[00:00:39] Speaker 00: Okay, Mr. Carroll. [00:00:46] Speaker 04: May it please the court, Brian Carroll for Scavenger Inc. [00:00:50] Speaker 04: doing business as Level Up. [00:00:52] Speaker 04: We reserve three minutes. [00:00:56] Speaker 04: Level Up's appeal in this case is not the typical appeal that this court is now seeing under Octane Fitness, in which the court's being asked to dissect a patentee's unsuccessful claim construction positions or its unsuccessful infringement assertions. [00:01:09] Speaker 04: and make a determination about the reasonableness of those positions. [00:01:13] Speaker 04: The exceptional thing in this case is that the patentee offered no positions for this court to dissect. [00:01:18] Speaker 04: Level Up filed its motion for summary judgment immediately with its answer based on publicly observable facts about the Level Up mobile payment system. [00:01:25] Speaker 00: Yeah, but when we heard the appeal that it wasn't a frivolous case on the merits, there was a suggestion that the [00:01:37] Speaker 00: phone was a point of sale terminal based on the addition of the tip in restaurant transactions. [00:01:47] Speaker 00: So if it wasn't objectively unreasonable, why was the district court in error here in denying fees? [00:01:58] Speaker 04: Well, let me address the field of this. [00:02:00] Speaker 04: So what happened at the summary judgment phase in this case is that the patentee didn't dispute a single statement of fact. [00:02:07] Speaker 04: didn't offer any evidence at all of infringement, didn't submit even a declaration in support of its infringement. [00:02:12] Speaker 04: It didn't dispute Level Up's proposed claim construction. [00:02:14] Speaker 04: There was only one term in dispute. [00:02:16] Speaker 04: We proposed a construction of the term transaction terminal. [00:02:19] Speaker 04: They didn't dispute that at all for any additional construction. [00:02:23] Speaker 04: They didn't ask for any discovery. [00:02:24] Speaker 00: It was clear from the record at that point that the cell phone was used to add a tip in restaurant transactions, right? [00:02:33] Speaker 04: This is a factual infringement assertion, again, with no dispute over claim construction and no dispute as to any of the facts. [00:02:40] Speaker 00: So there was a question of infringement. [00:02:43] Speaker 04: It was a question of infringement that the trial court looked at and on summary judgment determined that no reasonable juror could ever find infringement that leveled up infringement Mr. Barron's complaint. [00:02:55] Speaker 04: And that happened at summary judgment. [00:02:57] Speaker 04: Now, in this appeal, [00:02:59] Speaker 04: This appeal is from the decision on attorney's fees. [00:03:02] Speaker 01: And on the decision of attorney's fees, after the court had already said... I don't quite understand what difference it makes that it was decided on summary judgment. [00:03:09] Speaker 01: I mean, there are all kinds of cases where there's an undisputed issue of fact and the judge can look at it and determine it as a matter of law, one side wins or another. [00:03:19] Speaker 01: The fact that that's done relatively early on and on undisputed facts doesn't mean that the losing side's position is so frivolous that [00:03:28] Speaker 01: attorney fees are warranted. [00:03:30] Speaker 04: Well, Your Honor, I don't think that the district court can make a determination summary judgment that no reasonable juror could ever find infringement on an undisputed record. [00:03:38] Speaker 00: That makes it automatically, objectively unreasonable? [00:03:42] Speaker 04: It does in this case, Your Honor. [00:03:43] Speaker 04: And the reason it does in this case is twofold, really onefold, because nothing changed from the time that Mr. Barron decided to file his complaint against Level Up to the time that the district court determined that no reasonable juror could ever find infringement on that claim. [00:03:57] Speaker 04: This is not a case in which some fact came out during discovery. [00:03:59] Speaker 00: It could still be a close case even though he won on summary judgment, right? [00:04:03] Speaker 04: No, it can't be. [00:04:04] Speaker 04: If it was a close case, then summary judgment couldn't have entered. [00:04:06] Speaker 01: Summary judgment is whether there's a genuine issue of material fact. [00:04:11] Speaker 04: Whether there's a genuine issue of material fact. [00:04:12] Speaker 01: You can agree on the facts and then disagree about how the law applies