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Summit Data Systems, LLC v. Emc Corporation

United States District Court, D. Delaware

September 25, 2014

SUMMIT DATA SYSTEMS, LLC, Plaintiff,
v.
EMC CORPORATION, BUFFALO TECHNOLOGY (USA), INC., D-LINK SYSTEMS, INC., HITACHI DATA SYSTEMS CORPORATION, NETAPP, INC., NETGEAR INC., and QNAP, INC., Defendants.

MEMORANDUM

GREGORY M. SLEET, District Judge.

I. INTRODUCTION

Plaintiff Summit Data Systems, LLC ("Summit") brought a patent infringement claim. against defendant NetApp, Inc. ("NetApp") and eight other defendants alleging infringement of U.S. Patent Nos. 7, 392, 291 and 7, 428, 581 (collectively, "the asserted patents").[1] (D.I. 1.) After settling its claims and dismissing the other defendants, Summit voluntarily dismissed its remaining claims against NetApp with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(2). (D.I. 234.) Before the court is NetApp's motion for attorneys' fees and costs pursuant to 35 U.S.C. § 285. (D.I. 236.) For the following reasons, the court will grant NetApp's motion and order Summit to pay attorneys' fees and costs.

II. BACKGROUND

Acacia Research Group ("Acacia") purchased the asserted patents in February 2010.[2] (D.I. 238, Ex. 6.) Acacia is a publicly traded patent licensing company, commonly referred to as a non-practicing entity. ( Id. Ex. 5.) Summit is a wholly owned subsidiary of Acacia and now holds title to the asserted patents. ( Id. Ex. 3 at 13, 66.) According to Summit, its "predecessor-in-interest"-i.e., Acacia-determined that several products on the market practiced one or more claims of the asserted patents. (D.I. 242 at 3.) In particular, Acacia believed that a NetApp server product, when used to form a network with a host computer running a Microsoft operating system, practiced the asserted claims. (D.I. 242 at 3-4.) After acquiring the asserted patents for itself, Summit engaged in a similar analysis and reached the same conclusion. ( Id. at 4 n.1)

On June 28, 2010, Summit entered into an agreement ("Licensing Agreement") with RPX, a computer industry "patent aggregator" that obtains patent licenses for the benefit of its member companies. (D.I. 237, Ex. 3 at 67; Ex. 8.) By being an RPX member, companies gain access to the large number of patents held or licensed by RPX. ·The Licensing Agreement between Summit and RPX covered the asserted patents and provided licenses to forty-three member companies, including, notably, Microsoft. ( Id. Ex. 8.) The Licensing Agreement also provided for a "Patent License Option, " allowing RPX to exercise an option at a later time to sublicense the patents to specified "Option Companies." ( Id. ) NetApp was one of four named Option Companies. ( Id. ) At no point, however, did RPX exercise the option for NetApp.

On September 1, 2010, Summit filed this action against NetApp and seven other defendants alleging infringement of the asserted patents. (D.I. 1.) The asserted patents, both titled "Architecture for Providing Block-Level Access over a Computer Network, " relate to data storage systems consisting of a host computer connected by a network to a storage server. (D.I. 1; D.I. 237 at 5.) The innovation claimed in the patents is the concurrent use of multiple logical connections between the host computer and the storage server. (D.I. 237 at 5.) The accused products are storage servers that operate within the claimed network systems; because the accused products only perform a portion of the claimed system, they cannot practice the asserted claims alone, making this an issue of induced infringement. ( Id. ) Only an end-user with a host computer practicing all the claimed elements directly infringes.

Shortly after Summit filed suit, Fujitsu and Netgear both avoided litigation by joining the Licensing Agreement, which provided them with a sublicense for the asserted patents. (D.I. 66; D.I. 134; D.I. 288.) After claim construction proceedings, Summit negotiated settlements with the remaining defendants. Summit dismissed Hitachi for $60, 000 (D.I. 238, Ex. 12), D-Link for $170, 000 ( Id. Ex. 13), and Buffalo for $150, 000 ( Id. Ex. 14.) After fact discovery, Summit dismissed Infortrend for $125, 000 ( Id. Ex. 15) and Qnap for $75, 000 ( Id. Ex. 16.)

On April 2, 2012, Summit for the first time disclosed the existence of the Licensing Agreement through discovery. (D.I. 242 at 5.) On October 5, 2012, NetApp informed Summit that the Licensing Agreement, according to its plain terms, licensed the asserted patents to Microsoft. (D.I. 238, Ex. 20.) As such, "no product sold by NetApp can be used in an infringing manner when the end user employs Microsoft's initiator software." ( Id. ) On October 10, 2012, Summit conceded that the Licensing Agreement precluded NetApp's infringement liability for products employing the Microsoft software: "We concur in your interpretation of the license agreement...." ( Id. Ex. 9.)

On November 9, 2012, Summit dismissed its claims against EMC with prejudice on the condition that EMC would not seek attorney's fees. (D.I. 222.) Summit also moved to dismiss NetApp with prejudice "with each party to bear its own costs and attorneys' fees." (D.I. 228.) NetApp objected to Summit's motion, wishing to seek attorneys' fees under 35 U.S.C. § 285. The court subsequently granted Summit's motion to dismiss its claims against NetApp with prejudice and allowed NetApp to seek attorneys' fees. (D.I. 234.) NetApp then filed the present motion for attorneys' fees on January 29, 2013. (D.I. 236.)

III. STANDARDOFREVIEW

Section 285 provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. The Supreme Court recently commented on § 285 and loosened the preexisting standard for what makes a case "exceptional." Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749 (2014). Under the previous standard outlined by the Federal Circuit, exceptionality could only be established in "two limited circumstances: when there has been some material inappropriate conduct, ' or when the litigation is both brought in subjective bad faith' and objectively baseless.'" Id. at 1752 (quoting Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (2005)). The prevailing party also had to prove exceptionality by clear and convincing evidence. Brooks Furniture, 393 F.3d at 1382. In Octane Fitness, however, the Court rejected the Federal Circuit's "rigid" approach, stating that it "impermissibly encumbers the statutory grant of discretion to district courts."[3] Octane Fitness, 134 S.Ct. at 1755.

In place of the strict formulation laid out by the Federal Circuit in Brooks Furniture, the Supreme Court imposed a rule offering broad discretion to district courts:

We hold, then, that an "exceptional" case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is "exceptional" in the ...

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