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ANOTO AB v. SEKENDUR

August 22, 2005.

ANOTO AB, Plaintiff,
v.
ORAL F. SEKENDUR, Defendant.



The opinion of the court was delivered by: JAMES HOLDERMAN, District Judge

MEMORANDUM OPINION AND ORDER

Before this court is plaintiff Anoto's AB ("Anoto") Motion for Attorney's Fees under 35 U.S.C. § 285. (Dkt. No. 139.) Anoto, the prevailing party in this action, asks that pro se defendant Oral F. Sekendur ("Sekendur") pay Anoto's reasonable attorney's fees in this action. For the following reasons, and within the scope as explained below, the motion is granted.

BACKGROUND

  This case arises out of a four-count complaint filed by Anoto on July 8, 2003 against Sekendur. The complaint alleged tortious interference with existing and prospective business relationships in Count I and Lanham Act violations in Count II. Count III of the complaint requested a declaratory judgment that neither Anoto nor its licensed manufacturer have ever directly, contributorily, by inducement, or otherwise, infringed Sekendur's U.S. Patent No. 5,852,434 ("'434 patent") and that Sekendur's '434 patent be declared invalid for failure to comply with one or more federal laws or regulations. Finally, Count IV of Anoto's complaint requested a declaratory judgment that the '434 patent be declared invalid based on Sekendur's misuse of the patent. On July 23, 2003, Sekendur filed an answer and counterclaim. Sekendur alleged in his counterclaim that Anoto and six other entities infringed Sekendur's 434 patent.

  Count III of the complaint was resolved by summary judgment on October 22, 2004, (Dkt Nos. 133, 136) with this court granting Anoto's Motion for Summary Judgment of Noninfringement (Dkt. No. 75) and Anoto's Motion for Summary Judgment of Invalidity for Lack of Enablement (Dkt. No. 104). That summary judgment ruling also resolved Sekendur's counterclaim of infringement (Dkt. No. 32).

  ANALYSIS

  "The court in exceptional cases may award reasonable attorney fees to the prevailing party." 29 U.S.C. § 285. "Among the types of conduct which can form a basis for finding a case exceptional are . . . vexatious or unjustified litigation, and frivolous suit." Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989) (citations omitted).

  The standards of Federal Rule of Civil Procedure 11 can enlighten the determination of whether vexatious litigation has occurred. In upholding a finding of vexatious litigation, the Federal Circuit has explained:
Where, as here, the patentee is manifestly unreasonable in assessing infringement, while continuing to assert infringement in court, an inference is proper of bad faith, whether grounded in or denominated wrongful intent, recklessness, or gross negligence. The alternative, abuse of the courts through manifestly unreasonable lawsuits based on uninvestigated allegations, would constitute a blot on the escutcheon of the law and a violation of Rule 11, Fed.R.Civ.P.
Eltech Systems Corp. v. PPG Indus., 903 F.2d 805, 811 (Fed. Cir. 1990). In the context of Rule 11, the Federal Circuit has made clear what constitutes a "reasonable investigation" prior to filing a counterclaim of infringement. View Eng'g, Inc. v. Robotic Vision Sys., Inc., 208 F.3d 981, 986-67 (Fed. Cir. 2000). In View Engineering, the Federal Circuit found sanctionable conduct when the counterclaims were based "solely on [the inventor's] `belief . . . based on [his] knowledge of the [patents in suit, the accused infringer's] own advertising and its claims to customers as to what its machines did, and [his] knowledge and understanding of the technology required [in the field.]" Id. at 985-86. As the Federal Circuit explained, at a minimum, the party filing a counterclaim must undertake an infringement analysis "applying the claims of each and every patent that is being brought into the lawsuit to an accused device and conclud[ing] that there is a reasonable basis for a finding of infringement." Id. at 986.

  Sekendur has engaged in a "vexatious litigation strategy and other misconduct." Beckman Instruments, 892 F.2d at 1553. The court highlights below some of Sekendur's most egregious conduct, which, as Anoto has argued, can be summarized as (1) a lack of pre-suit investigation before filing a counterclaim, (2) an abuse of baselessly naming third parties in the counterclaim, (3) misrepresentations to this court, and (4) the filing of frivolous motions.

  Prior to the filing of Anoto's complaint on July 8, 2003, and no later than January of 2001 the parties were involved in some type of negotiations over the '434 patent. (Mot. Ex. 6.) The negotiations, however, were not successful. By the end of 2002 and the beginning of 2003 Sekendur was making veiled and explicit threats of litigation against both Anoto, and other companies based upon those companies business relationships with Anoto. For example, Sekendur sent out form e-mails to numerous corporations informing them that "the Anoto web site indicates that your company may have partnered with Anoto," and, that in Sekendur's opinion, "there may be a patent infringement issue with regard to your participation in this project" because Sekendur was the owner of the relevant "intellectual property." (Mot. Ex. 6.) These e-mails ended with the following warning: "Please contact me should you wish to discuss this matter and to avoid the expense of lengthy litigation." (Mot. Ex. 6.) Sekendur's threats were not always so veiled. At least twice, Sekendur directly threatened Anoto with litigation by e-mailing the following to Anoto: "[o]n Friday, November 22, 2002, I will be filing an infringement suit in Federal Court," (Dkt. No. 22); "[o]n or about March 1, 2003, I intend to take legal action against Anoto and all its partners for patent infringement," (Id.) Continuing his threats of litigation, Sekendur sent an offer for a licensing agreement to an executive at Anoto warning that Anoto's "project may not survive the cost of litigation" if Sekendur's terms for a license were not met. (Mot. Ex. 7.)