to those facts. [00:04:17] Speaker 04: Absolutely. [00:04:17] Speaker 04: And if there's a reasonable disagreement about how the law can apply to those facts, that's for the jury to determine those facts. [00:04:23] Speaker 04: It's not that summary judgment enters in every case. [00:04:26] Speaker 01: It's not for the jury to decide a legal question. [00:04:28] Speaker 01: I mean, if there's an agreement about the facts, and as a matter of law, the district court decides no infringement, then he or she can grant summary judgment. [00:04:40] Speaker 01: That doesn't mean it's per se unreasonable. [00:04:43] Speaker 04: There may be some window for discretion in the district court to determine that a case that is so frivolous that no reasonable juror could ever find infringement. [00:04:51] Speaker 04: But it's not so unreasonable. [00:04:53] Speaker 00: That's not summary judgment. [00:04:54] Speaker 00: It's not that the case has to be frivolous. [00:04:57] Speaker 00: You can get summary judgment on cases which are not frivolous. [00:05:01] Speaker 00: It's just that there's no genuine dispute of material fact. [00:05:04] Speaker 00: That doesn't mean that even the factual part of it is frivolous. [00:05:08] Speaker 04: I guess that may be true. [00:05:10] Speaker 04: But what I'm focusing on here is the determination at the time he filed as to whether a reasonable patentee would see merit in that claim. [00:05:16] Speaker 04: And what the district court said in its decision on the 285 motion here is [00:05:20] Speaker 04: I don't find that this is objectively baseless. [00:05:23] Speaker 04: At the time Mr. Barron filed, he could have thought there was merit in that claim. [00:05:27] Speaker 04: And then we move forward. [00:05:28] Speaker 04: Nothing changes. [00:05:28] Speaker 04: He files that complaint. [00:05:29] Speaker 04: We move for summary judgment. [00:05:31] Speaker 04: The facts are not disputed. [00:05:32] Speaker 04: There's no claim construction that he was operating under. [00:05:35] Speaker 04: It's not that he was saying, this is how I'm interpreting the claim. [00:05:37] Speaker 04: I think that the phone can be part of the transaction terminal. [00:05:40] Speaker 04: And that that position gets rejected by the court. [00:05:43] Speaker 04: And then the court interests summary judgment. [00:05:44] Speaker 04: That's not at all what happened here. [00:05:46] Speaker 04: The construction was agreed upon. [00:05:47] Speaker 04: The facts were agreed upon. [00:05:49] Speaker 04: He was just hoping to hold on. [00:05:50] Speaker 04: and see if he could survive an early summary judgment and let this litigation go. [00:05:54] Speaker 04: If we want to get into dissect the reasonableness of the position, it's completely unreasonable to say that the consumer's phone could be part of the transaction terminal. [00:06:02] Speaker 04: He's made this argument that, well, we thought the phone, a phone, could be part of the transaction terminal. [00:06:07] Speaker 00: That's really a straw man. [00:06:08] Speaker 00: Why is it unreasonable when the tip is added using the phone? [00:06:10] Speaker 04: So the first argument he made was that the phone itself could be part of the transaction terminal. [00:06:15] Speaker 04: That's a straw man. [00:06:15] Speaker 04: Everybody agrees. [00:06:16] Speaker 00: Why is that a straw man? [00:06:17] Speaker 00: Why can't it be part of the transaction terminal? [00:06:19] Speaker 00: when the tip part of the financial transaction is entered into the phone. [00:06:25] Speaker 04: So as a base, everyone agrees that a transaction terminal could be a tablet or a phone or any type of device. [00:06:31] Speaker 04: That was undisputed. [00:06:32] Speaker 04: The question is not whether it's any type of device. [00:06:34] Speaker 04: It's whether the consumer's device could be part of the merchant's transaction terminal. [00:06:38] Speaker 04: And the undisputed construction of transaction terminal in this case is a device that communicates over a secure financial network, such as the MasterCard or Visa clearance networks, [00:06:47] Speaker 04: and communicates transaction information for authorization. [00:06:51] Speaker 04: Even if you were to take this argument that the makeup of the transaction terminal is somehow transient over time, that the consumer A's device can be part of the transaction terminal when it does a transaction, and consumer B's next in line can be part of the transaction terminal when it does a transaction, the phone is far