Acacia Subsidiary Hit For $1.4 Million in Attorneys’ Fees

A Delaware federal court has awarded just under $1.4 million in attorneys’ fees to NetApp, Inc., in a patent lawsuit filed by Summit Data Systems. (Hat Tip: the invaluable Docket Navigator) In a recently unsealed order, the court found Summit’s pursuit of its claim against NetApp to be “exceptional” under the rule announced by the Supreme Court last term in Octane Fitness v. ICON Health & Fitness. (The court did add a footnote that NetApp likely would have won under the older, more restrictive standard too.)

Summit is a wholly owned subsidiary of the publicly–traded “patent troll” Acacia Research Group. Both Acacia and Summit asserted that NetApp induced infringement of its patents when an end user created a network running a Microsoft operating system. The problem with that theory? Microsoft was an indispensable player in the infringement theory. And several months before filing suit, Summit had entered a licensing agreement with the “patent aggregator” RPX who acquired that license on behalf of Microsoft and some forty–odd other companies. Summit did not disclose the existence of the license to NetApp in discovery in the litigation for eighteen months. Then, reversing field shortly after disclosing the license, Summit agreed to dismiss its claims against NetApp with prejudice, but sought to prevent NetApp from seeking its fees. The district court allowed the dismissal to go through, but also allowed NetApp to petition for its fees.

In awarding fees to NetApp in this “exceptional case,” the court identified the following key factors. Summit filed suit without a factual basis for its infringement theory, given the existence of the license to Microsoft through RPX. Summit delayed disclosing the license for a year–and–a–half. In the meantime, Summit settled with co–defendants for a fraction of the cost of defense. Only after extracting these settlements did Summit voluntarily dismiss its remaining claims with prejudice, thereby avoiding a ruling on the merits. As a result of this pattern of conduct, Summit finds itself on the hook for $1.4 million in attorneys’ fees racked up by NetApp during the litigation. One can only assume an appeal will follow.