Gonzalez v. Tagged, Inc.

Filing 54

ORDER by Judge Yvonne Gonzalez Rogers denying 49 Tagged Inc.'s Motion for Attorney Fees. (fs, COURT STAFF) (Filed on 8/17/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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EMMANUEL C. GONZALEZ,
Plaintiff,

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v.

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United States District Court
Northern District of California

ORDER DENYING TAGGED, INC.’S MOTION
FOR ATTORNEY’S FEES

TAGGED, INC.,
Defendant.

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Case No. 16-CV-00574-YGR

Re: Dkt. No. 49

On June 14, 2016, the Court granted defendant Tagged, Inc.’s (“Tagged”) Motion for

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Summary Judgment on 35 U.S.C. section 101 grounds on the basis of collateral estoppel in this

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patent infringement suit brought by Plaintiff Emmanuel C. Gonzalez (“Gonzalez”). (Dkt. No. 44.)

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The Court also denied Gonzalez’s concurrent motion to stay the action. (Id.) Thereafter, Tagged

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filed the instant motion seeking attorneys’ fees pursuant to 35 U.S.C. section 285 and Federal Rule

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of Civil Procedure 54(d). (Dkt. No. 49 (“Mot.”) Defendant seeks fees in the amount of

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$253,040.00. Plaintiff opposes the motion. (Dkt. No. 50 (“Opp.”).)
Having carefully considered the papers submitted and the record in this case, and good

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cause shown, the Court hereby DENIES the motion.1
I.

LITIGATION HISTORY
Gonzalez originally filed this action against Tagged on October 22, 2014 in the Eastern

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District of Texas. See Case No. 14-cv-993-JRG-RSP (E.D. Tex.). Gonzalez alleged that Tagged

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directly infringed six claims in two patents: three claims of U.S. Patent Number 7,558,807 (the

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“‘807 patent”) and three claims of U.S. Patent Number 7,873,665 (the “‘665 patent”) (collectively,

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While not dispositive here, Tagged did not submit a declaration regarding any meet and
confer with Gonzalez’s counsel, as required by Civil Local Rule 54-5. Tagged’s failure to comply
with the Local Rules constitutes a separate basis for denial.

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the “Asserted Claims”). Tagged denied infringement and alleged that the Asserted Claims were

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invalid on Section 101 and Section 102 grounds, 35 U.S.C. sections 101 and 102. That court

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related this action to similar actions alleging infringement of the same asserted claims, including

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an action brought by plaintiff against New Life Ventures, Inc. (“NLV”). See Case No. 14-cv-907-

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JRG-RSP (E.D. Tex.) (the “NLV Action”). On February 17, 2015, Tagged filed a motion to

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transfer venue to the Northern District of California pursuant to 28 U.S.C. section 1404(a), which

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was granted on September 22, 2015.

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Following entry of the transfer order, but before administrative transfer to this Court,
Tagged and NLV filed a joint motion for summary judgment based on invalidity of the Asserted
Claims on Section 101 grounds. (NLV Action, Consolidated Dkt. No. 142.) On February 6, 2016,

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United States District Court
Northern District of California

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Texas Magistrate Judge Payne issued a report and recommendation on the joint summary

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judgment motion, recommending that Texas District Court Judge Gilstrap deny the same on

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Section 101 grounds. (Id. at Dkt. No. 160.) On February 11, 2016, following a trial, a Texas jury

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found infringement in Gonzalez’s favor and awarded $75,000. (Dkt. No. 40-3.) Then on February

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19, 2016, NLV objected to Magistrate Judge Payne’s recommended denial. (NLV Action, Dkt.

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No. 169.) In the interim, Tagged’s claims were transferred to this Court. On April 26, 2016,

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Judge Gilstrap agreed with NLV, vacating Judge Payne’s report and recommendation. (Id. at Dkt.

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No. 185, the “NLV Order.”) Specifically, the NLV Order found that the Asserted Claims were

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invalid on Section 101 grounds because they are not directed to patentable subject matter. (Id.)

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Gonzalez filed a motion to stay the proceedings on the same day the NLV Order issued

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(Dkt. No. 35.) Tagged then filed a motion for summary judgment, based in part on collateral

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estoppel given the preclusive effect of the NLV Order here with respect to invalidity of the

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Asserted Claims under Section 101. The Court denied Gonzalez’s motion for stay and granted

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summary judgment for Tagged. (Dkt. No. 44.)