walled off from that point of sale device that's connected to the secure financial network. [00:07:14] Speaker 04: The entire basis for this patent is, [00:07:17] Speaker 04: This is an alternative to communicating over the public internet as a way to reach people that don't have cell phones or internet connected devices. [00:07:24] Speaker 04: And the way we do that is by communicating over the secure financial networks to these terminals, like ATM terminals or retail terminals that are wired in firewall to the secure network. [00:07:33] Speaker 04: Even if the phone is considered part of the transaction terminal because you're scanning a QR code, it's never part of any device that's communicating over that secure financial transaction network. [00:07:43] Speaker 04: That would inherently destroy the security of those terminals. [00:07:47] Speaker 04: And that's what the patent's seeking to avoid. [00:07:50] Speaker 04: Level Up's only sending messages over the public internet to that phone. [00:07:55] Speaker 04: And when the phone is receiving messages over the public internet, there's no connection between that user's phone and the point-of-sale terminal. [00:08:01] Speaker 04: There's no messages ever transmitted between the phone and the point-of-sale terminal. [00:08:05] Speaker 04: In fact, the phone could be an airplane. [00:08:07] Speaker 00: When you enter the tip onto the phone, it is transmitted and communicated, so it's part of the transaction. [00:08:14] Speaker 04: There's two points of timer. [00:08:17] Speaker 04: You're setting the tip. [00:08:18] Speaker 04: All it does is rearrange the QR code. [00:08:20] Speaker 04: There's no wireless communication. [00:08:21] Speaker 04: You then communicate the QR code with your token. [00:08:24] Speaker 00: For every transaction, that's true. [00:08:27] Speaker 00: But for restaurant transactions, it does something more. [00:08:30] Speaker 00: It doesn't just provide the code. [00:08:32] Speaker 00: It also enables the customer to enter a tip into the phone, which gets transmitted to the merchant's terminal, and the tip is added. [00:08:44] Speaker 04: Absolutely, Your Honor. [00:08:46] Speaker 04: It's no different than if I present my credit card to a waiter at a restaurant, and he takes it and scans it, scans my credit card token into the terminal, and he comes back and asks me how much I want to add for a tip, and I say 20%, I sign the receipt, I give it back to him, and he manually enters 20% into the terminal, and then that goes up to the financial transaction network. [00:09:02] Speaker 04: In no way would anyone ever suggest that that makes my credit card part of the merchant transaction terminal device. [00:09:08] Speaker 04: And the same is true here. [00:09:09] Speaker 04: Even if you were to say that that does, at that point in time of the transaction, [00:09:12] Speaker 04: makes the phone part of the transaction terminal device. [00:09:15] Speaker 04: That's step one of the claim. [00:09:16] Speaker 04: Step two of the claim is receiving the message at that same transaction terminal. [00:09:19] Speaker 04: And when the message is received, it's not received at the point of sale. [00:09:23] Speaker 04: It's received only by the user's phone. [00:09:25] Speaker 04: And that's over the public internet, which is completely, entirely separate from the point of sale at that point. [00:09:29] Speaker 04: And there's never any communication. [00:09:31] Speaker 04: So the takeaway here is that even if that were true, the message received at the phone is not received at the same transaction terminal device as [00:09:40] Speaker 04: the transactions performed, and that's an express requirement to claim. [00:09:42] Speaker 04: It has to be the same device. [00:09:44] Speaker 04: So if you want to say that the phone is part of the transactional terminal for step one, it's certainly not part of the transaction terminal for step two. [00:09:51] Speaker 04: And if you read the patent in the background, there's just no basis for asserting that Level Up's system here has anything to do with Mr. Barron's method of delivering messages over a financial transaction network. [00:10:02] Speaker 04: That's why the court entered summary judgment. [00:10:04] Speaker 00: Messages are delivered to the phone, right? [00:10:06] Speaker 04: Only over the public internet, never over [00:10:09] Speaker 04: the financial transaction network, which is part of the construction, the undisputed construction of transaction terminal. [00:10:14] Speaker 04: