Gust, Inc. v. Alphacap Ventures, LLC , 905 F.3d 1321 ( 2018 )

United States Court of Appeals
for the Federal Circuit
______________________
GUST, INC.,
Plaintiff-Appellee
v.
ALPHACAP VENTURES, LLC, RICHARD JUAREZ,
Defendants
GUTRIDE SAFIER LLP,
Movant-Appellant
______________________
2017-2414
______________________
Appeal from the United States District Court for the
Southern District of New York in Nos. 1:15-cv-06192-
DLC, 1:16-cv-01784-DLC, Senior Judge Denise Cote.
______________________
Decided: September 28, 2018
______________________
FRANK A. BRUNO, White & Williams LLP, Philadelph-
ia, PA, argued for plaintiff-appellee. Also represented by
SIOBHAN K. COLE.
DARALYN JEANNINE DURIE, Durie Tangri LLP, San
Francisco, CA, argued for movant-appellant.
DANIEL K. NAZER, Electronic Frontier Foundation,
San Francisco, CA, for amicus curiae Electronic Frontier
2 GUST, INC. v. ALPHACAP VENTURES LLC
Foundation.
PETER J. BRANN, Brann & Isaacson, Lewiston, ME, for
amici curiae Acushnet Company, Garmin International,
Inc., Red Hat, Inc., SAP, Inc., SAS Institute, Inc., Sym-
metry LLC, VIZIO, Inc. Also represented by STACY O.
STITHAM, DAVID SWETNAM-BURLAND.
______________________
Before WALLACH, LINN, and HUGHES, Circuit Judges.
Opinion for the court filed by Circuit Judge LINN.
Dissenting opinion filed by Circuit Judge WALLACH.
LINN, Circuit Judge
Movant Gutride Safier LLP (“Gutride”), a law firm
representing AlphaCap Ventures, LLC (“AlphaCap”) in
the district court litigation here, appeals the award of fees
under 28 U.S.C. § 1927, making Gutride jointly and
severally liable for all expenses incurred by Gust, Inc. in
defending the instant lawsuit, including attorneys’ fees
and costs. Gust, Inc. v. AlphaCap Ventures, LLC, 226 F.
Supp. 3d 232 (“Fees Op.”); Gust, Inc. v. AlphaCap Ven-
tures, LLC, No. 15-cv-06192 (S.D.N.Y. July 6, 2017)
(“Reconsideration Op.”). Because the district court abused
its discretion by awarding fees and costs under 28 U.S.C.
§ 1927, we reverse.
I. BACKGROUND
AlphaCap is a non-capitalized non-practicing entity
based in California. In January 2015, AlphaCap hired
Gutride on a contingency basis, and sued ten internet
crowdfunding companies for patent infringement of
AlphaCap’s U.S. Patents No. 7,848,976 (“’976 patent”);
No. 7,908,208 (“’208 patent”); No. 8,433, 630 (“’630 pa-
tent”) (collectively, “patents at issue”) in the Eastern
District of Texas. Nine of the defendants settled for less
than $50,000 each, leaving only Gust contesting in-
GUST, INC. v. ALPHACAP VENTURES LLC 3
fringement and validity. A timeline of relevant events in
the ensuing litigation is as follows:
Timeline of Relevant Events
June 19, Supreme Court issues Alice Corp. Pty. Ltd. v.
2014 CLS Bank Int’l, 134 S. Ct. 2347 (2014)
Jan. 2015 AlphaCap sues Gust in the Eastern District of
Texas
June 19 AlphaCap proposes to dismiss and settle and
Gust rejects the offer
June 22 Gust files a motion to transfer under
28 U.S.C. §§ 1404, 1406
June 29 The Southern District of New York decides
Kickstarter, Inc. v. Fan Funded, LLC, No. 11-
cv-6909, 2015 WL 3947178 (S.D.N.Y. June 29,
2015), aff’d 654 F. App’x 481 (Fed. Cir. 2016),
applying Alice to find certain unrelated claims
directed to crowdfunding invalid under § 101
July 2 Gutride tells Gust’s counsel that the case is
“not worth litigating,” and AlphaCap offers to
dismiss its complaint with prejudice as a walk-
away settlement; Gust refuses unless Alpha-
Cap assigns all patents to Gust
July 2 AlphaCap files a motion for venue discovery;
Gust agrees to venue discovery and the district
court issues a discovery order
Venue discovery runs through September 1
July 9 Gust sends AlphaCap a formal settlement
offer, explaining its § 101 invalidity position in
view of Alice, and proposes that AlphaCap
dismiss its complaint with prejudice and either
pay Gust’s attorneys’ fees or assign full owner-
ship of all AlphaCap patents to Gust. Under
its terms, AlphaCap would keep all prior
licensing revenue
July 28 AlphaCap offers walkaway settlement; Gust
4 GUST, INC. v. ALPHACAP VENTURES LLC
refuses
August 6 Gust files for Declaratory Judgment of no
infringement, invalidity, abuse of process,
tortious interference, and antitrust in the
Southern District of New York
August 17 Gust offers to dismiss it’s action in the South-
ern District of New York if AlphaCap dismisses
its action with prejudice, pays all of Gust’s
attorneys’ fees—totaling $175,000 up to that
point—and assigns ownership of all patents to
Gust; AlphaCap refuses
August 24 AlphaCap threatens to move for sanctions
under Federal Rules of Civil Procedure 11
(“Rule 11”) unless Gust dismisses its declarato-
ry judgment action in the Southern District of
New York
November AlphaCap moves for sanctions under Rule 11
6 and moves to dismiss Gust’s claims in the
Southern District of New York.
August Claim construction discovery period
2015 until
February
2016
March 2 Eastern District of Texas transfers AlphaCap’s
case to the Southern District of New York
May 18 AlphaCap provides Gust with covenant not to
sue on the patents at issue
July 28 The Southern District of New York dismisses
both AlphaCap’s and Gust’s claims
August 19 Gust moves for attorneys’ fees under 35
U.S.C. § 285 and 28 U.S.C. § 1927December The Southern District of New York awards fees
8 to Gust under § 285 and § 1927
July 6, The Southern District of New York denies
2017 AlphaCap’s motion for reconsideration.
GUST, INC. v. ALPHACAP VENTURES LLC 5
In its December 8, 2016 decision, the district court
first concluded that this case was “exceptional” under
§ 285. The district court explained that Alice “gave Al-
phaCap clear notice that the AlphaCap Patents could not
survive scrutiny under 35 U.S.C. § 101.” Fees Op., 226 F.
Supp. 3d at 241. The district court concluded that the
claims were directed to crowdfunding, a fundamental
economic concept and way of organizing human activity,
and that this was an abstract idea. Id. at 241–44. The
district court rejected AlphaCap’s argument that the
claims were directed to improvements in computer func-
tionality, because the claimed computer components were
routine and conventional in the industry. Fees Op., 226 F.
Supp. 3d at 243–44 (distinguishing Enfish LLC v. Mi-
crosoft Corp., 822 F.3d 1327, 1335 (Fed. Cir. 2016)). The
district court then found that the claims did not include
an inventive concept sufficient to render the abstract
ideas patent eligible under Alice Step 2. Id. at 240.
The district court further concluded that the case was
exceptional because: (1) AlphaCap brought the case “to
extract a nuisance settlement from Gust,” as confirmed by
the “paltry settlements” to which AlphaCap agreed with
the other nine defendants and AlphaCap’s decision to file
in the Eastern District of Texas, a venue distant from
Gust’s Delaware home, id. at 245; and (2) an award is
necessary to deter AlphaCap’s predatory patent enforce-
ment practice, id. AlphaCap does not appeal the district
court’s exceptional case determination or the award of
attorney’s fees.
