NexusCard, Inc. v. Brookshire Grocery Company
MEMORANDUM OPINION AND ORDER. Signed by Judge Rodney Gilstrap on 11/23/2016. (ch, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
BROOKSHIRE GROCERY COMPANY,
THE KROGER CO.
Case No. 2:15-cv-961-JRG
Case No. 2:15-cv-968-JRG
MEMORANDUM OPINION AND ORDER
Before the Court is the Motion to declare this case exceptional and as a result award
attorney’s fees (Dkt. No. 76, “the Motion”) as filed by Defendant Kroger Corporation (“Kroger”)
pursuant to 35 U.S.C. § 285. The Court, having considered the Motion, is of the opinion that the
motion should be DENIED.
On June 5, 2015, NexusCard brought this action against Kroger and three other
defendants alleging infringement of U.S. Patent No. 5,924,080 (“the ’080 Patent”) titled
“Computerized discount redemption system.” NexusCard is a non-practicing entity based in
Lake Forest, California and the owner by assignment of the ’080 patent. The ’080 patent
generally relates to a membership discount program. Claim 11 is representative of all claims of
the ’080 patent, which recites:
11. The method of processing and applying merchandise discounts to a consumer’s
purchases by providing a computerized membership system, said membership including a
plurality of consumer members, a plurality of point of purchase merchant members, a
plurality of manufacturer members, and a centralized system provider, said membership
a point of purchase merchant member computer terminal and computer and a centralized
provider’s computer, said provider’s computer having a database for the storage and
retrieval of information, said database storing information regarding point of purchase
merchant members, manufacturer members, and consumer members, in predetermined
files, at least some of said information being entered into the system at the time of a
member establishing membership in said system and
communication means, said communications means providing real time communication
between said member merchant's computer terminals and said provider’s computer,
comprising the steps of:
a. providing consumer members with individual identification codes, said identification
codes accessing said databases;
b. storing said consumer member identification codes on said provider’s computer in a
c. providing each consumer member with a membership ID, said membership ID having
memory storage means, said memory storage means containing at least said consumer
d. storing merchandise information provided by a manufacturer member in a
manufacturer member database in said provider’s, said merchandise information
including at least a merchandise identification code and the discount on
e. displaying to consumers indicia, said indicia identifying point of purchase
merchandise subject to a price discount,
f. transporting, by said consumer, consumer selected discounted and nondiscounted
merchandise a purchase location at said merchant member to form a collection of
transported merchandise, each of said transported merchandise having a merchandise
g. scanning merchandise identification codes of each of said transported merchandise, at
said communication means,
h. scanning said consumer ID,
i. uploading said scanned consumer identification code, from said merchant member,
through said communication means to said provider’s computer,
j. comparing said consumer identification code with consumer identification codes
stored in said provider’s computer and verifying said consumer’s membership,
k. uploading said merchandise identification code for each of said scanned merchandise
to said merchant member’s computer,
l. comparing at said merchant’s computer, said merchandise identification code for
consumer selected merchandise with the identification codes of said discounted
m. computing the discounts on said merchandise subject to a price discount,
n. uploading to said provider’s computer merchandise codes for merchandise subject to
a price discount,
o. downloading from said provider’s computer to said merchant's computer through said
merchant communication means, discounts on said merchandise subject to a price
p. printing at said merchant member’s computer terminal a sales slip for said member
consumer including the discounts for said merchandise subject to a price discount,
q. sorting and storing in said provider’s databases said downloaded data on said
consumer and said merchandise purchased by said a member consumer from a
member merchant, and
r. storing merchant member sales data on said merchant member computer, wherein
said provider maintains and processes, in real time, discounts provided by
manufacturer members to member consumers without said member merchant being
required to process said discounts or member consumers being required to present
coupons or file rebates to obtain said discounts.
NexusCard, Inc. v. Kroger Co., 173 F. Supp. 3d 462, 463–64 (E.D. Tex. 2016).
On July, 2, 2015, Kroger filed a Motion to Dismiss asserting that each claim of the
asserted patent was invalid under 35 U.S.C. § 101 for claiming non-patentable subject matter.
(“Kroger’s 101 Motion”). On April 6, 2016, prior to claim construction, the Court granted
Kroger’s 101 Motion. The Court held that under the two-step Mayo/Alice framework, claim 11
lacked subject matter eligibility because the claim (1) is directed to the abstract idea on a
membership discount program on a network and (2) lacks an inventive step. See id. at 467–68.
NexusCard has appealed this Court’s ruling to the Federal Circuit which is currently pending.
On April 27. 2016, Kroger timely filed the present Motion arguing that the Court should
deem this case exceptional under 35 U.S.C. § 285.
A court in exceptional cases may award reasonable attorney fees to the prevailing party.
