SCOTUS Denies Petition Challenging Monetary Sanctions Against Counsel Absent Bad Faith

The U.S. Supreme Court today denied certiorari in EscapeX IP, LLC v. Google LLC, letting stand a precedential decision of the U.S. Court of Appeals for the Federal Circuit (CAFC) affirming a district court’s award of more than $250,000 in attorneys’ fees to Google and finding that EscapeX had pursued a “frivolous” patent infringement lawsuit against Google and its attorneys had acted recklessly in prolonging the litigation.

EscapeX petitioned the Supreme Court in March of this year, arguing that the CAFC affirmed sanctions “without any express finding of subjective bad faith,” contrary to “long-settled Ninth Circuit law.” Google waived its right to respond and the Court issued its denial today.

The dispute originated from a complaint that EscapeX filed in the United States District Court for the Western District of Texas, alleging that Google’s YouTube Music product infringed U.S. Patent No. 9,009,113. Google responded with a letter asserting that EscapeX had failed to conduct an adequate pre-suit investigation, as the accused features were not present in the product.

EscapeX then amended its complaint, changing the accused product to a YouTube Video with Auto-Add. Google replied that a simple internet search would have shown that this feature predated the ‘113 patent’s priority date, rendering the patent anticipated and invalid if it were found to infringe.

Despite Google’s repeated requests to dismiss the suit, EscapeX did not view the case as “exceptional.” The district court agreed with Google, finding it was “obvious that EscapeX conducted no serious pre-suit investigation and that this case was frivolous from the start.” The court noted that EscapeX’s complaints had “cobbled together features” from different Google products and that it was “on notice of the baselessness of its claim early,” first via letters it received from Google and also because the Southern District of New York found its ’113 patent ineligible under Section 101. The district court thus awarded Google $191,302.18 in attorneys’ fees.

EscapeX then filed a motion to amend the judgment under Federal Rule of Civil Procedure 59(e), which the court denied, finding EscapeX “wholly failed to meet the Rule 59(e) standard.” The court characterized the lawsuit as “an effort to force a modest settlement by pestering a tech giant with a frivolous suit on the assumption that the tech giant will prefer to capitulate than fight back.” Following this, the court granted Google’s second motion for additional fees, awarding another $63,525.30 and holding EscapeX and its attorneys jointly and severally liable for that amount.

On appeal, the CAFC found no abuse of discretion in the district court’s decisions.

But EscapeX’s petition argued that the district court had “found only ‘recklessness’ in filing and maintaining a Rule 59(e) motion to alter or amend a § 285 fee award,” whereas Ninth Circuit law requires a finding of “subjective bad faith” under In re Keegan Mgmt. Co. Sec. Litig., 78 F.3d 431, 436–37 (9th Cir. 1996) for Section 1927 sanctions. The petition added:

“That decision cannot be reconciled with governing Ninth Circuit law, with the Federal Circuit’s own repeated acknowledgment that § 1927 issues are governed by regional circuit precedent, or with basic due process principles.”

EscapeX warned the Federal Circuit’s decision sends a message to the bar that attorneys are at risk of personal liability for patent cases appealed to the Federal Circuit if they choose to file Rule 59(e) motions to challenge fee awards, even if made in good faith.

“That message chills the willingness of counsel, particularly those representing small or resource-constrained clients, to defend vigorously against fee awards and sanctions,” said the petition.

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