This appeal only raises Gutride’s joint and several
liability for Gust’s attorneys’ fees under § 1927. The
district court concluded that Gutride’s litigation conduct
justified an award under § 1927 because its actions were
unreasonable and taken in bad faith. Specifically, the
district court focused on Gutride’s unwillingness to settle
pursuant to Gust’s terms despite knowing that Alice
doomed the claims and stating that the case was “not
6 GUST, INC. v. ALPHACAP VENTURES LLC
worth litigating” and resisting Gust’s motion to transfer
out of the Eastern District of Texas. The court awarded
all expenses incurred by Gust in the amount of $492,420
in fees and $15,923 in costs, jointly and severally against
AlphaCap and Gutride. The district court also awarded
prejudgment interest at a New York State rate of 9%. Id.
at 254.
On reconsideration, the district court noted that “Fees
under Section 1927 were not awarded based on the filing
of the litigation.” Reconsideration Op. at 16. But, the
district court explained that the filing of what it consid-
ered to be frivolous litigation was nevertheless “not irrel-
evant to the decision to impose fees,” because it
“supported [the district court’s earlier] finding that coun-
sel acted in bad faith when it unreasonably and vexa-
tiously multiplied the proceedings.” Id. The district court
also rejected Gutride’s argument that AlphaCap, as the
client, was responsible for the delay in issuing a covenant
not to sue to Gust, rather than Gutride, but did not direct-
ly address the role of the client and the counsel in creat-
ing delay due to the failure to issue a covenant not to sue.
Gutride, as movant, timely appeals. We have jurisdic-
tion under 28 U.S.C. § 1295(a)(1).
II. STANDARD OF REVIEW
We review § 1927 awards under the law of the regional
circuit. Phonometrics, Inc. v. Westin Hotel Co., 350 F.3d
1242, 1246 (Fed. Cir. 2003). The Second Circuit reviews
the imposition of sanctions for an abuse of discretion.
Wolters Kluwer Fin. Servs., Inc. v. Scivantage, 564 F.3d
110, 113 (2d Cir. 2009). When a district court acts as
“accuser, fact finder and sentencing judge all in one, [the
Second Circuit reviews under a] more exacting [standard]
than under the ordinary abuse-of-discretion standard.”
Id. at 113–14 (internal quotes and citation omitted). This
more exacting standard requires the appeals court to
“ensure that any such [award] is made with restraint and
GUST, INC. v. ALPHACAP VENTURES LLC 7
discretion” by requiring “sufficiently specific factual
findings” to avoid conclusory determinations by the dis-
trict court. Eisemann v. Greene, 204 F.3d 393, 396 (2d
Cir. 2000) (internal quotes and citation omitted). Just as
when a district court imposes sanctions under Rule 11,
“the court is to avoid hindsight and resolve all doubts in
favor” of the non-movant. See Oliveri v. Thompson, 803
F.2d 1265, 1275 (2d Cir. 1986).
III. 28 U.S.C. § 1927Section 1927 of Title 28 allows a district court to
award fees directly against a party’s attorney under
certain circumstances.
Any attorney or other person admitted to conduct
cases in any court of the United States or any Ter-
ritory thereof who so multiplies the proceedings in
any case unreasonably and vexatiously may be
required by the court to satisfy personally the ex-
cess costs, expenses, and attorneys’ fees reasona-
bly incurred because of such conduct.
In the Second Circuit, an award under § 1927 re-
quires: (1) that claims were “entirely without color,” and
(2) “were brought in bad faith—that is, motivated by
improper purposes such as harassment or delay.” Ad-
vanced Magnetic Closures, Inc. v. Rome Fastener Corp.,
607 F.3d 817, 833 (Fed. Cir. 2010) (citing Eisemann, 204
F.3d at 396). The relevant “claims” are the attorney
actions deemed motivated by improper purposes. See
Oliveri, 803 F.2d at 1273 (“[A]n award under § 1927 is
proper when the attorney’s actions are so completely
without merit as to require the conclusion that they must
have been undertaken for some improper purpose such as
delay.”) (emphasis added).
Both elements must be met before a district court may
make an award under § 1927. Moreover, both determina-
tions require a district court to provide “a high degree of
8 GUST, INC. v. ALPHACAP VENTURES LLC
specificity in the factual findings.” Dow Chem. Pac. Ltd.
v. Rascator Maritime S.A., 782 F.2d 329, 344 (2d Cir.
1986).
A. The “Color” of AlphaCap’s Claims
The district court held that Gutride’s continued con-
tention that AlphaCap’s claims were patent-eligible
lacked color. Fees Op., 226 F. Supp. 3d at 251; id. at 241–
45 (concluding that AlphaCap’s position on § 101 was
objectively unreasonable in the context of 35 U.S.C. §
285). The district court based its fee award in part on the
baselessness of AlphaCap’s position in filing this suit, id.
at 248 (“Realizing that they could not defend the Alpha-
Cap Patents against a § 101 validity challenge, they chose
nonetheless to file this contingency-fee lawsuit.”), and on
Gutride’s insistence on continuing the litigation.
Gutride first argues that the district court erred by
supporting its fee award under § 1927 with the baseless-
ness of AlphaCap bringing its complaint, which, it con-
tends, is only an appropriate consideration under Rule 11.
Gutride also argues that AlphaCap’s position that the
patents at issue are not invalid under § 101 were colora-
ble within the unsettled state of the law following the
decision in Alice. Gust responds that the district court
properly considered the baselessness of AlphaCap’s claims
in support of its determination that AlphaCap and Gust
continued the litigation in bad faith, see Reconsideration
Op. at 16, and that one of the requirements of a § 1927
award—that “the offending party’s claims were entirely
without color,” Eisemann, 204 F.3d at 396—requires
consideration of the baselessness of the offending party’s
claims. Gust also argues that the § 101 law post-Alice
was settled, because all cases dealing with abstract ideas
in patents cited the two-step Alice framework. Finally,
Gust argues that the claims here were not even question-
ably patent eligible.
GUST, INC. v. ALPHACAP VENTURES LLC 9
We agree with Gutride that neither the filing of this
case nor Gutride’s continuation of the litigation support a
§ 1927 award.
On its face, § 1927 only applies to actions that result
in unreasonable and vexatious multiplication of proceed-
ings. This necessarily excludes a filing of a baseless
complaint, which is properly analyzed under Fed. R. Civ.
P. 11. Jensen v. Phillips Screw Co., 546 F.3d 59, 65 (1st
Cir. 2008) (“[A]n unbroken band of cases across the courts
of appeals hold[s] that a lawyer cannot violate section
1927 in the course of commencing an action,” and there-
fore holding that the failure to vet or investigate a claim
cannot give rise to a § 1927 sanction); Zuk v. E. Pa. Psy-
chiatric Inst., 103 F.3d 294, 297 (3d Cir. 1996) (holding
that § 1927 award is unavailable for failing to adequately
investigate the facts and law prior to filing a complaint);
DeBauche v. Trani, 191 F.3d 499, 511 (4th Cir. 1999).
Although the Second Circuit has not stated this explicitly,
it has stated that the primary purpose of § 1927 is “to
deter unnecessary delays in litigation.” Oliveri, 803 F.2d
at 1273 (emphasis added) (quoting H.R.Conf. Rep. No.
1234, 96th Cong., 2d Sess. 8, reprinted in 1980 U.S. Code
Cong. & Ad. News, 2716, 2782). Coupled with the clear
language of § 1927, we conclude that the Second Circuit
would join the “unbroken band of cases” excluding base-
less filing of a complaint from supporting an award under
§ 1927.
We also agree with Gutride that AlphaCap’s position
on patent eligibility was colorable, particularly given the
relative paucity of § 101 cases that were decided by this
court between Alice and AlphaCap’s complaint in Texas.
