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Exceptional Case Less Severe Sanction Than Rule 11

Posted by James Juo | Feb 17, 2023 | 0 Comments

Under the Federal Rules of Civil Procedure, a court may grant Rule 11 sanctions when one improperly certifies a document filed with the court that (1) “is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation”; (2) “the claims, defenses, and other legal contentions are warranted by existing law”; (3) “the factual contentions have evidentiary support”; and (4) “the denials of factual contentions are warranted on the evidence or, if specifically identified, are reasonably based on belief or a lack of information.”

Rule 11, however, also provides a safe harbor—the offending party has 21 days after being served with a Rule 11 motion to correct the violation. But Rule 11 does not necessarily insulate a party from sanctions under different statutory authority, such an exceptional case under 35 U.S.C. § 285, for the same violation.

Under 35 U.S.C. § 285, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” An exceptional case is one that stands out from others. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014). To receive attorney's fees under Section 285, one must be a prevailing party and the case must be exceptional.

Too Slow to Dismiss

In ZT IP, LLC v. VMware, Inc., No. 3:22-cv-00970, 2023 WL 1785769 (N.D. Tex. Feb. 6, 2023), the plaintiff was sanctioned for not withdrawing a claim of patent infringement quickly enough.

ZT filed its complaint on May 2, 2022. A month later, on June 1, 2022, both parties conducted a conference in which VMware alerted ZT to the fact that ESX 1.5 was commercially released over a year before the '583 patent's priority date. ZT does not dispute that VMware's in-house counsel presented documents (as well as public links) showing the commercial release date and explained that VMware removed the service console in 2010. [After ZT] failed to show up to [a follow-up] meeting, VMware's in-house counsel wrote ZT to inform it [again] the publicly available information regarding the release date of ESX 1.5. ZT did not respond to this, nor did it respond to another letter that VMware wrote it five days later, on June 13, that again explained how ZT lacked a good-faith basis to bring the claim and that VMware would pursue recovery of fees and costs if ZT did not dismiss the suit.


          On June 21, VMware served ZT with a draft of its Rule 11 motion. ZT still did not dismiss the case. On July 8, VMware filed its motion to dismiss, and ZT did not respond. Five days later, on July 13, VMware requested a meet and confer in advance of filing its Rule 11 motion, and though ZT did not initially respond, it finally did—breaking six weeks of silence—and the two parties agreed to meet and confer on July 18. ZT does not dispute what occurred at the meeting nor does it dispute its counsel's use of expletives directed at VMware during the conference. ZT dismissed its complaint with prejudice less than thirty minutes after the conclusion of the call.

The Court found that these undisputed facts showing that “ZT had ample opportunities to recognize the frivolousness of its position” which underlines the exceptional nature of this case. VMware had provided all the information for ZT to quickly realize that it had no claim and the Court found that ZT “should have dropped the suit before any of the parties spent unnecessary fees.”

ZT did not need to spend weeks to realize that what VMware told it and showed it was true. The half-hour that elapsed between the final conference call and ZT's filing of its dismissal underscores the simplicity of the resolution. ZT did not need all the time it took. ZT did not need to avoid responding to VMware. ZT needed to conduct an adequate pre-filing investigation and act diligently when it became aware that its investigation was inadequate. The Court does not require perfection of pleadings, but it demands diligence on the part of the parties.

The court also noted that ZT and its counsel previously had been sanctioned in PEM, LLC v. SOTI Inc., No. 2:18-CV-00156-JRG, 2020 WL 555545 (E.D. Tex. Feb. 4, 2020) (“Even the most cursory of such investigations would have revealed the grounds for invalidity and unenforceability SOTI now asserts.”), aff'd, 837 F. App'x 773 (Fed. Cir. 2020); for having conducted no pre-filing investigation into the validity or enforceability of that patent-in-suit.

VMware filed a motion for Rule 11 sanctions (even though the dismissal was filed a half-hour after a conference call between counsel, it was outside of the 21-day safe harbor), and a motion for attorneys' fees as an exceptional case under Section 285. The Court granted the motion for attorneys' fees for an exceptional case, but denied the Rule 11 motion for sanctions because, in seeking to impose the least severe sanction to deter future conduct, the Court found that its granting of the fees motion was sufficient to deter future conduct.

The Court, however, also reduced the amount of fees sought by VMware because “[t]he solution to ZT spending too little time investigating its case is not VMware's spending too much time after the case was dismissed.”

Thomas P. Howard, LLC litigates patents nationwide including in Colorado.

About the Author

James Juo

James Juo is an experienced intellectual property attorney. He has successfully litigated various intellectual property disputes involving patents, trademarks, copyrights, and trade secrets. He also has counseled clients on the scope and validity of patent and trademark rights.


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