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Gust, Inc. v. AlphaCap Ventures, LLC

Fed Cir Reverses Order Holding Contingency Attorneys Liable for Fees and Costs

Gust, Inc. v. AlphaCap Ventures, LLC905 F.3d 1321 (Fed. Cir. Sept. 28, 2018) (Wallach (dissenting), LINN, Hughes) (S.D.N.Y.: Cote) (3 of 5 stars)

Fed Cir reverses district court’s order holding contingency attorneys Gutride Safier LLP jointly and severally liable for Gust’s attorneys’ fees and costs in a § 285 exceptional case. Applying Second Circuit law, the district court abused its discretion in invoking 28 U.S.C. § 1927 to sanction Gutride. Gutride’s contention that AlphaCap’s claims (which related to managing “resource consumer information”) were patent-eligible was at least colorable. Citing precedent from other regional circuits, opinion rejects the notion that Gutride’s filing of the complaint for AlphaCap, without more, could support a § 1927 sanction. And though Gutride filed AlphaCap’s complaint post-Alice, the opinion reasons that the law of patent-eligibility remained “unsettled” during AlphaCap’s litigation (which ran from mid-2015 through early-2016). “The district court’s conclusion that Gutride’s eligibility position lacked color was built on improper hindsight as to the state of the law and a conclusory analysis of the claims at issue.” 905 F.3d at 1330.

The district court also abused its discretion by concluding that Gutride acted in bad faith throughout the litigation. The opinion discusses, and rejects, each of the district court’s three bases for finding bad faith: (1) that Gutride filed multiple cases in close proximity, notwithstanding Alice, (2) that Gutride opposed (unsuccessfully) transfer from EDTX to SDNY, and (3) that Gutride did not end the case via settlement, dismissal, or a covenant not to sue. On the record, and in view of the state of the law throughout Gutride’s prosecution of the case, the opinion describes how the district court erred in finding that Gutride conducted itself in bad faith.

Dissent: Judge Wallach “cannot say that any of the District Court’s findings were based on an erroneous assessment of the law or evidence.” 905 F.3d at 1335. Noting the high standard applied when seeking “abuse of discretion,” he would have affirmed the district court’s order.

KEYWORDS: ATTORNEYS’ FEES; SANCTION; SECTION 1927