‘‘[A] claim is entirely without color when it lacks any legal
or factual basis.’’ Schlaifer Nance & Co. v. Estate of War-
hol, 194 F.3d 323, 337 (2d Cir.1999) (internal quotation
marks omitted). When the applicable law is unsettled,
attorneys may not be sanctioned merely for making
reasonable arguments for interpreting the law. Secs.
10 GUST, INC. v. ALPHACAP VENTURES LLC
Indus. Ass’n v. Clarke, 898 F.2d 318, 321–22 (2d Cir.
1990), abrogated on other grounds recognized by Mareno
v. Rowe, 910 F.2d 1043, 1047 (2d Cir. 1990). This is just
another way of saying that the domain of colorable argu-
ments is broader when the law is unsettled.
During the pendency of this litigation, the abstract
idea law was unsettled. AlphaCap filed suit in January of
2015, just seven months after the Supreme Court decided
Alice. Between Alice and AlphaCap’s complaint in Texas,
this court in a majority opinion cited Alice only seven
times. Several of those cases recognized the uncertainty
in the application of Alice. See Content Extraction &
Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343,
1347 (Fed. Cir. 2014) (“The Supreme Court has not ‘delim-
it[ed] the precise contours of the ‘abstract ideas’ catego-
ry.’”); DDR Holdings, 773 F.3d at 1256 (same); id. at 1255
(“Distinguishing between claims that recite a patent-
eligible invention and claims that add too little to a pa-
tent-ineligible abstract concept can be difficult, as the line
separating the two is not always clear.”).
Moreover, Gust is simply incorrect that because all
abstract idea cases after Alice applied the two-step Al-
ice/Mayo framework, patent eligibility after Alice was
settled. In view of the evolving nature of § 101 jurispru-
dence during the merits stage of this lawsuit, it is particu-
larly important to allow attorneys the latitude necessary
to challenge and thus solidify the legal rules without the
chill of direct economic sanctions. See In re Pennie &
Edmonds LLP, 323 F.3d 86, 90–91 (2d Cir. 2003) (“If the
sanction regime [on lawyers] is too severe, lawyers will
sometimes be deterred from making legitimate submis-
sions on behalf of clients out of apprehension that their
conduct will erroneously be deemed improper.”).
The claims here when filed were not within the nar-
row universe of sanctionable arguments under § 1927,
and we agree with Gutride that the district court abused
GUST, INC. v. ALPHACAP VENTURES LLC 11
its discretion in concluding that “the AlphaCap Patents do
not fall in that interstitial area where doubt may reason-
ably exist” about their eligibility. Reconsideration Op. at
11 n.3. First, the eligibility of the claims at issue is not
precluded simply because they are directed to software
based business methods. Our case law recognizes that
there is no bright line exclusion of software patents or
business method patents from patent eligibility. Ultra-
mercial, Inc. v. Hulu, LLC, 772 F.3d 709, 715 (Fed. Cir.
2014) (“[W]e do not purport to state that all claims in all
software-based patents will necessarily be directed to an
abstract idea.”); buySAFE, Inc. v. Google, Inc., 765 F.3d
1350, 1354 (Fed. Cir. 2014) (recognizing that Bilski v.
Kappos, 561 U.S. 593, 611 (2010) did not create a general
business method exception for patent eligibility).
Gutride argues that the claims require a data collec-
tion template using a semi-homogenous profile, and that
this at least colorably supported patent eligibility
throughout the pendency of the litigation. Gutride focus-
es on the independent claims in the ’208 patent to support
its colorable eligibility argument. Claim 1 of the ’208
patent claims “A method for managing resource consumer
information,” comprising: “defining, by at least one pro-
cessor, a data collection template of fields for a semi-
homogenous profile desired by a resource provider,”
“customizing the template in real time,” “maintaining an
electronic database system by a trusted third party who is
neutral,” storing certain information, and allowing the
creation of distinct portfolio records for different types of
portfolios. ’208 patent, col. 25, ll.5–39. Gutride analogiz-
es this claim to the claims found patent eligible in DDR
Holdings.
The invention in DDR Holdings allowed a host mer-
chant website to maintain the look and feel of the host
website when hyperlinking to outside merchants’ product
pages. DDR Holdings, 773 F.3d at 1257–58. We held the
claims to be patent eligible because they “do [not] recite a
12 GUST, INC. v. ALPHACAP VENTURES LLC
commonplace business method aimed at processing busi-
ness information, applying a known business process to
the particular technological environment of the Internet,
or creating or altering contractual relations using generic
computer functions and conventional network operations.”
Id. at 1259. This court distinguished Ultramercial, Inc. v.
Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014) because the
claims in DDR Holdings did not “broadly and generically
claim ‘use of the Internet’ to perform an abstract business
practice (with insignificant added activity),” but rather
“specify how interactions with the Internet are manipu-
lated to yield a desired result—a result that overrides the
routine and conventional sequence of events ordinarily
triggered by the click of a hyperlink.” DDR Holdings, 773
F.3d at 1258.
Gutride argues that both the invention at issue here
and that of DDR Holdings use semi-homogenous struc-
tures to balance users’ needs for individualized ads (in
DDR Holdings) or loan requirements (here) against the
efficiency of a single form document. We find this argu-
ment somewhat dubious because the basis for DDR Hold-
ings was not semi-homogeneity itself, but the
maintenance of the look and feel of internet hyperlinks.
Our task here, however, is to determine whether Gutride,
in the nearly immediate aftermath of Alice, vexatiously
and unreasonably multiplied the proceedings in this
litigation by continuing a litigation premised on argu-
ments lacking any color. Gutride’s arguments for patent
eligibility were not so lacking in color to support such a
conclusion.
Gust argues that the Southern District of New York’s
conclusion in Kickstarter, No. 11-cv-6909, 2015 WL
3947178, that claims directed to internet crowdfunding
were ineligible, supports the district court’s conclusion
that AlphaCap’s position lacked color. This argument is
inapposite. First, the claims found ineligible in Kickstart-
er were in patents unrelated to those at issue here.
GUST, INC. v. ALPHACAP VENTURES LLC 13
Second, much of the confusion in abstract idea law after
Alice is in the proper categorization of what a claim is
directed to. The district court in Kickstarter categorized
the claims as directed to “crowd-funding” or similar
concepts. Id. at *11. The patents at issue here do not
discuss crowdfunding, and the district court did not
compare the claims here to those at issue in Kickstarter.
The district court’s conclusion that Gutride’s patent
eligibility position lacked color was built on improper
hindsight as to the state of the law and a conclusory
analysis of the claims at issue. Under the exacting stand-
ard of review applicable in this § 1927 case, we conclude
that the district court abused its discretion by holding
that Gutride’s position with respect to patent eligibility
lacked color.
B. Bad Faith
The district court also abused its discretion by con-
cluding that Gutride’s actions throughout the litigation
constituted bad faith. The district court reached its
conclusion based on the following: (1) The circumstances
around AlphaCap’s bringing of the suit—that Gutride
knew that AlphaCap’s patents were not patent eligible
after Alice, and initiated the litigation anyway to extract a
nuisance settlement; (2) Gutride’s decision to litigate in
the Eastern District of Texas and frivolously oppose
transfer to the clearly more convenient Southern District
of New York, including moving for venue discovery and
filing a sur-reply in opposition to Gust’s motion to trans-
fer; and (3) Gutride’s failure to end the case through
settlement, dismissal, or a covenant not to sue. Gutride
argues that the district court abused its discretion on all
of these grounds. We agree and address each, in turn.
1
As the district court explained on reconsideration, the
circumstances surrounding the filing of the frivolous
14 GUST, INC. v. ALPHACAP VENTURES LLC
litigation, “drove or colored virtually every decision coun-
sel made during the litigation,” Reconsideration Op. at 16.
