Media Queue v. Netflix: Fees and Burdens in Patent Litigation

Guest Commentary

Robert T. Cruzen and John D. Vandenberg, Klarquist Sparkman, LLP*

For centuries, the U.S. Supreme Court has called patents “monopolies” and interpreted the Patent Act with one eye on the dark side of those “monopolies”—the risk that unworthy patents or misuse of worthy patents could harm innovation, competition, and the “public domain.”  Its recent patent rulings in KSR, Quanta, Medimmune, and eBay are no exception.  They all rejected Federal Circuit positions favoring the private interests of patent owners.

Now, businesses accused of patent infringement are trying to further tip the litigation playing field toward, they argue, a better balance between the interests of true inventors and the public domain.  For example, in i4i v. Microsoft Corp., the statute at issue is 35 U.S.C. § 282 (presumption of validity).  Microsoft and eleven sets of amici urge the Supreme Court to jettison the heightened “clear and convincing evidence” standard that the Federal Circuit mandates for all patent invalidity challenges, even those raising evidence never considered by the Patent Office, in favor of the customary “preponderance of the evidence” standard.

In Media Queue, LLC v. Netflix, Inc., et al., at issue is 35 U.S.C. § 285 (attorneys’ fees).  Recent Federal Circuit interpretations of Section 285 appear to favor patent owners:  successful patent owners may be awarded fees by showing that the defendant should have known that it was infringing the patent, while successful defendants must show that the plaintiff brought the suit in subjective bad faith.

In Media Queue, the trial court concluded at the claim construction stage that Netflix’s movie rental system did not perform an automatic “queue replenishment” element of the claimed method.  Netflix moved for fees and costs of about $1.1 million, arguing that the suit was objectively baseless.  Media Queue countered, in part, that its claims were brought in good faith.  The trial court concluded that Netflix had not established that the case was brought in bad faith, citing Brooks Furniture Manufacturing, Inc. v. Dutalier International, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005), for the standard that a successful defendant, to recover fees, must show inequitable conduct, “misconduct during litigation, vexatious or unjustified litigation, conduct that violated Fed. R. Civ. P. 11, or like infractions.”

On its cross-appeal (No. 2010-1199, 1344), Netflix argues that district courts should have discretion to award attorneys’ fees when a patent owner filed or maintained a lawsuit with an objectively low likelihood of success knowing or having reason to know that it was likely to lose.  Amici Amazon.com, Facebook, Microsoft, Oracle, Samsung, Toyota, and Yahoo! agree:

To establish that a case is “exceptional” under Section 285, it is sufficient to show by clear and convincing evidence that the patentee asserted or maintained some infringement claim or demanded some relief despite an objectively high likelihood that such assertion or demand was not justified by any valid patent claim, and this risk was either known or so obvious that it should have been known to the patentee.

*Mr. Cruzen and Mr. Vandenberg, partners in the firm’s Portland, Oregon office, authored the above-referenced amicus brief filed in the U.S. Court of Appeals for the Federal Circuit in Media Queue.