leaving only Gust contesting infringement and validity.” The FC panel opinion includes “[a] timeline of relevant events” including issuance of SCOTUS’s Alice opinion in 2014, the filing of AlphaCap’s suit against Gust in 2015, the SDNY DC’s 2015 Kickstarter opinion finding “certain unrelated claims directed to crowdfunding invalid under § 101” (aff’d by the FC in 2016), Gust’s “formal settlement offer, explaining its § 101 invalidity position in view of Alice” and its DJ action in the SDNY DC, transfer of AlphaCap’s suit to the SDNY DC, dismissal of Gust’s and AlphaCap’s claims by the SDNY DC, SDNY’s award of fees to Gust under § 285 (finding the case “exceptional” since “Alice ‘gave AlphaCap clear notice that the AlphaCap Patents could not survive scrutiny under” § 101) and § 1927 (finding Gutride’s “actions were unreasonable and taken in bad faith…knowing that Alice doomed the claims”), and its denial of AlphaCap’s motion for reconsideration. The FC panel reviewed the § 1927 decision under the law of the Second Circuit (the regional circuit; Phonometrics, FC 2003), “requiring ‘sufficiently specific factual findings’ to avoid conclusory determinations by the” DC (“avoid hindsight and resolve all doubts in favor’ of the non-movant”). The FC panel explained that a DC can award fees under § 1927 if “(1) the claims were ‘entirely without color,’ and (2) ‘were brought in bad faith-that is, motivated by improper purposes such as harassment or delay’” (Advanced Magnetic, FC 2010). The FC panel agreed with Gutride that its conduct did not “support a § 1927 award” since it does not incude “a filing of a baseless complaint, which is properly analyzed under” FRCP 11 (“the failure to vet or investigate a claim cannot give rise to a § 1927 sanction”) and “AlphaCap’s position on patent eligibility was colorable, particularly given the relative paucity of § 101 cases that were decided” when the complaint was filed (“When the applicable law is unsettled, attorneys may not be sanctioned for making reasonable arguments for interpreting the law…and the [DC] did not compare the claims here to those at issue in Kickstarter.”) The FC panel also found the DC “abused its discretion by concluding that Gutride’s actions throughout the litigation constituted bad faith” (e.g., Gutride attorney statement “that the case was not worth litigating” an improper basis and “not evidence of Gutride’s knowledge that AlphaCap’s patents were invalid” (Q-Pharma, FC 2004), “§ 1927 is not the proper vehicle” to address § 285 concerns against AlphaCap by inferring “attorney bad faith”, “Gust’s opposition to transfer also does not support a conclusion of bad faith” as it was “undisputably subject to personal jurisdiction in” TX (TC Heartland, FC 2017), and “AlphaCap’s decision not to grant a covenant not to sue…is not evidence of Gutride’s bad faith”). Thus, the DC decision was reversed. Judge Wallach dissented, arguing the DC’s findings were not “based on an erroneous assessment of the law or evidence.”

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