These circumstances were that Gutride knew that Alpha-
Cap’s patents were not patent eligible after Alice and
“AlphaCap’s goal was to extract a nuisance settlement
from Gust.” Fees Op., 226 F. Supp. 3d at 241.
a
First, the district court relied on three bases to sup-
port its contention that Gutride knew that AlphaCap’s
patents were not valid: (1) the district court’s statement
in its opinion granting Gust’s motion to dismiss, that
AlphaCap knew the patents were invalid, Fees Op., 226 F.
Supp. 3d at 239–40 (citing Gust, Inc. v. AlphaCap Ven-
tures, LLC, 2016 WL 4098533, at *2 (S.D.N.Y. July 28,
2016) (“Gust I”)); (2) Gutride’s statement to Gust’s counsel
that the case was “not worth litigating,” id. at 238–39,
248, 253 (relying on Gutride attorney Safier’s July 2
statement to Gust’s counsel that the case was “not worth
litigating”); and (3) the frivolousness of AlphaCap’s posi-
tion on § 101, id. at 248 (“AlphaCap’s attorneys were well
aware of Alice and its implications for the AlphaCap
patents.”). The statement in Gust I, however, was not a
factual finding—it was a description of Gust’s position in
opposition to AlphaCap’s motion to dismiss Gust’s tort
claims. Gust I, 2016 WL 4098533, at *1 (“The following
facts are drawn from the pleadings and the documents
attached thereto. The facts are construed in favor of
Gust.”). This is an improper basis to support a conclusion
about Gutride’s bad faith.
The district court also improperly relied on Safier’s
statement that the case is “not worth litigating” as evi-
dence of Gutride’s knowledge that AlphaCap’s patents
were invalid. In the context of advocating for settlement
with the opposing party to settle, this is an inoffensive
assertion that the calculus favors settlement, not an
admission that the patents were invalid. See Q-Pharma,
GUST, INC. v. ALPHACAP VENTURES LLC 15
Inc. v. Andrew Jergens Co., 360 F.3d 1295, 1304 (Fed. Cir.
2004) (holding that the statement that “further pursuit of
the lawsuit would not have been worth the investment”
was not evidence of bad faith).
As discussed in Section III.A., supra, AlphaCap’s posi-
tion that its claims were not invalid did not lack color.
Bad faith may be inferred from attorney action only “if
actions are so completely without merit as to require the
conclusion that they must have been undertaken for some
improper purpose such as delay.” Adv. Magnetic Closures,
607 F.3d at 834 (citing Schlaifer Nance & Co., 194 F.3d at
336. Gutride’s eligibility arguments here do not meet this
standard.
The district court thus had no basis to find that
Gutride knew that the patents were invalid after Alice,
and it therefore erred in relying on this finding to support
its bad faith determination.
b
The district court also supported its bad faith deter-
mination by noting that AlphaCap filed this lawsuit “as
one of ten,” “in the expectation that they could obtain
quick settlements of relatively modest amounts from
every major firm in the internet crowdfunding arena.”
Fees Op., 226 F. Supp. 3d at 248.
We appreciate the district court’s concern with Al-
phaCap’s business/litigation model here. As a non-
capitalized, non-practicing entity, represented on a con-
tingency fee basis, AlphaCap bears relatively little risk
and cost in filing its infringement actions, as compared
with the relatively high costs incurred by defendants to
defend the lawsuit. By suing multiple defendants and
encouraging quick settlements at values far below the
cost of defending an infringement action on the merits,
AlphaCap was able to obtain not insignificant revenues
without having to test the merits of its position. Moreo-
16 GUST, INC. v. ALPHACAP VENTURES LLC
ver, because it is non-capitalized, AlphaCap is not subject
to the deterrent effect of § 285. As this court has previ-
ously recognized in the § 285 context, non-practicing
entities can extract settlements from a large number of
accused infringers owing to the potential for “dispropor-
tionate discovery costs” and assume little business risk.
Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1327–28
(Fed. Cir. 2011). We warned that “the appetite for licens-
ing revenue cannot overpower a litigant’s and its counsel’s
obligation to file cases reasonably based in law and fact
and to litigate those cases in good faith.” Id. at 1328.
Nevertheless, § 1927 is not the proper vehicle to
generally address those concerns. As discussed above,
supra at 10, Rule 11, with its procedural safeguards,
already addresses attorneys’ complicity in the filing of
frivolous and improper litigation. Moreover, the heart of
the district court’s concern is with AlphaCap, not its
attorneys. As discussed below in connection with the
decision not to settle or offer a covenant not to sue, infra
at 20, decisions within the client’s domain are generally
not attributable to its attorneys. It is the client’s decision
whether to capitalize its business, to acquire the patents,
to decide whether to practice the patents, whether and
who to sue, and whether and when to agree to low value
settlements. Such client decision-making is a poor evi-
dentiary basis on which to infer attorney bad faith in
multiplying proceedings. 1
1 We note that in the context of contingency fee ar-
rangements, attorneys have more interest—and presum-
ably somewhat more say—in these decisions than under
other attorney-client fee arrangements. Gust has not,
however, proffered any evidence that Gutride had control
over such decisions.
GUST, INC. v. ALPHACAP VENTURES LLC 17
2
Gutride’s opposition to transfer also does not support
a conclusion of bad faith. According to the district court,
Gutride’s position that New York was not clearly more
convenient was frivolous, because Gust never resided in
the Eastern District of Texas, Gust’s only regular and
established place of business was in New York, the alleg-
edly infringing website was developed and hosted in New
York, and the website is administered by Gust’s New
York employees. The district court explained that “Al-
phaCap could not identify a single piece of evidence
located in or near the Eastern District of Texas.” Fees
Op., 226 F. Supp. 3d at 250.
Gutride asserts that it filed in Texas and opposed the
motion to transfer because of the Eastern District of
Texas’s faster-moving docket, the experience of its attor-
ney in that forum, and the central location of Texas with
respect to relevant evidence between the East and West
coasts. Gutride argues that: (1) an attorney only has an
obligation to file in a proper forum, not in the most con-
venient forum, see Sussman v. Bank of Israel, 56 F.3d
450, 457 (2d Cir. 1995); (2) Gust agreed to venue discov-
ery, and that Gutride may not be sanctioned for multiply-
ing the proceedings by engaging in conduct voluntarily
undertaken by Gust and ordered by the district court, see
J. App’x at 2192–93; and (3) its position on convenience
was allowed under then-current law, and unlike In re
Genentech, Inc., 566 F.3d 1338 (Fed. Cir. 2009), highlight-
ed by the district court, at least some third-party users
were found to reside in the Eastern District of Texas.
We agree with Gutride. First, under then-current
law, the Eastern District of Texas was a proper forum
because Gust was indisputably subject to personal juris-
diction in Texas. See VE Holdings Corp. v. Johnson Gas
Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), abrogated
by TC Heartland LLC v. Kraft Foods Grp. Brands LLC,
18 GUST, INC. v. ALPHACAP VENTURES LLC
137 S. Ct. 1514 (2017). Indeed, Gust dropped 28 U.S.C.
§ 1406 as a basis to support its transfer motion and
limited its argument to forum non conveniens under 28
U.S.C. § 1404. As the Second Circuit held in Sussman,
and not disputed by Gust, an attorney need not bring a
case in the most convenient forum, but only a proper
forum. Filing and attempting to keep the case in Texas
was not, therefore, on its own, evidence of bad faith
arguments. We also agree that Gutride cannot be sanc-
tioned for engaging in venue discovery to which Gust
agreed and the district court approved.