In that sense, this case is very similar to what this court just decided 10 days ago in Lumenview, which is Lumenview assented to a construction, and they asserted infringement under that construction. [00:10:24] Speaker 04: The court found there's no chance they could have ever proved infringement under that construction. [00:10:28] Speaker 04: The facts are exactly the same here. [00:10:30] Speaker 00: What did the district court do in Lumenview? [00:10:32] Speaker 04: The district court awarded fees. [00:10:34] Speaker 00: The district court here didn't award fees. [00:10:37] Speaker 04: Distinction. [00:10:39] Speaker 04: I certainly understand the distinction, Your Honor. [00:10:41] Speaker 04: The difference here is that this is not a case where, like I said, where a good faith claim construction was rejected, or where some facts came out that undercut the patentee's infringement contentions. [00:10:53] Speaker 04: This is a case where nothing changed. [00:10:56] Speaker 04: The facts known to Mr. Barham when he asserted that complaint are the same facts that the district court under summary judgment on, which this court reviewed de novo. [00:11:06] Speaker 01: And the district court apparently thought those arguments on summary judgment, while not warranting a denial of summary judgment, were not sufficiently weak to award fees. [00:11:16] Speaker 01: That's true. [00:11:17] Speaker 01: Which we review for abuse of discretion. [00:11:19] Speaker 01: You spent like five minutes explaining to us how this patent works, how their system works, why there's no infringement and the like. [00:11:27] Speaker 01: The district court was in a better position than us to judge whether those arguments [00:11:31] Speaker 01: completely lack merit or not. [00:11:32] Speaker 04: And let me get into, then, the detail, the opinion, and the factual errors that made that this court does review, and which this court has reversed on, for example, in Biax and in other cases. [00:11:41] Speaker 04: And in this case, the primary foundation for the district court finding no objective baselessness was its statement that the Level Up map functions reasonably similar to the app described in the specification. [00:11:51] Speaker 04: That's wrong as a legal matter, as you know. [00:11:53] Speaker 04: The court's not here to compare the product to the specification. [00:11:56] Speaker 04: The court wasn't relying on any claim-by-claim analysis by the patentee, because the patentee didn't provide one. [00:12:01] Speaker 04: The court didn't provide one to get to its determination of objective baselessness. [00:12:04] Speaker 04: All it did was compare to the spec. [00:12:06] Speaker 04: That's also factually wrong. [00:12:08] Speaker 04: As we just discussed, there's nothing in the specification that would suggest that there's any messaging to a mobile device. [00:12:13] Speaker 04: In fact, the patent says that that's the opposite. [00:12:15] Speaker 04: That's the problem it's trying to solve. [00:12:18] Speaker 04: That level up is essentially the antithesis of the description. [00:12:20] Speaker 04: So those are wrong as a legal matter and as a factual matter. [00:12:24] Speaker 04: The court's reliance on the pending appeal [00:12:26] Speaker 04: as evidence of the objective baselessness, I think is clearly an incorrect factual issue, which this court should look at and remand, at the very least, for consideration truly of the objective baselessness, including a claim element by claim element comparison of the alleged infringement. [00:12:42] Speaker 04: Now, before I get into my rebuttal time, I just want to suggest one last thing, which is the Supreme Court standard, just taking it back to a high level, the Supreme Court standard is whether this case stands out from the others with respect to its merits. [00:12:54] Speaker 04: And we looked at the others. [00:12:54] Speaker 03: And I'm not aware of any case in which some legitimate non-infringement entered immediately after the answer. [00:13:04] Speaker 04: And as the court pointed out, that point, that suggests the meritlessness of the patentees' claims. [00:13:09] Speaker 04: And this case is already being cited by other patent holders and by other entities as a case that stands out against the others. [00:13:16] Speaker 04: Patentees are saying, well, if I make it past the scheduling conference or if I get to a claim construction hearing, I did better than the patentee in that case. [00:13:22] Speaker 04: And that case was found to be not