Eon-Net v. Flagstar Bancorp, Inc.

239 F.R.D. 609, 66 Fed. R. Serv. 3d 514, 2006 U.S. Dist. LEXIS 95720, 2006 WL 2959280
CourtDistrict Court, W.D. Washington
DecidedOctober 4, 2006
DocketNo. C05-2129MJP
StatusPublished
Cited by1 cases

This text of 239 F.R.D. 609 (Eon-Net v. Flagstar Bancorp, Inc.) is published on Counsel Stack Legal Research, covering District Court, W.D. Washington primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Eon-Net v. Flagstar Bancorp, Inc., 239 F.R.D. 609, 66 Fed. R. Serv. 3d 514, 2006 U.S. Dist. LEXIS 95720, 2006 WL 2959280 (W.D. Wash. 2006).

Opinion

ORDER ON SANCTIONS PURSUANT TO FED. R. CIV. P. 11

PECHMAN, District Judge.

I. INTRODUCTION

This matter comes before the Court on a motion for sanctions pursuant to Fed. R.Civ.P. 11 by Defendant Flagstar Bancorp (“Flagstar”) (Dkt. No. 42). The Court has reviewed Flagstar’s motion, the opposition by Plaintiff Eon-Net, L.P. (“Eon-Net”), the reply, and the supporting declarations and exhibits submitted by both parties. In addition, the Court considered the patent at issue, U.S. Patent No. 6,683,697 (the “'697 Patent”). The Court heard oral argument from the parties on September 8, 2006, and being fully informed hereby enters the following order.

II. BACKGROUND

Plaintiff Eon-Net alleges that Flagstar infringes the '697 Patent. Am. Complaint 1( 10. A related corporation, Millennium, L.P. (“Millennium”), assigned the '697 Patent to Eon-Net. Id H 8. The '697 Patent describes and claims an interface between “hard copy” documents and computer applications.1 See '697 Patent at 4:13-15. The specification [612]*612describes the extraction of information from hard copy documents by scanning the documents, parsing the extracted information, and formatting the information for use. '697 Patent at 4:25-28, 4:45-49, 4:53-5:56 (Description of Figure 1). The invention of the '697 Patent permits quick and automatic extraction of information from hard copy documents, such as invoices or receipts.2

Flagstar operates banking centers throughout the country. Declaration of Melissa J. Baily in Support of Flagstar Bancorp’s Motion for Summary Judgment (“Baily Deck”) 112. Flagstar also operates a website at www.flagstar.com. Id. Flagstar’s website provides customers with online access and services related to its “e-mortgage” and banking business. Affidavit of Jason B. Dufner in Support of Flagstar Bancorp’s Motion for Summary Judgment (“Dufner Aff.”) 113. Potential borrowers may submit loan applications and related information and obtain updates on loan approval. I Users may also obtain information on established loan accounts through Flagstar’s website. Id. Plaintiff alleges that Flagstar infringes the '697 Patent by:

[Collecting information over the Internet pursuant to a claim of the '697 patent, and deploying for Defendant’s own use an application distributed over the Internet in which information is collected and extracted from a customer of Defendant and processed on Defendant’s server ...

Am. Compk 1110. Plaintiffs Complaint is virtually identical to two complaints in cases previously before this Court, Eon-Net, L.P. v. CoolAnimalStuff.com, No. C05-1844MJP, and Eon-Net, L.P. v. Drugstore.com inc., No. C05-2114MJP. The Complaint is also virtually identical to at least thirteen other complaints filed against parties with greatly disparate business operations.3 The complaints all allege the defendants infringe by:

collecting information over the Internet pursuant to a claim of the '697 patent, and deploying for Defendant’s own use an application distributed over the Internet in which information is collected and extracted from a customer of Defendant and processed on Defendant’s server ...

