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Realtime Adaptive Streaming LLC v. Netflix, Inc. (Fed. Cir. 2022) | McDonnell Boehnen Hulbert & Berghoff LLP

Realtime Adaptive Streaming LLC v. Netflix, Inc. (Fed. Cir. 2022) |  McDonnell Boehnen Hulbert & Berghoff LLP

Bad law often gives rise to creative legal arguments. But the application of such creative advocacy is necessarily limited by ethical rules and notions of fair dealing. Patent eligibility, in its current incarnation, has been argued to be bad law by many. The current judicial interpretation of 35 USC § 101 is at best vague and at worst a subjective inquiry where the proclivities of the examiner (whether patent examiner, administrative judge, or federal judge) often matter as much or more than the claims being considered. Such a situation is unforgivable, but still does not give a party license to engage in monkey business.

Realtime asserted six patents against Netflix in the District of Delaware. Netflix responded by filing seven petitions for between the parties review (IPR) of these patents, moving to dismiss four of the patents from the Delaware proceeding for ineligibility under § 101. All seven IPRs were instituted and a Delaware magistrate judge recommended that Neflix’s motion be granted .

But before the district court judge could rule on the judge’s eligibility report, Realtime voluntarily dismissed the Delaware case. The next day, Realtime filed suit in the Central District of California, reasserting all six patents against Netflix. Realtime did this “despite previously informing the Delaware court that transferring the Delaware action across the country to the Northern District of California would be inconvenient and an unfair burden on Realtime.” The California court had previously found some of Reatime’s claims patent-eligible.

Netflix moved to transfer the new claims back to Delaware and also requested attorneys’ fees for the California and Delaware cases, as well as the IPRs. Again, Realtime voluntarily dismissed the case before the California judge had a chance to rule on the transfer. Still, the judge had seen enough and awarded Netflix legal fees for the California cases based on equitable considerations. However, the judge did not award attorneys’ fees for the Delaware cases or the IPRs. Both parties cross-appealed to the Federal Circuit.

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On review, the court quickly concluded that the California court “reasonably found Realtime’s conduct in the California actions ‘inappropriate,’ ‘exceptional,’ and ‘grossly unjustified.'” Given that the Delaware court was likely to rule against Realtime on § 101 motions and that the California court was a more favorable forum for such issues, the court found that “Realtime undoubtedly realized that by refiling in California, it could effectively erase the Delaware magistrate’s thorough and persuasive analysis and findings of patent ineligibility.”

The court was further persuaded by Realtime’s conduct when it “resisted transfer back to the forum it originally chose.” In doing so, it affirmed the California court’s finding that Realtime engaged in “impermissible forum shopping.”

Combined, this was enough for the Federal Circuit to agree that Realtime acted in bad faith and that those acts were “sanctionable under a court’s inherent power in light of the Ninth Circuit’s standard.” Accordingly, the district court “did not abuse its discretion in awarding fees pursuant to its inherent equitable powers.”

Moving on to Netflix’s request for attorneys’ fees from the Delaware proceeding and the IPRs, the Federal Circuit agreed with the California court that there was no evidence of bad faith in the initial filing of the Delaware action. Furthermore, the institution of IPRs was insufficient to render Realtime’s ongoing legal efforts futile. Therefore, the Federal Circuit declined to reverse the California court with respect to the Delaware action and the IPR.

In short, patentability is a mess. But it still does not provide an extra bite in the apple or support taking opposing positions on various points in litigation. There is no reset button to press after a negative ruling, only the appeals process. Real Time should have known better, and it paid the price.

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Realtime Adaptive Streaming LLC v. Netflix, Inc. (Fed. Cir. 2022)
Panel: Circuit Judges Newman, Reyna and Chen
Opinion of Circuit Judge Chen; opinion concurring in part and dissenting-in part by Circuit Judge Reyna

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