In Realtime Adaptive Streaming LLC v. Sling TV, LLC, et al., 2024 U.S. App. LEXIS 21348 (Fed. Cir. Aug. 23, 2024), the Federal Circuit, in an opinion authored by Judge Alan D. Albright sitting by designation, vacated and remanded an award of attorneys’ fees to the defendants. Although the district court had determined the case was exceptional under 35 U.S.C. § 285 on the basis of six “red flags,” the Federal Circuit concluded that the red flags did not support an exceptional case finding and that the district court had abused its discretion.
Realtime Adaptive sued the defendants in the District of Colorado for infringement of three patents related to digital data compression: U.S. Patent Nos. 8,275,897 (“the ’897 patent”); 8,867,610 (“the ’610 patent”); and 8,934,535 (“the ’535 patent”). The district court denied the defendants’ Rule 12 motions to dismiss under 35 U.S.C. § 101 but stated it would rehear the motions after claim construction occurred. Subsequently, the district court granted summary judgment of invalidity under § 101. While the appeal of the summary judgment ruling was pending, the district court awarded the defendants attorneys’ fees under 35 U.S.C. § 285. During the time between the denial of the Rule 12 motions and the granting of the summary judgment motion, several events occurred in the district court case and in related litigation that the district court believed should have deterred Realtime Adaptive from continuing the district court case. Id. at *6.
Flag No. 1: In Realtime Adaptive Streaming LLC v. Google LLC, No. 2:18-cv-03629-GW-JC, Dkt. No. 36 (C.D. Cal. Oct. 25, 2018), the Central District of California found claims 15-30 of the ’535 patent invalid under 35 U.S.C. § 101. Two months later, in Realtime Adaptive Streaming LLC v. Netflix, Inc., No. 17-1692, 2018 U.S. Dist. LEXIS 209132, (D. Del. Dec. 12, 2018) the District of Delaware also found claim 15 of the ’535 patent invalid under 35 U.S.C. § 101. Realtime Adaptive, 2024 U.S. App. LEXIS 21348, at *3.
The Federal Circuit found that the district court did not err in determining that the Google and Netflix decisions were significant red flags to Realtime to reconsider its patent eligibility position of the asserted claims of the ’610 patent. Id. at *10.
Flag No. 2: In a case involving similar technology, Adaptive Streaming Inc. v. Netflix, Inc., 836 F. App’x 900 (Fed. Cir. 2020), the Federal Circuit “affirmed the ineligibility of claims directed to receiving a video signal in one format and broadcasting the signal to other devices in a different, more suitable format.” See Adaptive Streaming, 836 F. App’x at 901. The claims at issue in Adaptive Streaming included selecting the different format “based at least in part on” parameters for alternate formats and dynamically selecting a video signal with a different format “in response to a change in a bandwidth condition.” Id. at 901-02; Realtime Adaptive, 2024 U.S. App. LEXIS 21348, at *11.
The Federal Circuit found that Flag 2 should not have been treated as a red flag because, unlike Google and Netflix, Adaptive Streaming concerned entirely different technology. Without more, such as a side-by-side analysis of all limitations of a claim of the ’610 patent and the claims at issue in Adaptive Streaming, it could not be shown that Realtime’s patent infringement claim had been rendered exceptionally meritless. Id. at *12.
Flag No. 3: In January 2019, the district court issued its claim construction ruling. At that time, the ’535 and ’610 patents were subject to inter partes review (IPR) proceedings at the Patent Trial and Appeal Board (PTAB). In February 2019, the district court stayed the infringement litigation pending the IPR proceedings. One of those IPR proceedings resulted in claims 1-14 of the ’535 patent being found to be unpatentable on obviousness grounds. Realtime then withdrew its claims under the ’535 patent. Id. at *3-4.
The Federal Circuit found Flag 3 to be unpersuasive because the PTAB decisions addressed prior art issues and did not directly address the validity of the claimed invention under the Alice framework, making them less relevant to the question of subject-matter eligibility. At best, the two PTAB decisions establish that certain claim limitations were known in the prior art. Id. at *13.
Flag No. 4: Shortly after the stay was lifted in January 2021, the USPTO issued non-final office actions rejecting claim 1 of the ’610 patent as obvious as part of an ex parte reexamination.
The Federal Circuit found Flag 4 to be unpersuasive. While the office actions were directed to the same patents at issue, the Federal Circuit considered that the Examiner and the PTAB used the broadest reasonable interpretation standard and expressly rejected the district court’s claim construction in favor of a broader construction. As such, the district court failed to adequately explain how these USPTO decisions sufficed to support a finding of exceptionality. Id. at *15.
Flag No. 5: The district court found it notable that the defendants sent Realtime a letter conveying its belief that the ’610 patent was invalid and expressing its intention to seek attorneys’ fees should Realtime continue to press its case.
The Federal Circuit found Flag 5 to be unpersuasive because the district court gave undue weight to the defendants’ notice letter. The Federal Circuit noted that such letters are common in litigation and do not, by themselves, establish that a case is exceptional. The Federal Circuit reasoned that if such a notice letter were sufficient to trigger § 285, then every party would send such a letter setting forth its complaints at the early stages of litigation to ensure that—if it prevailed—it would be entitled to attorneys’ fees. Id. at *16.
Flag No. 6: With their summary judgment motion, the defendants submitted the expert declaration of Dr. Alan C. Bovik in support of their invalidity arguments.
The Federal Circuit found Flag 6 to be unpersuasive because the opinions of an opposing expert, while persuasive, do not necessarily render a case meritless. In this case, without at least an explanation for why Realtime and its expert did not show “serious consideration” of Dr. Bovik’s opinions, the district court’s analysis was insufficient to support a finding of exceptionality. Id. at 20.
This case serves as a reminder that the award of attorneys’ fees in patent litigation is a discretionary decision that requires a nuanced and fact-specific analysis. The failure to heed certain warning signs may not lead to an exceptional case finding if those warnings signs do not directly implicate the issues that the party seeking fees prevailed on. The Federal Circuit will not hesitate to overturn a fee award where the circumstances are insufficient to support a finding of exceptionality.