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Gonzalez has filed sixteen (16) patent infringement lawsuits against various defendants

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and has reached licensing agreements with thirteen (13) of them in amounts ranging from $1,000

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to $100,000.

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//
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II.

LEGAL STANDARD
The Patent Act provides that “[t]he court in exceptional cases may award reasonable

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attorney fees to the prevailing party.” 35 U.S.C. § 285. An “‘exceptional’ case is simply one that

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stands out from others with respect to the substantive strength of a party’s litigating position

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(considering both the governing law and the facts of the case) or the unreasonable manner in

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which the case was litigated.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct.

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1749, 1756 (2014). A court may exercise discretion to determine what is “exceptional,” taking

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into account the totality of the circumstances, including such factors as evidence of bad faith

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litigation, objectively unreasonable positions, or improper conduct either before the Patent and
Trademark Office (“USPTO”) or the court. See id. at 1756-57. In short, courts award attorneys’

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United States District Court
Northern District of California

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fees under 35 U.S.C. section 285 “in the rare case in which a party’s unreasonable conduct—while

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not necessarily independently sanctionable—is nonetheless so ‘exceptional’ as to justify an award

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of fees.” Id. at 1757.

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III.

DISCUSSION

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Tagged argues that this is an exceptional case for two reasons: 1) Gonzalez’s litigating

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position was exceptionally weak; 2) and he litigated unreasonably. The Court considers these

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arguments in turn.

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A. Strength of Litigating Position
Tagged attempts to depict Gonzalez as a wholly unreasonable plaintiff who filed the

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lawsuits with the “goal of extracting nuisance-value settlements” despite his “exceptionally weak

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litigating position.” (Mot. at 13-14.) Specifically, Tagged argues that Gonzalez’s litigation

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position was exceptionally weak because: 1) his patents were facially invalid; 2) he admitted that

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he did not invent digital labels for websites; and 3) eBay was using the technology Gonzalez

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accused of infringement before he filed his patent application.

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Regarding the first argument, the Texas court did issue a ruling that Gonzalez’s patents

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were invalid under Section 101. However, this was only after the Texas magistrate judge issued a

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report and recommendation recommending that Tagged’s summary judgment motion brought on

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Section 101 grounds be denied (NLV Action Dkt. No 160), and after a Texas jury found
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infringement in Gonzalez’s favor and awarded $75,000 in damages. (Dkt. No. 40-3.) The

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magistrate judge’s report and recommendation and the jury’s verdict suggest that, at a minimum,

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Tagged’s lawsuit was not objectively unreasonable. Cf. Segan LLC v. Zynga Inc., 131 F. Supp. 3d

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956, 960 (N.D. Cal. 2015), appeal dismissed (Nov. 4, 2015) (attorneys’ fees granted where

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plaintiff’s lawsuit was “objectively baseless from the start” and it was “obvious” that plaintiff’s

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patent described an invention very different from defendant’s practice).

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Second, the parties dispute whether Gonzalez made misrepresentations to the USPTO on
the issues of whether he had invented digital labels and whether prior art existed at the time.

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Tagged argues that Gonzalez told the patent office that: 1) he had invented a “kind of labeling”

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that was already “common in commerce in physical form,” but had “not heretofore been used or

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Northern District of California

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proposed in digital form for websites,” and 2) there is “no prior art at all for website labels, much

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less digital website labels.” (Mot. at 4.) These statements, Tagged argues, are irreconcilable with

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Gonzalez’s statements during the litigation that he did not invent “single-parameter digital labeling

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of websites.” (Id. at 5.) Gonzalez counters that he disclosed a method for utilizing digital labels to

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the USPTO, and the case was not about who invented the digital label itself. (Dkt. No. 50 “Opp.)

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at 6.) Regarding the prior art quote, Gonzalez offers the remainder of his statement, which

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appears to clarify the characteristics of his purported invention. (Opp. at 7-8.) Given the dispute

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and ambiguity as to what these various statements mean, without more evidence, the Court is not

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convinced that Gonzalez acted improperly or in bad faith before the USPTO. Cf. Kilopass Tech.

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Inc. v. Sidense Corp., No. C 10-02066 SI, 2014 WL 3956703, at *10 (N.D. Cal. Aug. 12, 2014)

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(attorneys’ fees granted where plaintiff, among other misconduct, engaged in “gamesmanship” by

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taking directly contrary positions before the USPTO Board of Patent Appeals and the court).