35 U.S.C. § 285. “District courts may determine whether a case is ‘exceptional’ in the case-bycase exercise of their discretion, considering the totality of the circumstances.” Octane Fitness,
LLC v. ICON Health and Fitness, Inc., 134 S. Ct. 1749, 1756 (2014); see also Highmark Inc. v.
Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1748 (2014) (“[T]he determination whether a
case is ‘exceptional’ under § 285 is a matter of discretion.”). 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.” Octane Fitness, 134 S. Ct. at 1756. The movant must show
exceptionality by a preponderance of the evidence. Site Update Sols., LLC v. CBS Corp., 639
Fed. App’x 634, 636 (Fed. Cir. 2016)
Kroger argues that this case should be found “exceptional” under § 285 for two reasons:
(1) NexusCard’s case was objectively unreasonable; and (2) NexusCard litigated the case in an
unreasonable manner. The Court disagrees.
1. Objective Reasonableness
Kroger argues that the claims of the ’080 patent were facially invalid for being directed at
unpatentable subject matter under § 101.
According to Kroger, NexusCard’s case was
objectively unreasonable from the start. The crux of Kroger’s argument is that the invalidated
claims in this case are similar to the claims in eDekka which this Court characterized as
“demonstrably weak on [their] face.” eDekka, LLC v. 3Balls.com, Inc., No. 2:15-cv-00541-JRG,
2015 WL 9225038, at *2 (Dec. 17, 2015).
There is no precise test to determine the substantive strength of a litigant’s position and
when such position is objectively unreasonable. “A party's position on issues of law ultimately
need not be correct for them to not ‘stand out,’ or be found reasonable.” SFA Sys., LLC v.
Newegg Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015) (quoting Octane Fitness, 134 S. Ct. at 1756).
Even if a party's position is ultimately meritless, the question is whether it was “so meritless as to
‘stand out’ from the norm and, thus, be exceptional.” Id. (quoting Octane Fitness, 134 S. Ct. at
1756) “Since Octane, district courts tend to award fees based on substantive weakness when a
party fails to adduce any evidence to support its position or the party advances a position
conclusively contradicted by the evidence.” RLIS, Inc. v. Cerner Corp., 2015 WL 5178072, at *1
(S.D. Tex. Sept. 3, 2015) (Costa, J., sitting by designation).
As a threshold matter, the mere fact that the Court resolved the case at the pleadings
stage, prior to claim construction, “is not necessarily a judgment on the relative strength or
weakness of the patentee's litigation position.” Gametek LLC v. Zynga, Inc., No. CV 13-2546
RS, 2014 WL 4351414, at *3 (N.D. Cal. Sept. 2, 2014) (“Nowhere does Octane suggest a shift to
the ‘English Rule’ whereby a party who concludes a case on a pleading motion invariably gets
his or her fees.”)
Further, Kroger’s comparison of claim 11 to the invalid claim in eDekka is
misplaced. Not only could the claims of the ’674 patent at issue in eDekka be performed easily
by a human, but as counsel for eDekka acknowledged, the asserted claims did not even expressly
require a computer to be performed. eDekka LLC v. 3Balls.com, Inc., No. 2:15-CV-541 JRG,
2015 WL 5579840, at *4 (E.D. Tex. Sept. 21, 2015) (“The ’674 Patent generically refers to a
‘data structure,’ but does not require such structure to be limited to a computer. The claims are
not tied to a generic computer, let alone a specialized one.”); eDekka LLC v. 3balls.com, Inc.,
2015 WL 9225038, at *2. By contrast, neither is true here. The method recited in claim 11
cannot be performed easily by a human, and the claim recites many computer components, albeit
generic ones that fail to confer patent eligibility to the claim.
Unlike the claim in eDekka, claim 11 of the ’080 patent recites computer elements and
not simply the use of a computer. Such elements do not, in and of themselves, make claim 11
patent eligible, but they do distinguish claim 11 from the manifestly abstract claim at issue in
eDekka. Kroger has based its Motion on the premise that this case is compellingly similar to
eDekka. This comparison is not persuasive. The fact that the claims in eDekka did not even
recite computer components made the substantive weakness of eDekka’s position “stand out”
from other cases involving early § 101 challenges. Kroger has made no similar showing here.
Absent such a showing, in light of the presumption of validity and the ever-evolving landscape
of § 101 jurisprudence, the Court does not find that substantive weakness of NexusCard’s
litigation position “stands out” simply because the Court was able to conclude that the claims of
the asserted patent covered ineligible subject matter early in the litigation and prior to claim
2. Manner In Which The Case Was Litigated
Kroger also argues that NexusCard employed a litigation strategy designed to extract
nuisance settlements and avoid addressing the § 101 issue until after it had extracted cost-ofdefense settlements. The Court does not find Kroger’s argument to be persuasive.
