Internet Media Interactive Corp. v. Shopify Inc.

INTERNET MEDIA INTERACTIVE CORP., Plaintiff, v. SHOPIFY INC., Defendant.

C.A. No. 20-416 (MN)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

October 22, 2020

MEMORANDUM OPINION

George Pazuniak, O'KELLY & ERNST, LLC, Wilmington, DE - Attorneys for Plaintiff

Daniel M. Silver, Alexandra M. Joyce, MCCARTER & ENGLISH, LLP, Wilmington, DE; Mark Reiter, Y. Audrey Yang, GIBSON, DUNN & CRUTCHER LLP, Dallas, TX; Brian M. Buroker, GIBSON, DUNN & CRUTCHER LLP, Washington, DC - Attorneys for Defendant.

October 22, 2020

Wilmington, Delaware

NOREIKA, U.S. DISTRICT JUDGE:

Presently before the Court is the motion of Defendant Shopify Inc. ("Defendant" or "Shopify") for an award of attorneys' fees under 35 U.S.C. § 285. (See D.I. 17). For the reasons set forth below, Defendant's motion is DENIED.

I. BACKGROUND

On March 25, 2020, Plaintiff Internet Media Interactive Corp. ("Plaintiff") filed the present action, alleging that Defendant's provision of certain internet "advertisements" and links directly infringed claim 11 of U.S. Patent 6,049,835 ("the '835 Patent"). (D.I. 1 ¶ 26; see also id. ¶¶ 12-14). Shortly after this case was filed, the Court discovered that Plaintiff had failed to mark this case as related to many others filed in this District and others as required by Rule 3.1(b) of the Local Rules of Civil Practice and Procedure of the United States District Court for the District of Delaware ("the Local Rules"). As such, on April 2, 2020, this Court issued an order for Plaintiff's counsel to show cause as to why it should not be sanctioned for the failure to comply with the requirements of Local Rule 3.1(b). (See D.I. 6). Plaintiff filed an amended civil cover sheet the next day and, on April 6, 2020, Plaintiff's counsel responded to the show-cause order, explaining that he failed to comply with Local Rule 3.1(b) because he followed the instructions on the form Civil Cover Sheet (JS 44), which only mentions listing pending cases.¹ (See D.I. 10). Then, on April 11, 2020, Plaintiff filed a stipulation to extend the time for Defendant to file an Answer to May 29, 2020. (D.I. 11). On May 29, 2020, Plaintiff filed a notice of voluntary dismissal with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). (D.I. 15). Prior to thisdismissal, the only docket activity on the part of Defendant was its Delaware counsel entering an appearance and filing several pro hac vice motions. (See D.I. 12, 13 & 14).

On June 12, 2020, Defendant filed the present motion seeking more than $45,000 in attorneys' fees under § 285. (See D.I. 17; see also D.I. 18 & 19). Briefing on Defendant's motion under was completed on July 17, 2020. (See D.I. 20 & 21).

II. LEGAL STANDARD

Section 285 of the Patent Act provides that a "court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. An exceptional case within the meaning of the statute is "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, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014). Whether a case is exceptional is a question committed to the Court's discretion, and the Court must consider the totality of the circumstances in reaching its conclusion. Id. In assessing the totality of the circumstances, the Court may consider, inter alia, "frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence." Id. at 554 n.6. A party seeking attorneys' fees must show the case is exceptional by a preponderance of the evidence. Id. at 557-58. The Court may award attorneys' fees in "the rare case in which a party's unreasonable conduct - while not necessarily independently sanctionable - is nonetheless so 'exceptional' as to justify an award of fees." Id. at 555.

III. DISCUSSION

Before reaching the substance of Defendant's arguments on exceptionality, the Court must first address a threshold issue - i.e., whether Defendant was a prevailing party in this case.

A. Prevailing Party Under § 285

Section 285 provides that the Court may award reasonable attorneys' fees in exceptional cases to the prevailing party. As the Supreme Court has explained, "the touchstone of the prevailing party inquiry must be the material alteration of the legal relationship of the parties." CRST Van Expedited, Inc. v. E.E.O.C., 136 S. Ct. 1642, 1646 (2016) (internal quotation marks and citation omitted); see also Raniere v. Microsoft Corp., 887 F.3d 1298, 1306 (Fed. Cir. 2018) ("We hold CRST applies to our analysis of prevailing-party status under § 285, and that defendants need not prevail on the merits to be classified as a 'prevailing party.'"). The Supreme Court further noted that the change in the parties' legal relationship "must be marked by judicial imprimatur." CRST, 136 S. Ct. at 1646. Plaintiff disputes that Defendant is a prevailing party here because the Court "never became involved" and thus the dismissal does not have the necessary judicial imprimatur to confer prevailing party status. (See D.I. 20 at 3). The Court disagrees.

