Background

At the start of the convoluted case of Realtime Adaptive Streaming LLC v. Netflix, Inc. (Fed. Cir. 2022), Realtime asserted numerous patent infringement claims against Netflix in Delaware. Netflix moved to transfer the case to the Northern District of California for convenience. Realtime opposed the transfer and vehemently argued that it lacked any ties to California and that moving the case to California would lead to greater expense, additional travel, and more work for Realtime.

While the Delaware action was ongoing, Netflix filed seven petitions for inter partes review before the Patent Trial and Appeal Board seeking a determination that many of the claims asserted in the Delaware action were unpatentable. A Delaware magistrate judge found that the claims of four of the patents were ineligible. Realtime then voluntarily dismissed the Delaware action before the district court could rule on the magistrate judge’s ineligibility findings.

The next day, Realtime reasserted the same six patents against Netflix, this time in the Central District of California. Netflix then simultaneously moved for attorneys’ fees and to transfer the California actions back to Delaware. Realtime opposed the transfer, this time arguing that California was more convenient than Delaware. Prior to a decision on either motion, Realtime again avoided any court ruling by voluntarily dismissing the case. 

Netflix then renewed its motion for attorney's fees for the California actions as well as the related Delaware action and inter partes review proceedings. 

The District Court awarded fees for both California actions but not for the related Delaware action or inter partes review proceedings.

Both parties appealed. Realtime appealed the District Court’s fee award for the California actions and Netflix cross-appealed the District Court’s denial of fees for the related proceedings.

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Law

The Federal Circuit applied the law of the regional circuit, the Ninth Circuit, to the imposition of sanctions and costs. Under Ninth Circuit precedent, in order to award fees, the court must find that the sanctioned behavior constituted or was tantamount to bad faith. Costs “may” be awarded if a plaintiff who previously dismissed an action in any court files an action based on or including the same claim against the same defendant (at 8).

Both the Ninth Circuit and the Federal Circuit review a district court’s decision regarding whether to award fees for abuse of discretion. The District Court's ruling would not be overturned unless the court committed an error of law or the court’s factual determinations were clearly erroneous. (at 9).

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Realtime’s appeal 

The District Court reasonably found Realtime’s conduct in the California actions “improper,” “exceptional,” and “totally unjustified.” Realtime undoubtedly realized that by refiling in California, it could effectively erase the Delaware magistrate judge’s fulsome and compelling patent-ineligibility analysis and findings (at 9-10).

In addition, the Federal Circuit held that Realtime engaged in impermissible forum shopping by resisting transfer back to the forum it originally chose. Contrary to its earlier arguments that litigation should remain in Delaware because litigating in California would be inconvenient and unfair, Realtime refiled in California. It then fought transfer back to Delaware, arguing that relevant witnesses and evidence are in California and that Delaware would not be more convenient (at 10). When Realtime was aware that its lawsuit in Delaware was undeniably tanking, it decided to run off to another jurisdiction in hopes of getting a more favorable forum (at 10).

The Court held that Realtime’s blatant gamesmanship constituted a willful action for an improper purpose tantamount to bad faith and was therefore within the bounds of activities sanctionable under a court’s inherent power in view of the Ninth Circuit’s standard (at 12).

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Netflix’s cross-appeal 

The District Court affirmed the lower court’s decision to decline to award fees for the 2017 Delaware action and the inter partes review proceedings that Netflix filed in response to that action. The Court noted that there was no evidence that the initial filing of the 2017 Delaware action was untenable and, at the time, Realtime had not yet engaged in its forum-shopping ploy that formed the basis for a fees award in the California actions (at 13).

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Disposition

The United States Court of Appeals for the Federal Circuit affirmed the District Court’s decision.