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Gust Inc. v. Alphacap Ventures, LLC

United States District Court, S.D. New York

July 6, 2017

GUST, INC., Plaintiff,
v.
ALPHACAP VENTURES, LLC and RICHARD JUAREZ, Defendants. ALPHACAP VENTURES, LLC, Plaintiff,
v.
GUST, INC., Defendant.

          For AlphaCap Ventures, LLC and Richard Juarez Marie A. McCrary Gutride Safier LLP

          For Gust Inc. Frank A. Bruno White and Williams LLP

          OPINION & ORDER

          DENISE, COTE United States District Judge.

         The core litigation between these parties consumed roughly two years and spanned two jurisdictions. AlphaCap Ventures, LLC (“AlphaCap”) sought to extract a quick settlement from Gust, Inc. (“Gust”) while eschewing any defense of its business method patents (the “AlphaCap Patents”). Gust refused to cooperate with that plan and pressed its contention that the AlphaCap Patents were demonstrably invalid in light of Alice Corp. Pty. Ltd. v. CLS Bank International, 134 S.Ct. 2347 (2014). Ultimately, even though AlphaCap unilaterally issued Gust a Covenant Not to Sue (“Covenant”), Gust pursued its contention that the patents at issue were invalid and that AlphaCap and its attorneys had pursued the litigation in bad faith.

         On December 8, 2016, the Court awarded $508, 343 in attorneys' fees and costs, as well as prejudgment interest, pursuant to 35 U.S.C. § 285 (“Section 285”) against AlphaCap. See Gust, Inc. v. AlphaCap Ventures, LLC, 15cv6192 (DLC), 16cv1784 (DLC), 2016 WL 7165983 (S.D.N.Y. Dec. 8, 2016) (“Gust”). Gust held AlphaCap's counsel jointly and severally liable pursuant to 28 U.S.C. § 1927 (“Section 1927”) for vexatiously and unreasonably multiplying the proceedings in this case.

         On January 3, 2017, AlphaCap filed this motion to reconsider, alter, amend, and grant relief from judgment pursuant to Rules 59(e) and 60, Fed. R. Civ. P. For the reasons set forth below, AlphaCap's motion for reconsideration is denied.

         BACKGROUND

         On June 19, 2014, the Supreme Court issued its decision in Alice. Alice expounded upon the longstanding rule that “[l]aws of nature, natural phenomena, and abstract ideas are not patentable.” 134 S.Ct. at 2354 (citation omitted). Alice applied the two-step analytical framework set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S.Ct. 1289 (2012), to determine the eligibility of certain patents under 35 U.S.C. § 101 (“Section 101”), which defines the subject matter eligible for patent protection.

         Because the claims at issue in Alice were directed to an abstract idea -- the use of a third party to mitigate settlement risk -- the Court proceeded to analyze whether the claims recited an “inventive concept” sufficient to “transform” the abstract idea into a patent-eligible application. Alice, 134 S.Ct. at 2357. Of particular interest to the instant litigation, the Court noted that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea while adding the words ‘apply it' is not enough for patent eligibility.” Id. at 2358 (citation omitted). Accordingly, the Court held the following claims unpatentable for failing to recite an inventive concept beyond application through a computer: (1) a “method for exchanging [financial] obligations, ” (2) “a computer system configured to carry out the method for exchanging obligations, ” and (3) “a computer-readable medium containing program code for performing the method of exchanging obligations.” Id. at 2353.

         Notwithstanding Alice and its implications for the AlphaCap Patents, in January 2015, AlphaCap sued Gust and nine similar defendants in the Eastern District of Texas (the “Texas Action”). The ten defendants represented nearly every major provider of internet crowdfunding services. The Texas Action alleged infringement of three business method patents. The AlphaCap Patents claim computer-implemented methods of managing information related to “equity and debt financing” through the use of “data collection templates” and “semi-homogenous profiles.” These ten actions were pursued on a contingency fee basis by counsel. By June 23, 2015, AlphaCap had settled each action it filed in the Eastern District of Texas, except for the action against Gust. None of the settlements exceeded $50, 000 and some settlements were for substantially less money.