In arguing that its voluntary dismissal precludes Defendant from being considered a prevailing party, Plaintiff relies on the recent Federal Circuit decision in O.F. Mossberg & Sons, Inc. v. Timney Triggers, LLC, 955 F.3d 990 (Fed. Cir. 2020). There, the plaintiff had voluntarily dismissed the action without prejudice and the Federal Circuit found that such a dismissal was not a "final court order" sufficient to confer prevailing party status. See O.F. Mossberg & Sons, 955 F.3d at 991 & 993. Plaintiff's reliance on this case, however, is misplaced. Dismissal without prejudice is fundamentally different than one with prejudice, particularly as it relates to the question of whether the parties' legal relationship has changed. A voluntary dismissal without prejudice does not prevent a plaintiff from reasserting those same claims against defendant in another action. Plaintiff seems to misunderstand the critical difference between the facts of O.F.Mossberg & Sons and the facts of this case, the latter of which is more analogous to Keith Manufacturing Co. v. Butterfield, 955 F.3d 936 (Fed. Cir. 2020).

In Keith Manufacturing, the Federal Circuit found that a stipulated dismissal with prejudice and entered by the court constitutes a "judgment" for purposes of a motion for attorneys' fees under Federal Rule of Civil Procedure 54, rejecting the argument that an appealable judgment is a predicate for a motion for attorneys' fees under Rule 54(d). See Keith Mfg., 955 F.3d at 939-40. Although it is true that the Keith Manufacturing opinion never uses the term "prevailing party" (see D.I. 20 at 4), the court's reasoning supports a conclusion that voluntary dismissals with prejudice can confer prevailing-party status for purposes of attorneys' fees. For example, the Federal Circuit explained that, "because both parties can move for attorney's fees, permitting a Rule 54(d) motion for attorney's fees after a stipulated dismissal will not affect the overall balance of litigation." Keith Mfg., 955 F.3d at 940. This statement would have little meaning if attorneys' fees were unavailable because a voluntary dismissal with prejudice categorically precluded any party from becoming a prevailing party.²

Extending the reasoning of Keith Manufacturing to the facts here,³ this Court concludes that Plaintiff's voluntary dismissal with prejudice under Rule 41(a)(1)(A)(i) rendered Defendant a prevailing party in this case. Although the dismissal here did not require the Court's approval (or any action by the Court) as was the case in Keith Manufacturing, the import of "with prejudice" is that Defendant can no longer be subject to the particular claim of infringement asserted in Plaintiff's Complaint. In the Court's view, this is the type of "material alteration of the legalrelationship of the parties" that is the touchstone of the prevailing-party inquiry. CRST, 136 S. Ct. at 1646. Indeed, were Plaintiff to initiate another suit against Defendant alleging the same infringement claim as in the Complaint in this case, Defendant need only point to this dismissal here to avoid those later claims because the dismissal was with prejudice. It is hard to imagine a defendant not being considered a prevailing party under these circumstances.⁴

Having determined that Defendant is a prevailing party such that attorneys' fees may be available, the Court turns to whether this case was exceptional within the meaning of § 285

B. Exceptionality Under § 285

Octane Fitness makes clear that an exceptional case must stand out with respect to the substantive strength of a party's litigating position or the unreasonable manner in which the case was litigated. See Octane Fitness, 572 U.S. at 554. Defendant does not seem to argue that Plaintiff's litigation positions were so substantively weak as to justify a finding of exceptionality,⁵ instead focusing on the litigation tactics employed by Plaintiff that, in Defendant's view, were unreasonable and render this case exceptional within the meaning of § 285.

Defendant asserts that Plaintiff's case was "defective and unreasonable" for a number of reasons. (D.I. 18 at 6). First, according to Defendant, Plaintiff did not properly investigate whether Defendant - a Canadian corporation - was subject to personal jurisdiction in this District and, further, Plaintiff included no allegations regarding personal jurisdiction in its Complaint.(See D.I. 18 at 6-7). Second, Plaintiff failed to properly serve Defendant despite at least two warnings from Defendant that service of process had not been effectuated. (Id. at 7; see also D.I. 19, Ex. 1 at 30 & 35). Third, Defendant attacks the form and substance of Pla...