Finally, we agree with Gutride that its arguments
that New York was not clearly a more convenient forum
were not “so completely without merit as to require the
conclusion that they must have been undertaken for some
improper purpose such as delay.” Adv. Magnetic Closures,
607 F.3d at 834 (citing Schlaifer Nance & Co., 194 F.3d at
336). The convenience analysis is a multi-factor balanc-
ing test of public and private factors, not a bright line rule
that Gutride tried to circumvent. When the Eastern
District of Texas analyzed the factors, it found that a
majority of the factors supported transfer, but not that all
of them did.
The district court concluded that Gutride’s position
that Texas was more centrally located than New York—
between AlphaCap’s California headquarters and Gust’s
headquarters in New York (or Gust’s development center
in Vancouver)—necessarily conflicted with Genentech.
Gutride correctly points out, however, that, unlike Genen-
tech, at least some witnesses here—end users of Gust’s
website—were located in the Eastern District of Texas. J.
App’x at 4072–73 (Gutride’s representation of end user
witnesses present in the Eastern District of Texas). See
also Personalweb Techs., LLC v. Yahoo!, Inc., No. 6:12-cv-
658, 2014 WL 1689046, at *6 (E.D. Tex. Feb. 12, 2014)
(end-users considered in venue analysis after Genentech).
Genentech is not as clear-cut against considering the
GUST, INC. v. ALPHACAP VENTURES LLC 19
centrality of a forum’s location as the district court as-
sumed—indeed, Genentech itself distinguished a case in
which centrality could be considered where “a substantial
number of witnesses” were residents of the plaintiff’s
chosen venue. See Genentech, 566 F.3d at 1344 (quoting
and distinguishing United States v. Binder, 794 F.2d
1195, 1200 (7th Cir. 1986)); id. (explaining that because
no witnesses were resident in Texas, “the district court
improperly used its central location as a consideration in
the absence of witnesses within the plaintiff’s choice of
venue”). The district court clearly erred in concluding
that “AlphaCap failed to identify a single witness located
in the Eastern District of Texas.” Fees Op., 226 F. Supp.
3d at 250.
3
Finally, we also agree with Gutride that AlphaCap’s
decision not to grant a covenant not to sue until May 18,
2016 is not evidence of Gutride’s bad faith. The decision
to settle or grant a covenant not to sue is wholly commit-
ted to clients, not their attorneys. See United States v.
Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen &
Helpers of Am., AFL-CIO, 986 F.2d 15, 19 (2d Cir. 1993)
(“The Supreme Court recognized long ago that the deci-
sion to settle a case rests with the client alone.”) (citing
United States v. Beebe, 180 U.S. 343, 350–53 (1901)).
AlphaCap’s decision not to issue the covenant earlier is
not attorney multiplication of proceedings. Moreover, as
discussed, supra, AlphaCap’s position on patent eligibility
did not lack color, and at least for that reason, the infer-
ence from AlphaCap’s failure to resolve the case earlier to
bad faith is lacking. For similar reasons, we reject the
district court’s consideration of AlphaCap’s other low-
value settlements to support its bad faith determination.
Like the decision not to settle, the decision of what cases
to settle and the terms of such settlements are matters
within the discretion of the client.
20 GUST, INC. v. ALPHACAP VENTURES LLC
IV
We therefore conclude that the district court abused
its discretion under the more exacting review required by
the Second Circuit in finding that Gutride unreasonably
and vexatiously multiplied the proceedings by making
arguments on patent eligibility and venue, and failing to
resolve the litigation earlier than it did. We therefore
reverse the district court’s award of fees under § 1927
against Gutride. 2
REVERSED
COSTS
No costs.
2 Because of our disposition above, we do not con-
sider whether Gust’s failure to file Rule 11 or Rule 12
motions should have foreclosed or limited any award
under § 1927. We also do not consider Gutride’s challenge
to the amount of the award, the propriety of pre-judgment
interest, or the appropriate rate to apply when calculating
such interest.
United States Court of Appeals
for the Federal Circuit
______________________
GUST, INC.,
Plaintiff-Appellee
v.
ALPHACAP VENTURES, LLC, RICHARD JUAREZ,
Defendants
GUTRIDE SAFIER LLP,
Movant-Appellant
______________________
2017-2414
______________________
Appeal from the United States District Court for the
Southern District of New York in Nos. 1:15-cv-06192-
DLC, 1:16-cv-01784-DLC, Senior Judge Denise Cote.
______________________
WALLACH, Circuit Judge, dissenting.
I disagree with the majority’s decision to reverse the
U.S. District Court for the Southern District of New York
(“District Court”)’s award of attorney fees pursuant to 28
U.S.C. § 1927 (2012). 1 The Second Circuit reviews a
1 Section 1927 provides that “[a]ny attorney” who
“so multiplies the proceedings in any case unreasonably
and vexatiously may be required by the court to satisfy
2 GUST, INC. v. ALPHACAP VENTURES LLC
district court’s award of § 1927 sanctions “for [an] abuse
of discretion.” Enmon v. Prospect Capital Corp., 675 F.3d
138, 143 (2d Cir. 2012). 2 A district court abuses its dis-
cretion only when it bases its sanctions on “an erroneous
view of the law or on a clearly erroneous assessment of
the evidence.” Id. (citation omitted). The Supreme Court
has cautioned that finding that a district court has abused
its discretion is a high bar that an appellant must clear.
See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990).
By reversing the District Court’s evidentiary findings on
the clear evidence supporting counsel’s lack of colorable
claims and bad faith in bringing these claims, as is re-
quired in the Second Circuit, the majority contravenes
this precedent and improperly substitutes its own find-
ings for that of the District Court. On the record before
us, I cannot say that any of the District Court’s findings
were based on an erroneous assessment of the law or
evidence. Therefore, because I would affirm the District
Court’s award of § 1927 fees, I respectfully dissent.
DISCUSSION
Appellant AlphaCap Ventures, LLC (“AlphaCap”) and
Appellee Gust, Inc. (“Gust”) litigated this matter across
personally the excess costs, expenses, and attorneys’ fees
reasonably incurred because of such conduct.”
2 The majority states that the Second Circuit’s
“more exacting” abuse of discretion standard applies,
rather than “the ordinary abuse-of-discretion standard,”
Maj. Op. 6 (quoting Wolters Kluwer Fin. Servs., Inc. v.
Scivantage, 564 F.3d 110, 113–14 (2d Cir. 2009)); requir-
ing, even under this more exacting standard “sufficiently
specific factual findings,” Eisemann v. Greene, 204 F.3d
393, 396 (2d Cir. 2000), the District Court based its sanc-
tions determination on sufficiently specific factual find-
ings, for the reasons stated infra.
GUST, INC. v. ALPHACAP VENTURES LLC 3
two jurisdictions over the course of a year and a half.
AlphaCap sued Gust for patent infringement, along with
bringing separate infringement actions against nine other
entities, in the Eastern District of Texas (“Eastern Dis-
trict”). J.A. 55. Following a transfer to the District Court,
AlphaCap’s complaint was consolidated with a declarato-
ry judgment action filed by Gust. J.A. 61; see also J.A.
458, 555. After AlphaCap filed its covenant not to sue,
the District Court granted AlphaCap’s motions to dismiss,
see Gust, Inc. v. AlphaCap Ventures, LLC (Gust I), No.
1:15-cv-6192 (DLC), 2016 WL 4098544, at *6 (S.D.N.Y.
July 28, 2016), and the District Court determined that
“Gust bore [and met] the burden of proving that the case
was exceptional and that § 1927 authorized the award of
fees jointly against AlphaCap’s counsel [Gutride Safier
LLP (‘Gutride’)],” Gust, Inc. v. AlphaCap Ventures, LLC
(Gust II), 226 F. Supp. 3d 232, 254 (S.D.N.Y. 2016). In
reaching this conclusion, the District Court analyzed and
relied upon Gust’s evidence outlining “the history of this
litigation,” “why [U.S. Patent Nos. 7,848,976, 7,908,208,
and 8,433,630 (collectively, ‘the Patents-in-Suit’)] were
patent ineligible under the Alice [Corp. v. CLS Bank Int’l,
134 S. Ct. 2347 (2014)] standard,” and “why AlphaCap’s
litigation strategy was unreasonable at every stage of the
litigation.” See Gust II, 226 F. Supp. 3d at 252–54. I
agree and would affirm the District Court’s findings in
full.