  This conduct is exactly the type of conduct that the Declaratory Judgment Act exists to remedy. As the Federal Circuit explained:
This [case] presents a type of the sad and saddening scenario that led to the enactment of the Declaratory Judgment Act (Act), 28 U.S.C. § 2201. In the patent version of that scenario, a patent owner engages in a danse macabre, brandishing a Damoclean threat with a sheathed sword. Guerilla-like, the patent owner attempts extrajudicial patent enforcement with scare-the-customer-and-run tactics that infect the competitive environment of the business community with uncertainty and insecurity. Before the Act, competitors victimized by that tactic were rendered helpless and immobile so long as the patent owner refused to grasp the nettle and sue. After the Act, those competitors were no longer restricted to an in terrorem choice between the incurrence of a growing potential liability for patent infringement and abandonment of their enterprises; they could clear the air by suing for a judgment that would settle the conflict of interests.
Arrowhead Indus. Water Inc. v. Ecolochem, Inc., 846 F.2d 731, 734-35 (Fed. Cir. 1988). Faced with the "in terrorem choice between the incurrence of a growing liability for patent infringement and abandonment of [its] enterprises" (Id.), Anoto began this lawsuit on July 8, 2003, seeking in part a declaratory judgment of non-infringement.
  On July 23, 2003, Sekendur filed a counterclaim for infringement. The counterclaim was one for infringement, pled not only against Anoto, but also against six new companies Sekendur sought to add to this litigation. Two aspects of this counterclaim support a finding of vexatious litigation. First, as Anoto has explained in detail in their memoranda before this court, Sekendur performed no reasonable inquiry regarding infringement. During his own deposition testimony, Sekendur confirmed that he never used, tested, or even plugged in any product that he accused of infringement, even though Anoto provide him with sample pen and paper products. (Mot. Ex. 1 at 620-22.) Sekendur also confirmed that even if he had tested the relevant products that he was "not qualified to determine infringement." (Id. at 218-19) (emphasis added). Even as the case progressed, Sekendur, proceeding in this action pro se, was still without any reasonable basis to determine infringement, as his own deposition testimony confirms:
Q. Do you believe Anoto is infringing the '434 patent today?
A. You know, I am not qualified to answer that. I'm not an attorney.
(Id. at 793.) In response to the pending motion, Sekendur now attempts to backpedal on his previous sworn deposition testimony by stating that he is a "competent inventor and is capable of understanding how Anoto technology works by taking apart and examining the Anoto device and the code." (Resp. at 12.) Sekendur also argues that he performed such inquiry with his expert, Oguz Alpoge ("Alpoge"), but the only support Sekendur cites to contradict his previously sworn deposition testimony are reports from Alpoge created after Sekendur filed his counterclaim. None of this evidence is relevant to whether Sekendur, at the time he filed his counterclaim, had performed a reasonable infringement inquiry. See e.g. Judin v. United States., 110 F.3d 780, 785 (Fed. Cir. 1997) ("Because Rule 11 is not about after-the-fact investigation, Judin and Van Der Wall's violation of Rule 11 was not cured by the fact that, after filing the complaint, Judin consulted with an expert and was able to make `colorable' arguments in response to a motion for summary judgment.").

  Sekendur in fact, admits, in his response to the pending motion, that he filed his "counterclaim without an extensive pre-suit investigation." (Resp. at 1-2.) He goes on to argue that the lack of extensive investigation was warranted by the time constraints of filing a counterclaim. Sekendur cites no law for the assertion that a time constraint relieves a party of the need to perform a reasonable inquiry into whether there is a basis for a counterclaim, but, just as importantly, Sekendur misstates the factual circumstances. Sekendur filed his counterclaim before he was served with Anoto's declaratory judgment complaint, and, therefore, before he was under any time constraint to file a counterclaim. As Anoto establishes, it sent Sekendur a courtesy copy of its Complaint along with a letter expressing Anoto's preference not to serve the Complaint until the parties met to discuss settlement. (Reply, Ex. 22.) Sekendur rebuffed the opportunity to discuss settlement, instead opting to file a counterclaim for which he can provide no evidence of a reasonable infringement inquiry.

  The second aspect of the counterclaim that supports a finding of vexatious litigation is that Sekendur added numerous defendants. With the counterclaim, Sekendur pled claims not only against Anoto, but also against six other defendants, all of whom Sekendur alleged were "infringing and have infringed, and contributed to and induced infringement of, one or more claims of the '434 patent." (Dkt. No. 3 ¶ 14.)*fn1 Many of these newly added defendants were the same companies that Sekendur had previously accused of infringement via e-mail because of their business dealings with Anoto. Sekendur attempts to defend bringing his counterclaim against the other entities on the basis that he never served them, and instead just opted to send them a letter notifying them of the lawsuit (Resp. 15). What Sekendur fails to understand is that a "scare-the-customer-and-run-tactic," Arrowhead Indus., 846 F.2d at 734-35, is not a substitute for the reasonable inquiry required by Rule 11. Filing baseless counterclaims against numerous parties is vexatious conduct that not only burdens the parties with unnecessary costs, but also burdens this court. The time this court spent ruling on the motions to dismiss engendered by Sekendur's baseless counterclaim against numerous defendants, (Dkt. Nos. 11, 12, 15, 19, 20, 34, 35, 36, 39, 40), was time this court could have devoted to other parties and litigants this court endeavors to ...


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