         Gust answered AlphaCap's complaint on March 26 by asserting six counterclaims seeking a declaratory judgment of non-infringement and invalidity for each of the three AlphaCap Patents. On June 19, AlphaCap's counsel called Gust's attorney to present AlphaCap's opening demand to settle the Texas Action.

         Gust rejected the demand. On June 22, Gust filed a motion to transfer venue to the Southern District of New York pursuant to 28 U.S.C. § 1404 or, in the alternative, 28 U.S.C. § 1406. The ensuing negotiations and litigation between the parties is described in Gust, 2016 WL 7165983, at *2-4, which is incorporated by reference. Only those events of particular significance to the pending motion for reconsideration are described here.

         Even though neither Gust nor AlphaCap had any apparent connection with the Eastern District of Texas, and Gust sought to transfer the action to its home jurisdiction, AlphaCap pursued extensive and expensive discovery as it opposed the motion. At the end of the day, AlphaCap was only able to identify, although not by name, some end users of the purportedly infringing product who resided in the Eastern District of Texas. On March 2, 2016, Gust's motion to transfer was granted. In doing so, the federal court in Texas observed that New York was “clearly a more convenient venue” than the Eastern District of Texas. Pending the decision on the transfer motion, and pursuant to the Eastern District of Texas rules for automatic discovery in patent cases, the parties engaged in expensive claim construction discovery.

         Meanwhile, with its motion to transfer AlphaCap's action to the Southern District of New York pending, Gust filed its own action against AlphaCap in the Southern District of New York (the “New York Action”). The New York Action, which was filed on August 6, 2015, sought a declaratory judgment of non-infringement and invalidity of the AlphaCap Patents, among other things. Following the transfer of the Texas Action to this jurisdiction the two lawsuits were consolidated. The parties were ordered to provide a report to the court by May 20, 2016 describing, inter alia, contemplated motions. On May 18, two days before the report was due, AlphaCap unilaterally provided Gust with the Covenant. In a May 20 report to the Court, AlphaCap took the position that the Covenant required dismissal of all of its infringement claims and Gust's claims seeking a declaratory judgment of non-infringement and invalidity. Gust asserted, however, that it would still seek to show that the AlphaCap Patents were invalid to support its remaining claims and to obtain an award of fees. At a June 10 conference with the Court, AlphaCap continued to assert that it was unnecessary to address the validity of the AlphaCap Patents in light of the Covenant, while Gust continued to assert that a validity determination remained relevant and necessary.

         On July 28, this Court issued an opinion granting AlphaCap's pending motions to dismiss since the Covenant rendered moot the claims and counterclaims related to the infringement and validity of the AlphaCap Patents. See Gust, Inc. v. AlphaCap Ventures, LLC, 15cv6192 (DLC), 16cv1784 (DLC), 2016 WL 4098544, at *3 (S.D.N.Y. July 28, 2016). The Opinion noted that the parties were in agreement that the Covenant did not affect Gust's requests for attorneys' fees and costs. Id. at *3-4.

         On August 19, 2016, Gust moved for attorneys' fees and costs against AlphaCap and its counsel pursuant to 35 U.S.C. § 285 and 28 U.S.C. § 1927. On December 8, 2016, the Court largely granted Gust's motion for attorneys' fees, finding the case “extraordinary” under 35 U.S.C. § 285 and finding AlphaCap's counsel jointly and severally liable under 28 U.S.C. § 1927.

         On January 3, 2017, AlphaCap filed the present motion for reconsideration pursuant to Rules 59(e) and 60, Fed. R. Civ. P.[1]Also on January 3, AlphaCap filed an emergency motion to stay enforcement of the December 8 judgment. On January 4, the Court entered a stay of ...


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