In the Second Circuit, an award under § 1927 re-
quires: (1) that claims were “entirely without color,” and
(2) “were brought in bad faith—that is, motivated by
improper purposes such as harassment or delay.” Ad-
vanced Magnetic Closures, Inc. v. Rome Fastener Corp.,
607 F.3d 817, 833 (Fed. Cir. 2010) (citing Eisemann v.
Greene, 204 F.3d 393, 396 (2d Cir. 2000) (per curiam)). As
stated above, the Second Circuit reviews a district court’s
award of § 1927 sanctions “for an abuse of discretion.”
Enmon, 675 F.3d at 143.
4 GUST, INC. v. ALPHACAP VENTURES LLC
I. The District Court Did Not Abuse Its Discretion in
Finding Lack of A Colorable Claim
The District Court aptly found AlphaCap’s lawsuit
against Gust to be “frivolous,” “objectively baseless,” and
its claims without color such “that no litigant could have a
reasonable expectation of success on the merits.” Gust II,
226 F. Supp. 3d at 241. The District Court performed a
§ 101 analysis under Alice and found the Patents-in-Suit
“are directed to the patent-ineligible abstract idea of
crowdfunding, and do not contain an inventive concept
sufficient to transform the abstract idea of crowdfunding
into a patent-eligible application.” Id. at 244–45.
The Supreme Court’s decision in Alice provides the
framework with which we have consistently assessed
patent eligibility under § 101 since its rendering. See 134
S. Ct. at 2354–55. Under this framework, the District
Court properly determined Gutride lacked a colorable
basis in asserting the Patents-in-Suit, given the strength
of Gust’s § 101 ineligibility claim. First, the District
Court did not abuse its discretion in holding that Alpha-
Cap and Gutride’s argument—that it was reasonable to
believe that the Patents-in-Suit are not directed to an
abstract idea—lacks color. Gust II, 226 F. Supp. 3d at
241–43. The Patents-in-Suit generally relate to “data
collection templates” in the context of “private equity and
debt funding operations.” ’976 patent, Abstract. Repre-
sentative claim 1 of the ’976 patent recites the method of
“managing resource consumer information” for “col-
lect[ing] resource consumer information” by the steps of “a
system of one or more machines,” “the system providing to
at least one user . . . a telephone . . . within a user inter-
face in which the user may input information into the
user fields,” “defin[ing] a data collection,” and “storing the
information as a . . . profile . . . in an electronic database
system,” and allowing “at least one authorized par-
ty . . . to access information stored in the system.” Id. col.
30 ll. 26–62. We have repeatedly observed that claims
GUST, INC. v. ALPHACAP VENTURES LLC 5
similar to those here directed to data organization and
use of customizable profiles to facilitate patronage, even
when applied in a new business practice like crowdfund-
ing, are abstract ideas. See Content Extraction & Trans-
mission LLC v. Wells Fargo Bank, Nat’l Ass’n, 776 F.3d
1343, 1345, 1347 (Fed. Cir. 2014) (finding patent directed
to “software on an automated teller machine (ATM) that
recognizes information written on a scanned
check . . . [and] stor[es] information . . . into memory” to
be abstract because “[t]he concept of data collection,
recognition, and storage is undisputedly well-known”
(emphases added)); buySAFE, Inc. v. Google, Inc., 765
F.3d 1350, 1355 (Fed. Cir. 2014) (finding a patent directed
to creating a “transaction performance guaranty” for a
commercial transaction on computer networks such as the
Internet to be abstract and stating that sending infor-
mation over network is “not even arguably inventive”).
The District Court cited and compared the Asserted
Claims to many of these same cases related to fundamen-
tal economic and conventional business practices, Gust II,
226 F. Supp. 3d at 241–42, and there is no example of our
court endorsing the patent-eligibility of similar claims to
justify the majority’s assertion that our “§ 101 jurispru-
dence” during the pendency of this litigation was “evolv-
ing,” Maj. Op. 10; see, e.g., Mortg. Grader, Inc. v. First
Choice Loan Servs. Inc., 811 F.3d 1314, 1318, 1324 (Fed.
Cir. 2016) (finding patent directed to the idea of “anony-
mous loan shopping” and claiming “a method for a bor-
rower to evaluate and/or obtain financing” to be abstract).
The Asserted Claims merely recite a series of steps for
storing and organizing investment data that could all be
performed by humans without a computer, and Gutride’s
attempt to assert otherwise was frivolous given that the
abstract idea here is not meaningfully different from the
ideas found to be abstract in other cases before the Su-
preme Court and our court involving methods of organiz-
ing human activity.
6 GUST, INC. v. ALPHACAP VENTURES LLC
Second, the District Court did not abuse its discretion
by rejecting Gutride’s claim that the Patents-in-Suit
contain an inventive concept sufficient to transform the
abstract idea into a patent-eligible application. Gust II,
226 F. Supp. 3d at 244. Here, claim 1 utilizes convention-
al and generic items, including a “processing input”; a
device such as a “computer,” “telephone,” or “personal
digital assistant”; and “an electronic database.” ’976
patent col. 30 ll. 45, 46, 50, 51. When claims like these
are “directed to an abstract idea” and “merely requir[e]
generic computer implementation,” they “do[] not move
into [§] 101 eligibility territory.” buySAFE, 765 F.3d at
1354 (internal quotation marks and citation omitted); see
Intellectual Ventures I LLC v. Capital One Bank (USA),
792 F.3d 1363, 1367 (Fed. Cir. 2015) (finding claims
directed to the abstract idea of “tracking financial trans-
actions to determine whether they exceed a pre-set spend-
ing limit (i.e., budgeting)” did not “provide a sufficient
inventive concept” despite “claiming the improved speed
or efficiency inherent with applying the abstract idea on a
computer”). According to AlphaCap’s proposed claim
construction, a “template” is “[a] set of data that serves as
a pattern” for data collection, J.A. 2442, which means that
in the context of the claims, see, e.g., ’976 patent col. 30 l.
39–40, a “data collection template” is no more than a
group of fields that specify the kinds of data that will be
collected about different objects, such as investors or
investment targets. Yet, data management has been a
function of computers for as long as computers have
existed and will not transform an abstract concept into a
patentable invention. See, e.g., Alice, 134 S. Ct. at 2359.
Gutride maintains its position on appeal that claim terms
such as “data collection template” and “webpage” consti-
tute a work-around of clearly generic computer implemen-
tation, Appellant’s Br. 30, which continues to be a beyond
meritless and unreasonable view in the face of Alice.
GUST, INC. v. ALPHACAP VENTURES LLC 7
Moreover, I find no error in the District Court’s com-
parison of the Asserted Claims to those of Capital One
Bank. The appellant in Capital One Bank admitted that
budgeting “undoubtedly . . . is an abstract idea,” and the
court held that claims reciting use of a “communication
medium” did not render said claims inventive. 792 F.3d
at 1368. The District Court correctly pointed out that
Supreme Court precedent in Bilski v. Kappos further
supports a finding of ineligibility because “limiting an
abstract idea to one field of use or adding token postsolu-
tion components [does] not make the concept patentable.”