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Third, with regard to Tagged’s argument that eBay’s website anticipated Gonzalez’s

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patents, a dispute of fact also exists. On the one hand, Tagged argues that a table showing the

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HTML code used in eBay’s website was excluded from the trial, and therefore the jury verdict in

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Gonzalez’s favor does not evidence a reasonable litigating position. On the other hand, Gonzalez

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contends that the Texas jury received other evidence and argument regarding the eBay prior art

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issue over the course of the trial, and therefore the jury’s decision supports the reasonableness of
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his position. In any event, this dispute does not invalidate the fact that the Texas magistrate judge

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decided in Gonzalez’s favor on summary judgment. Even if that decision was ultimately vacated,

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it evidences that Gonzalez’s position was not indefensible.

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At bottom, Tagged’s argument for attorneys’ fees is premised on Tagged’s ultimate

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success on its Section 101 arguments. Although Tagged ultimately prevailed in the patent case,

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that outcome alone does not warrant a finding that the case is exceptional.

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B. Reasonableness of Litigation
Tagged next argues that Gonzalez litigated the case in an unreasonable way that “stands
out” from others. (Mot. at 11-14.) Tagged bases this position on three main arguments. First,

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Tagged contends that Gonzalez acted unreasonably by continuing to prosecute the action after

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United States District Court
Northern District of California

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Tagged warned him at the outset that his claims lacked merit under Section 101 and Supreme

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Court precedent. However, given that the Texas magistrate judge considered both of these

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authorities in recommending that summary judgment against Gonzalez be denied (NLV Action,

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Dkt. No. 169), Tagged’s argument is unpersuasive. Cf. Borowski v. DePuy, a Div. of Boehringer

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Mannheim Co., 850 F.2d 297, 304 (7th Cir. 1988) (Rule 11 sanctions appropriate where counsel

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filed claims that had “no legal foundation” and a “cursory review of Illinois law would have

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revealed that the claim was meritless”).

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Second, Tagged repeats the argument that Gonzalez made a bad faith misrepresentation to

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the USPTO regarding what he invented. As discussed, supra, the record does not support such an

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inference.

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Third, Tagged argues that the licensing fee agreements Gonzalez entered into with thirteen

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of the sixteen defendants evidences that Gonzalez litigated in an unreasonable manner with the

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intent to extract “nuisance-value settlements.” (Mot. at 13.) Relatedly, Tagged argues that

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Gonzalez’s reliance on his attorney to select litigation targets evidences bad faith. However,

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Gonzalez’s lawsuits, licensing agreements, and reliance on his counsel’s advice alone do not

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evidence unreasonable litigation conduct. See SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344,

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1351-52 (Fed. Cir. 2015) (district court did not abuse its discretion in finding that plaintiff did not

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litigate in an unreasonable manner despite evidence that the plaintiff sued many defendants for
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infringement, dismissed its claims when faced with the prospect of trial, and frequently settled

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with defendants for relatively small amounts); cf. Kilopass, 2014 WL 3956703, at *14 (plaintiff’s

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litigation tactics were unreasonable where pre-filing investigation was inadequate, its infringement

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theories were “objectively baseless” and “exceptionally meritless,” it shifted theories late in

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litigation without following the proper amendment procedures, and it engaged in gamesmanship

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by simultaneously taking irreconcilable positions before the court and USPTO). In fact,

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Gonzalez’s decision to pursue a trial on the merits in the Texas case cuts against Tagged’s

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argument that it was only seeking nuisance-value settlements. See SFA Sys., LLC, 793 F.3d at

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1351. Without more evidence, the Court cannot find that Gonzalez’s actions amount to

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unreasonable litigation tactics.
The totality of the circumstances at issue here do not suggest that Gonzalez’s case is

United States District Court
Northern District of California

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exceptional either because the substantive strength of his litigating position was exceptionally

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weak or because he litigated the case unreasonably.

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IV.

CONCLUSION

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For the foregoing reasons, the Court DENIES defendant’s motion for attorneys’ fees.

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This Order terminates Docket Number 49.

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IT IS SO ORDERED.

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Dated: August 17, 2016
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YVONNE GONZALEZ ROGERS
UNITED STATES DISTRICT COURT JUDGE

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