Order Granting Motion for Attorneys' Fees: Granting Motion in Part for Sanctions, Segan LLC v. Zynga Inc., Case No.14-cv-01315-VC (Judge Vince Chhabria)

We previously reported on the Segan v. Zynga case when Judge Chhabria granted Zynga's motion for summary judgement of non-infringement. Zynga, perhaps emboldened by the Supreme Court's decision last year in Octane Fitness LLC v. Icon Health & Fitness Inc., 134 S. Ct. 1749 (2014), then moved to recover its attorneys' fees, arguing that this was an "exceptional case" under 35 U.S.C. § 285. Judge Chhabria agreed. Zynga concurrently moved for sanctions against Segan's law firm. Judge Chhabria granted that motion as well, but only in part. He levied a sanction of $100,000 against Segan's law firm. In doing so, he sent a strong message to patentees that Rule 11 requirements are no mere game.

According to Judge Chhabria, there were several reasons why Segan's case was baseless and warranted an "exceptional" finding. Segan's patent claimed a system whereby a person interested in using a character icon to browse the Internet is enticed to visit particular "target websites" to receive icon "enhancements." After finding that the accused Zynga Farmville games (which run on Facebook) clearly did not infringe, Judge Chhabria likened Segan's claim construction positions to arguing that "the sky is the ground." He concluded that Segan's behavior was exceptional, even after noting that "in the world of patent law . . . lawyers and experts often take great liberties with words."

Zynga requested attorneys' fees of $1,188,773.93. Judge Chhabria granted the entirety of this fees request, over Segan's objection that the request is excessive.

Judge Chhabria then considered Zynga's motions for Rule 11 sanctions against Segan's law firm. He began by reiterating the rule that sanctions are warranted if (1) "the complaint is legally or factually baseless from an objective perspective," and (2) the attorneys failed to conduct "a reasonable and competent inquiry before signing and filing [the complaint]." On the first part, Judge Chhabria concluded that Segan's firm "at least engaged in the activities one would expect of a patent plaintiff's lawyers before filing suit." However, he also concluded that the claim construction positions taken by Segan's firm were not of the nature that a reasonable litigant could believe they would succeed.

Zynga requested sanctions for the full amount of its attorneys' fees, but Judge Chhabria instead held Segan's firm jointly and severally liable, with Segan, for $100,000. In arriving at this amount, Judge Chhabria reasoned that it was sufficient to deter future frivolous lawsuits, and that Segan's firm did not appear to act in bad faith.

This case should remind patentees and their counsel to take extra care in the post-Octane world to avoid bringing an "exceptionally" bad suit. Otherwise, the result may be a "game over" trifecta of summary judgment, attorneys' fees, and sanctions.

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