Federal Circuit Affirms Netflix Fee Award Granted Under Court’s Inherent Equitable Powers

By Michael Dorfman | August 4, 2022

In a July 28, 2022 precedential opinion in Realtime Adaptive Streaming LLC v. Netflix, Inc., Netflix Streaming Services, Inc. (available here), the Federal Circuit affirmed a fee award to Netflix resulting from Realtime’s “blatant gamesmanship”.


In 2017, Realtime filed a lawsuit against Netflix in the District of Delaware asserting six patents.  In response, Netflix, inter alia, moved to dismiss arguing that four of the patents were ineligible under § 101.  While the motion was pending, Netflix moved to transfer to the Northern District of California but Realtime opposed, arguing that it lacked any ties to California and that moving the case would ‘lead to greater expense, additional travel, and more work for Realtime,” leading to an “unfair” burden on Realtime.  The motion was denied.


Thereafter, the Delaware magistrate judge issued a detailed report and recommendation advising the court to find those four patents ineligible under § 101.  Further, in litigation involving patents related to the patents asserted against Netflix, the same district court judge found those related patents invalid under § 101.  Still further, by that time, the Patent Trial and Appeal Board had instituted inter partes review proceedings for all six of the asserted patents.  In the face of these adverse events, and before the district court could rule on the ineligibility recommendation, Realtime voluntarily dismissed its action.


“For most plaintiffs, these circumstances would signal the end of litigation.  Realtime, however, rebooted the litigation against Netflix in the form of two new patent infringement actions in the Central District of California.”  Slip Op. at 6.  In the California lawsuits, Realtime asserted the same six patents as in Delaware, with the two unchallenged patents in one lawsuit and “the patents known to be vulnerable under § 101” in the second lawsuit.


Netflix moved to transfer both California actions to Delaware and for attorneys’ fees, but Realtime opposed the transfer arguing that California was more convenient than Delaware.  Its objection was despite the Delaware court’s experience with most of the asserted patents, the original selection of that forum, and Realtime’s earlier protests that a transfer to California would be an unfair burden.


After oral argument on the motion to transfer but before the parties fully briefed the fees motion, Realtime voluntarily dismissed both California actions.  Netflix renewed its motion for fees for: (1) the California actions, (2) the original Delaware action, and (3) the related inter partes review proceedings.  The court awarded fees for the California action but not the original Delaware action or the IPRs.  The court concluded that Realtime’s litigation conduct justified awarding fees for the California actions under either 35 U.S.C. § 285 or the court’s inherent equitable powers, but an award of fees for the related actions was not warranted under § 285 or Rule 41(d).


On appeal, the Federal Circuit observed that, in awarding fees pursuant to its inherent equitable powers, the district court reasonably found Realtime’s conduct in the California actions “improper,” “exceptional,” and “totally unjustified.”  The Federal Circuit also stated that “by refiling in California, [Realtime] could effectively erase the Delaware magistrate judge’s fulsome and compelling patent-ineligibility analysis and findings.”  Further, Realtime resisted transfer back to Delaware despite previously arguing that litigating in California would be inconvenient and “unfair.”  The district court recognized these contradictions to support a finding of “impermissible forum shopping” and concluded that “Realtime’s conduct in forum shopping its dispute supports invocation” of its equitable powers.


In finding that the district court did not abuse its power in the award of fees, the Federal Circuit stated, “[t]he blatant gamesmanship presented by the facts of this case constitutes a willful action for an improper purpose, tantamount to bad faith, and therefore within the bounds of activities sanctionable under a court’s inherent power in view of the Ninth Circuit’s standard.”


With regard to Netflix’s cross-appeal relating to the denial of fees for the original Delaware action and the IPRs, the Federal Circuit noted that the district court concluded there was no evidence that the initial filing of the Delaware case was “untenable.”  Further, the district court did not have sufficient evidence to determine whether institution alone of the IPRs “should have served to apprise Realtime of the futility of its litigation efforts.”  In holding that the district court did not abuse its discretion in declining to award fees for the related actions, the Federal Circuit did not need to address the hypothetical of whether such an award would be authorized under either § 285 or Rule 41.


Following Realtime v. Netflix, a patent owner should consider the nature of its attempts to avoid adverse rulings and engage in forum shopping, recognizing that these efforts will likely be readily apparent to the court and might subject it to an award of fees.