exceptional. [00:13:24] Speaker 04: I think that if the court affirms this case and affirms the reasoning and the flawed reasoning, the flawed factual conclusions, both on objective and subjective fractions of the district court, it's going to send a message to district courts that their discretion and objective basis is unassailable. [00:13:36] Speaker 04: If a claim that can't survive summary judgment immediately gets the answer, with no dispute of claim construction or dispute of fact is an objectively baseless, then it's going to eviscerate the purpose of Octane or any hope of having a uniform approach by the district courts across the country in applying discretion in 285 cases. [00:13:53] Speaker 04: I'm going to serve the last two minutes for recall. [00:13:57] Speaker 00: Thank you. [00:13:57] Speaker 00: Thank you, Mr. Carroll. [00:14:00] Speaker 00: Mr. Myrick. [00:14:02] Speaker 02: Thank you, Your Honor. [00:14:04] Speaker 02: I'm John Myrick. [00:14:05] Speaker 02: I appear today for Jack Aaron. [00:14:08] Speaker 02: What this case presents is the issue of whether the trial court abused its discretion in not awarding fees. [00:14:16] Speaker 02: It's a little ironic listening to my brother's argument, because octane fitness [00:14:22] Speaker 02: I suggest, stands for the proposition that the district court didn't have enough discretion. [00:14:30] Speaker 02: And in Octane Fitness, the Supreme Court, I would suggest, gave the district court more authority to exercise discretion. [00:14:41] Speaker 02: Having exercised that discretion, my brother now wants to go back to an argument that if you lose at summary judgment, [00:14:50] Speaker 02: your case was one on which the district court must award fees. [00:14:56] Speaker 02: And that simply is, I suggest, not what the Supreme Court intended on octane fitness. [00:15:05] Speaker 02: And on the facts of this case, in any event, it's not justified. [00:15:10] Speaker 02: As Your Honor noted, the district court itself referred to the tip and the fact that a tip could be entered. [00:15:20] Speaker 02: And that [00:15:20] Speaker 02: distinguishes, at least in my mind, the level of application from a credit card. [00:15:28] Speaker 02: To hear my brother talk, the level of application is no different from a credit card. [00:15:33] Speaker 02: You hold it up, it puts a number in. [00:15:36] Speaker 02: And that's not quite how it works, as the district court noted in saying that there could be a tip. [00:15:45] Speaker 02: My client, and for that matter myself, [00:15:49] Speaker 02: were quite disappointed when the district court said that using a cell phone in this fashion is not a transaction terminal. [00:16:00] Speaker 02: We thought there was a good argument that it was a transaction terminal. [00:16:05] Speaker 02: And it wasn't just myself as a trial attorney and my client as the interested inventor, but there were two patent attorneys separately and independently who reviewed it [00:16:18] Speaker 02: and advised that this was a case that was worthy of bringing. [00:16:24] Speaker 02: And they referred to various points in the record. [00:16:27] Speaker 02: That's Mr. Engelson and Mr. Smith. [00:16:33] Speaker 02: Given that, we went forward with the case. [00:16:37] Speaker 02: Before filing the suit, we sent a very detailed claims analysis. [00:16:43] Speaker 02: We called it a preliminary claims analysis to my brother, [00:16:48] Speaker 02: going through everything that was publicly available concerning how the Level Up application worked, and comparing that on a text-by-text basis with the patent. [00:17:07] Speaker 02: And they showed all the areas in which it appeared to us [00:17:16] Speaker 02: that what Level Up was at least telling the public that its application would do ran into the various claims that were in the patent. [00:17:28] Speaker 02: As I say, the trial court disagreed that the cell phone was being used as a transaction terminal. [00:17:37] Speaker 02: And unfortunately, this happens sometimes. [00:17:42] Speaker 02: I'd like to think that I win more cases than the other side does, but you do lose cases. [00:17:50] Speaker 02: Even the district judge in his summary judgment decision said the cell phone could in theory be a transaction terminal, but on the basis of what he saw before him in summary judgment, he decided that it was not a transaction terminal. [00:18:12] Speaker 02: Again, as I read the Octane Fitness case, there needs to be a finding of abuse of the litigation or that it just was a case that didn't