Gust II, 226 F. Supp. 3d at 244 (quoting 561 U.S. 593, 612
(2010)). Therefore, I agree that here, the implementing of
economic arrangements using generic computer technolo-
gy clearly does not constitute an “inventive concept”
sufficient to render an otherwise abstract idea patent-
eligible. The Patents-in-Suit clearly do not fall in that
interstitial area where doubt may reasonably exist. See
Gust, Inc. v. AlphaCap Ventures, LLC (Gust III), No. 1:15-
cv-6192 (DLC), 2017 WL 2875642, at *4 n.3 (S.D.N.Y.
July 6, 2017). Accordingly, the District Court did not
abuse its discretion in finding AlphaCap, through its
counsel Gutride, had no reasonable expectation of success
on the merits in the patent infringement lawsuit it liti-
gated through 2016 against Gust.
I strongly disagree with the majority’s acceptance of
Gutride’s contention on appeal that “the law on patent
eligibility was unsettled” and thus “Gutride . . . had good
faith arguments that the claims were eligible under
[§] 101.” Appellant’s Br. 22. Nothing about the law of
§ 101 was sufficiently unsettled at that time so to deem
Gutride’s arguments “reasonable arguments for interpret-
ing the law.” Maj. Op. 9. We applied the Alice test in a
dozen § 101 panel opinions that issued from the time the
Supreme Court issued Alice in June 2014 through the
8 GUST, INC. v. ALPHACAP VENTURES LLC
course of this litigation until AlphaCap stopped pursuing
their claims against Gust in May 2016. 3 Despite Alpha-
Cap and Gutride’s general arguments about unsettled
§ 101 jurisprudence, “there is no uncertainty or difficulty
in applying the principles set out in Alice to reach the
conclusion that [the ’976 patent’s] claims are ineligible.”
Inventor Holdings, LLC v. Bed Bath & Beyond, Inc., 876
F.3d 1372, 1379 (Fed. Cir. 2017); see id. at 1377–80 (re-
viewing attorney fees stemming from a district court’s
3 See In re Brown, 645 F. App’x 1014, 1015 (Fed.
Cir. 2016); Genetic Techs. Ltd. v. Merial L.L.C., 818 F.3d
1369, 1374 (Fed. Cir. 2016); In re Smith, 815 F.3d 816,
818 (Fed. Cir. 2016); Mortg. Grader, Inc., 811 F.3d at
1322; Vehicle Intelligence & Safety LLC v. Mercedes-Benz
USA, LLC, 635 F. App’x 914, 917 (Fed. Cir. 2015); Versata
Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306, 1331 (Fed.
Cir. 2015); Capital One Bank, 792 F.3d at 1367; Internet
Patents Corp. v. Active Network, Inc., 790 F.3d 1343, 1346
(Fed. Cir. 2015); Ariosa Diagnostics, Inc. v. Sequenom,
Inc., 788 F.3d 1371, 1375 (Fed. Cir. 2015); OIP Techs., Inc.
v. Amazon.com, Inc., 788 F.3d 1359, 1362 (Fed. Cir. 2015);
Allvoice Dev. US, LLC v. Microsoft Corp., 612 F. App’x
1009, 1017 (Fed. Cir. 2015); Content Extraction, 776 F.3d
at 1346–48; In re BRCA1- & BRCA2-Based Hereditary
Cancer Test Patent Litig., 774 F.3d 755, 763 (Fed. Cir.
2014); DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d
1245, 1255 (Fed. Cir. 2014); Ultramercial, Inc. v. Hulu,
LLC, 772 F.3d 709, 713 (Fed. Cir. 2014); buySAFE , 765
F.3d at 1351; Planet Bingo, LLC v. VKGS LLC, 576 F.
App’x 1005, 1006 (Fed. Cir. 2014); Digitech Image Techs.,
LLC v. Elecs. for Imaging, Inc., 758 F.3d 1344, 1350 (Fed.
Cir. 2014).
GUST, INC. v. ALPHACAP VENTURES LLC 9
2015 decision granting of an appellee’s § 101 motion and
agreeing that the case was weak). 4
The majority instead ignores this precedent, focusing
on the “only seven [majority opinions]” filed in the seven
months between Alice and the filing of this litigation.
Maj. Op. 10. This improperly narrows the window
through which we view counsel’s (lack of) a colorable basis
to continue litigation for over a year and a half. Indeed,
the majority recognizes that, under § 1927, the proper
inquiry is whether a party engaged in the “unreasonable
and vexatious multiplication of proceedings,” Maj. Op. 9,
and in the context of assessing attorney fees, it is there-
fore necessary to judge whether Gutride as counsel here
multiplied proceedings by examining how a party’s under-
standing of the colorableness of its claim may develop as
the law does, see United States v. Int’l Bhd. of Teamsters,
948 F.2d 1338, 1346 (2d Cir. 1991) (stating that § 1927
“invites attention to a course of conduct, and imposes a
continuing obligation on attorneys to avoid dilatory tac-
tics”); cf. Taurus IP, LLC v. DaimlerChrysler Corp., 726
F.3d 1306, 1328 (Fed. Cir. 2013) (“[A] party cannot assert
baseless infringement claims and must continually assess
the soundness of pending infringement claims[.]”); Med-
tronic Navigation, Inc. v. BrainLAB Medizinische Com-
putersysteme GmbH, 603 F.3d 943, 954 (Fed. Cir. 2010)
(providing, in the § 285 context, “[t]he salient inquiry is
whether [plaintiff’s] claims were so lacking in merit that
[the plaintiff] was legally obligated either to abandon its
case altogether or to limit itself to challenging the district
court’s claim construction order on appeal”).
4 To be clear, even if one were to concede the exist-
ence of some unsettled issues regarding patent eligibility
in the immediate post-Alice world, that would not render
colorable either claims or arguments regarding eligibility.
10 GUST, INC. v. ALPHACAP VENTURES LLC
Moreover, Gutride’s contention on appeal that it “had
reasonable grounds to” rely upon our precedent in
BASCOM Global Internet Services, Inc. v. AT&T Mobility
LLC, 827 F.3d 1341 (Fed. Cir. 2016), and Amdocs (Israel)
Ltd. v. Openet Telecom, Inc., 841 F.3d 1288 (Fed. Cir.
2016), is incredible. Appellant’s Br. 34. The majority
ignores this point, which, if anything, sheds light on
Gutride’s eleventh-hour attempts to defend their baseless
litigation. While it is true that BASCOM and Amdocs in
particular upheld the validity of patents accused of ineli-
gibility due to § 101, we did not decide BASCOM and
Amdocs until after AlphaCap granted the Covenant Not
to Sue in May 2016, which is what ended the litigation.
Thus, Gutride could not have had “reasonable grounds” to
rely upon those cases.
In Inventor Holdings, we acknowledged “that Alice
was a significant change in the law as applied to the facts
of this particular case.” 876 F.3d at 1379. “Prior to Alice,
the state of the law for computer-implemented business
transaction inventions was less than clear, given this
court’s divided [2013] en banc opinion.” Id. However, as
we later explained, post-Alice, “a § 101 defense previously
lacking in merit may be meritorious after Alice. This
scenario is most likely to occur with respect to patent
claims that involve implementations of economic ar-
rangements using generic computer technology,” Mortg.
Grader, 811 F.3d at 1322, as the claims do here. Compa-
rable to the “anonymous loan shopping” claims at issue in
Mortgage Grader, the Asserted Claims are directed to
such customizable profiles to facilitate patronage imple-
mented using generic computer technology. And these
issues were significant, if not determinative, of the Su-
preme Court’s holding in Alice.
The majority fears a “chill[ing]” effect that imposing
“direct economic sanctions” might have on attorneys.