The Court has wide discretion in determining whether a party litigated a case in an
unreasonable manner or in bad faith. Kroger argues that NexusCard’s refusal to allow the § 101
determination to be decided before the parties and the Court expended significant resources in
litigation contributed to the alleged exceptionality of this case. The Court is not persuaded that
such refusal makes this case exceptional. As a general matter, it is not the Court’s practice to
stay litigation pending a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). See
OrthoAccel Techs., Inc. v. Propel Orthodontics, LLC, No. 4:16-cv-350, 2016 WL 3747222, at *3
n.1 (E.D. Tex. July 13, 2016) (“As a general matter, the Court will not stay discovery because
there is a pending motion to dismiss.”). Indeed, if that were the case, Rule 12 motions would
provide a defendant with a license to delay litigation irrespective of the merits to such motions.
Put simply, Kroger’s requested stay was not relief this Court grants in the ordinary course.
Accordingly, NexusCard’s opposition to such a stay was neither exceptional nor unreasonable.
The same can be said of its refusal to agree to an unopposed stay in light of Kroger’s CBMR
petition. Kroger has put forward no evidence or argument to suggest why, in this regard, this
case is different from all other cases, which is its burden. Accordingly, the Court does not find
that NexusCard’s refusal to agree to such a stay was unreasonable.
Kroger’s continuing comparison to eDekka misses the mark. In eDekka, the Plaintiff
filed suit against over 200 defendants and made settlement offers as low as $3,000—an offer
dwarfed by the cost of briefing and presenting oral argument on a § 101 motion. Equally
important, many of these settlement offers were timed in a suspect way; the only reasonable
inference the Court could draw from such facts was that eDekka had no confidence in its position
and brought its case only to extract nuisance settlements. See eDekka, 2015 WL 9225038, at *4.
By contrast here, as Kroger admits, NexusCard’s litigation volume was “a fraction” of what was
at issue in eDekka. (Dkt. No. 76 at 11.) NexusCard’s settlement offers may have been below
the cost of litigating this case through claim construction, but they were not so low or timed in
such a way as to suggest that NexusCard only brought this litigation to extract nuisance
settlements. NexusCard explains that it offered discounted settlements to account for legal
uncertainties, notably the ever-evolving jurisprudence surrounding § 101. Whether true or not,
Kroger has not marshalled specific facts to adequately refute NexusCard’s explanation. See, e.g.,
eDekka, 2015 WL 9225038, at *4 (“[O]n September 8, 2015, just two days before the September
10, 2015 § 101 hearing, counsel for eDekka contacted numerous defendants with offers to settle
their cases for three-thousand dollars each. These offers represent extraordinarily low amounts.
Such offers remained open until they were withdrawn during the evening of September 9,
2015.”); Lumen View Tech., LLC v. Findthebest.com, Inc., 24 F. Supp. 3d 329, 333 (S.D.N.Y.
2014), aff'd, 811 F.3d 479 (Fed. Cir. 2016) (“Lumen’s attorney represented to FTB's attorney
that O’Connor had committed a hate crime under Ninth Circuit law by using the term ‘patent
troll.’ FTB's attorney contends that Lumen's attorney threatened to pursue criminal charges
unless FTB apologized, financially compensated Shapiro and Lumen's attorney, and settled the
litigation by paying Lumen a licensing fee in connection with the ’073 Patent. FTB’s attorney
claims that Lumen’s attorney stated that the offer was only good until the close of business that
day and that FTB should ‘act quickly.’”). Accordingly, absent such facts, Kroger has not
persuaded the Court that NexusCard has engaged in a pattern of litigation abuses or that it filed
the present suit intending to extract a nuisance settlement. Kroger has failed to carry its burden
in regard to this Motion.
The Court observes that the practice of seeking exceptional case status under § 285 is
fast becoming commonplace. In fact, it is well on its way becoming routine practice in any case
where one party prevails over the other on the merits. The Court is persuaded that such was
never the intention or the effect of the Supreme Court’s decision in Octane Fitness. The
burgeoning practice of seeking § 285 status whenever a party prevails raises real risks to the
public’s access to justice. As this Court observed in eDekka, “[a] finding of exceptionality is
something that this Court arrives at reluctantly, lest we unintentionally narrow the public's access
to the courts by chilling future decisions to seek redress for a case in which success is not
guaranteed.” eDekka, 2015 WL 9225038 at *5.
For the reasons stated above, the Court does not find this case exceptional.
Accordingly, Kroger’s Motion (Dkt. No. 76) is DENIED.
The Court ORDERS that Kroger, being the prevailing party, shall recover its costs.
The Clerk is instructed enter the Agreed Bill of Costs and that NexusCard pay the amount
identified in the Bill of Costs as follows: Kroger shall recover its costs in the amount of
$328.49 from NexusCard. (Dkt. No. 75.)
SIGNED this 19th day of December, 2011.
So ORDERED and SIGNED this 23rd day of November, 2016.
UNITED STATES DISTRICT JUDGE
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