have any merit. [00:18:29] Speaker 02: There was certainly no litigation abuse. [00:18:31] Speaker 02: The district court judge complimented both parties on getting the case to him in an efficient fashion [00:18:39] Speaker 02: without running up the costs of their clients. [00:18:43] Speaker 02: And in terms of was there a good faith basis to bring the case, again, both the claims letter that was sent initially and the opinions from not one but two patent counsel were a pretty good indication that Mr. Barron was not wasting the time of the district court by filing this case. [00:19:09] Speaker 02: As to our other arguments, I'll rest on what's in the brief unless the bench has some questions for me. [00:19:17] Speaker 00: Okay. [00:19:17] Speaker 00: Thank you, Mr. Meyer. [00:19:18] Speaker 00: Thank you. [00:19:21] Speaker 00: Mr. Carroll, you've got a little less than two minutes. [00:19:24] Speaker 04: Yeah. [00:19:24] Speaker 04: A couple of quick brief points. [00:19:26] Speaker 04: As to the TIP, if this court were going to affirm the district court's ruling on fees and find that the TIP presented a reasonable argument, I'd ask the court to go back and look for the record evidence that was submitted by the patentee on the TIP feature. [00:19:38] Speaker 04: There is none. [00:19:39] Speaker 04: They submitted no evidence at all as to how the tip feature functioned in the level of app. [00:19:44] Speaker 04: They didn't raise that argument at summary judgment. [00:19:46] Speaker 04: That was an after the fact argument raised to this court on appeal, raised for the fees motion. [00:19:50] Speaker 04: There is absolutely no record evidence on which the district court could have relied either at summary judgment or in its fees motion to find that that provided an objective basis. [00:19:58] Speaker 04: Second, as to the subjective factors, Mr. Barron mentioned his diligent infringement investigation. [00:20:05] Speaker 04: We offered evidence that the affidavit that he submitted from his patent prosecution counsel, Mr. Engelson, was fabricated. [00:20:11] Speaker 04: It was actually false. [00:20:12] Speaker 04: He said that he had done six months of use of the level of service prior to filing the complaint. [00:20:17] Speaker 04: From our records, we showed that he hadn't used that service for over a year. [00:20:21] Speaker 04: And in response, they didn't submit a declaration from Mr. Engelson. [00:20:23] Speaker 04: They identified another attorney at a different law firm who actually did that investigation. [00:20:28] Speaker 04: All of that evidence is ignored by the district court and its motion denying our fees. [00:20:31] Speaker 04: I should also point out the district court denied our motion for discovery on the subject of factors without any analysis whatsoever. [00:20:38] Speaker 04: So by ignoring some of the evidence and then relying on an absence of evidence on the subject of factors as well, Level Up should have been entitled to some opportunity to take discovery and submit that evidence to the district court if the district court was going to reach that evidence. [00:20:52] Speaker 04: And in terms of litigation abuse, I'd say that there was no litigation abuse in this case. [00:20:56] Speaker 04: There couldn't have been. [00:20:56] Speaker 04: The case didn't last long enough. [00:20:58] Speaker 04: It literally ended. [00:20:59] Speaker 04: immediately after the pleadings. [00:21:00] Speaker 04: There was no opportunity for vexatious or frivolous litigation. [00:21:03] Speaker 04: That's not part of our assertion here. [00:21:05] Speaker 04: It certainly doesn't have to be present under Octane Fitness in order for fees to be awarded. [00:21:10] Speaker 04: The last thing I want to mention just quickly is the idea that the court relied most significantly on the fact that Mr. Barham is not a patent assertion entity. [00:21:17] Speaker 04: And I suggest, Your Honors, that that is not a relevant consideration in this case. [00:21:21] Speaker 04: This court has said that where that evidence is presented, where a patentee is executing a campaign, [00:21:27] Speaker 04: of apparently extortionate lawsuits, that can be considered to show bad faith in the case at bar. [00:21:31] Speaker 04: But there's certainly no requirement that the patentee be a patent assertion entity or exhibiting a campaign in order to be subject to fees under 285. [00:21:40] Speaker 04: Thank you, Your Honor. [00:21:44] Speaker 00: Thank both counsel. [00:21:44] Speaker 00: The case is submitted.