See, e.g., Second Baily Deck, Ex. C at H10 (Black Hound Compk). The only difference between the complaints is the name of the defendant. In recent weeks (during the pen-dency of this motion), Eon-Net has filed eleven new complaints4 against various unrelated parties, some of which charge infringement of the '697 Patent with slightly changed language:

operating a website at [web address] pursuant to a claim of the '697 patent ... in which information entered by a customer of Defendant into an electronic form document displayed on the customer’s computer is extracted and transmitted to an application program operating on Defendant’s server ...

See, e.g., Supplemental Declaration of Melissa J. Baily in Support of Flagstar Bancorp’s Motion for Sanctions Pursuant to Fed. R.Civ.P. 11 (“Supp. Baily Deck”), Ex. 2 at H 12 (Hammacher Schlemmer Compk).

In this case, as in its various other infringement actions, Eon-Net followed service of the complaint with a cheap offer of settlement. See, e.g., Second Baily Deck, Ex. B. Eon-Net offers settlement for a fraction of the cost of litigation, with a settlement schedule based on a defendant’s annual sales: [613]*613$25,000 for sales less than $3,000,000, $50,000 for sales between $3,000,000 and $20,000,000, and $75,000 for sales between $20,000,000 and $100,000,000. Id. Flagstar urges that the identical complaints and cheap settlement offers demonstrate bad faith. Flagstar’s counsel characterizes the litigation as a “bad faith shakedown suit.”5 See Declaration of Jean-Marc Zimmerman in Support of Eon-Net’s Opposition to Motion for Rule 11 Sanctions (“Zimmerman Decl.”), Ex. 40.

Flagstar reviewed its web operations in light of the infringement suit to identify products, software, or technologies that might infringe the '697 Patent. See Declaration of Jason B. Dufner in Support of Flags-tar Bancorp’s Motion for Rule 11 Sanctions (“Dufner Decl.”) 112. Flagstar determined that it used potentially related software for document processing, which was sold by Ko-fax Image Products, Inc. (“Kofax”). Id. 11112-3. Flagstar had purchased Kofax software, including “Ascent Capture” and “Ascent Payables” (the “Kofax software”), which Flagstar used in its e-mortgage business. See Dufner Aff. Hit 4, 7, Ex. 1 (Software License Agreement).

Flagstar contacted Kofax about the software products it had purchased, and told Kofax of the infringement lawsuit. Baily Decl. 116. Kofax’s attorney informed Flagstar that Kofax had a license to the '697 Patent and that its customers were covered by the license. Baily Deck, Ex. 5 (Settlement & License Agreement between Kofax and Millennium). The license agreement grants Ko-fax and its customers a non-exclusive irrevocable license for the '697 Patent for their use of Kofax software, and binds Millennium’s assigns and related corporate entities. Id., Ex. 5 HH 2.1.1, 8.2. Flagstar subpoenaed the license agreement from Kofax to determine whether Flagstar was covered by the terms of the license agreement. Eon-Net instructed Kofax not to comply with the subpoena, claiming it would seek a protective order. Baily Deck, Ex. 7 (email from Eon-Net to Kofax). Eon-Net later threatened Kofax with a lawsuit for complying with the subpoena and producing the license agreement. Id., Ex. 9.

After Eon-Net filed suit, Flagstar attempted to informally assist Eon-Net with its post-filing investigation of its web operations in an attempt to convince Eon-Net that it was not infringing and was licensed. Flagstar answered questions about software functionality for nearly a year. E.g., Zimmerman Deck, Ex. 31. Over a year after filing the Complaint, Eon-Net now agrees that the Kofax software does not infringe. See Zimmerman Deck, Ex. 39 (April 21, 2006 Zimmerman Letter). When faced with simultaneous motions for summary judgment and sanctions pursuant to Fed.R.Civ.P.

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Related

Eon-Net LP v. Flagstar Bancorp
653 F.3d 1314 (Federal Circuit, 2011)

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239 F.R.D. 609, 66 Fed. R. Serv. 3d 514, 2006 U.S. Dist. LEXIS 95720, 2006 WL 2959280, Counsel Stack Legal Research, https://law.counselstack.com/opinion/eon-net-v-flagstar-bancorp-inc-wawd-2006.