Maj. Op. 10. However, we have expressly stated that “the
appetite for licensing revenue cannot overpower a liti-
GUST, INC. v. ALPHACAP VENTURES LLC 11
gant’s and its counsel’s obligation to file cases reasonably
based in law and fact and to litigate those cases in good
faith.” Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314,
1328 (Fed. Cir. 2011) (emphasis added); see id. (finding, in
the Federal Rule of Civil Procedure 11 context, that “an
attorney, in addition to his obligation to his client, also
has an obligation to the court and should not blindly
follow the client’s interests if not supported by law and
facts”). I would, therefore, determine that the District
Court did not abuse its discretion in holding that the
claims lacked a colorable basis.
II. The District Court Did Not Abuse Its Discretion in
Finding Bad Faith
The District Court found AlphaCap and Gutride acted
with bad faith throughout litigation, starting when it
“opposed Gust’s [motion to transfer venue]” and “pro-
ceed[ed] with the infringement action.” Gust II, 226 F.
Supp. 3d at 250, 251; see Gust III, 2017 WL 2875642, at
*6 (awarding fees under § 1927 because “[the] bad-faith
filing drove or colored virtually every decision counsel
made during the litigation” and led to an unreasonable
and vexatious multiplication of the proceedings). The
District Court considered multiple instances of bad faith
to support its finding. See Gust II, 226 F. Supp. 3d at
245–52. As part of its consideration, it first noted the
motivation of AlphaCap and Gutride in filing this patent
infringement case against Gust along with nine other
litigations in the Eastern District with “comparatively
paltry settlements with the nine other defendants con-
firms its unsavory motivation.” Id. at 245; see id. (“Al-
phaCap’s decision to file this case in the Eastern
District . . . —a venue that bears no relationship to the
parties or facts at issue in this case, as discussed in more
detail below—further supports a finding of inappropriate
motivation.”). The District Court also analyzed Gutride’s
litigation of frivolous claims on behalf of its client despite
the fact that, “[a]s experienced patent counsel, [they] were
12 GUST, INC. v. ALPHACAP VENTURES LLC
well aware of Alice and its implications for the [Patents-
in-Suit],” id. at 248; see id. (pointing to a statement made
by Gutride, when Gust resisted a walkaway settlement
offer, that AlphaCap’s claims were “not worth litigating”
and offered to dismiss the Eastern District litigation with
prejudice, yet filed the same day a motion for venue
discovery) Gutride’s clear litigation strategy was devised
to pursue those claims by “resisting a motion to change
venue, twice demand[ing] documents from Gust, and
engag[ing] in the prosecution of the [Eastern District
litigation].” Id.
Under Second Circuit law, bad faith in the § 1927 con-
text means “motivated by improper purposes such as
harassment or delay.” Schlaifer Nance & Co. v. Estate of
Warhol, 194 F.3d 323, 336 (2d Cir. 1999). I agree with the
District Court that Gutride was motivated by such im-
proper purposes, and I find no misstatement of law or
erroneous assessment of fact to disturb this finding of bad
faith on appeal. The majority attempts to divide and
conquer the District Court’s analysis at each of the points
above, see Maj. Op. 13–19, but the District Court went to
pains to document how “[the] bad-faith filing drove or
colored virtually every decision counsel made during the
litigation,” Gust III, 2017 WL 2875642, at *8. The law is,
in fact, clear that we must holistically consider Gutride’s
entire course of conduct in order to determine if it acted in
bad faith by delaying dismissal of its suit, when it had
knowledge of the suit’s frivolous nature. See Int’l Bhd. of
Teamsters, 948 F.2d at 1346. I find no abuse of discretion
here where clear evidence supports a finding of bad faith.
The majority incorrectly contends that the District
Court relies too heavily on Gutride’s statement made
during a settlement phone call that this case is “not worth
litigating,” J.A. 1342, and proffers that it is a common
statement in settlement talks, see Maj. Op. 14 (“In the
context of advocating for settlement with the opposing
party to settle, this is an inoffensive assertion that the
GUST, INC. v. ALPHACAP VENTURES LLC 13
calculus favors settlement[.]”). However, the majority
cites no Second Circuit case law to support its theory, and
I find none, excusing such a clear statement by counsel as
common. The majority’s attempt to analogize the facts of
this case to our precedent in Q-Pharma, Inc. v. Andrew
Jergens Co., fares no better. 360 F.3d 1295, 1304 (Fed.
Cir. 2004). In Q-Pharma, we affirmed a denial of § 285
fees and found no bad faith where “Q-Pharma explains its
decision to withdraw its claim of infringement as based on
its determination that further pursuit of the lawsuit
would not have been worth the investment required to
prove infringement.” Id. Here, the statement by counsel
Seth Safier speaks nothing of lost-investment, so we as
the reviewing appellate court cannot import such a limi-
tation. Rather, the statement cuts against Gutride’s
argument given that, unlike appellant’s actions in Q-
Pharma, the majority of Gutride’s objectionable conduct
occurred after Mr. Safier made the above statement in
July 2, 2015. Thus, such a statement made so early in
litigation indicates that if Mr. Safier believed the “case
should settle,” then Gutride could have, for example, filed
a covenant not to sue much earlier. This demonstrates a
bad faith attempt to multiply the proceedings beyond July
2015.
The majority further agrees with Gutride that under
“then-current law, the Eastern District was a proper
forum.” Maj. Op. 17. The District Court’s finding of bad
faith made clear that Gust lacked any real ties to the
Eastern District, yet Gutride brought suit in that forum,
and then claimed there were witnesses from which it
required evidence. Gust III, 2017 WL 2875642, at *6.
The District Court found that Gutride directly contradict-
ed this position in its subsequent filing, in which it could
not identify a single witness “within 100 miles of [the
Eastern District’s courthouse in] Marshall, Texas.” J.A.
3395; see Gust III, 2017 WL 2875642, at *6; J.A. 3408–
4406. As the District Court pointed out in Gust III, it was
14 GUST, INC. v. ALPHACAP VENTURES LLC
only after months of venue discovery and the production
of some “37,000 pages of documents” by Gust that Gutride
then learned of the existence of users of Gust’s online
system residing in the Eastern District, 2017 WL
2875642, at *6 n.10, a situation which simply could not
justify Gutride’s earlier resistance to the Motion to Trans-
fer Venue from the Eastern District. Gutride’s vexatious
opposition to the motion constituted an attempt to harass
Gust into settling as indicated by the suspect timing of its
July 2 discovery motion. See Maj. Op. 3 (timeline of
events).
Indeed, Gust early and formally notified AlphaCap
through counsel of its belief in the frivolous and excep-
tional conditions to which it was being subjected, outlin-
ing why the case lacked merit, and demanding attorneys’
fees if AlphaCap would not settle. J.A. 59; cf. Stone
Basket Innovations, LLC v. Cook Med. LLC, 892 F.3d
1175, 1181 (Fed. Cir. 2018) (stating that “provid[ing]
early, focused, and supported notice of [a counsel’s] belief
that it was being subjected to exceptional litigation” aids
a court’s analysis of a party’s unreasonable manner of
litigating under a separate attorney fees statutory provi-
sion). It was Gutride that instead pursued multiple
litigation tactics indicative of unreasonableness. See J.A.
58, 2409 (discovery on the Motion to Transfer Venue),
2452, 2729, 2827, 2882 (claim construction briefings). I
find nothing but continued bad faith by Gutride and
conclude the District Court properly sanctioned Gutride
for the unreasonable and vexatious multiplication of the
proceedings.
CONCLUSION
The majority improperly steps out of the appellate
role and substitutes its own findings of fact for that of the
District Court’s. The proper inquiry is whether the Dis-
trict Court based its sanctions on an erroneous assess-
ment of the evidence. It did not make any such errors,
GUST, INC. v. ALPHACAP VENTURES LLC 15
and we must defer to the District Court’s discretionary
award of § 1927 sanctions by affirming its sanctions
under such circumstances. Therefore, I respectfully
dissent.