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(graphics courtesy of Samandale & freedigitalphotos.net)

Last month, we wrote about Adam Corolla and ACE Broadcasting’s legal battle with ‘non-practicing entity’ Personal Audio Systems, LLC. (link to the July post is here).  Just to recap, Personal Audio is the assignee of U.S. Patent No. 8,112,504, which it claims covers many existing podcasting products/services.  It might be a bit of a stretch to say that Personal Audio claims to have invented podcasting, but, at least on outward appearances,  it looks something like that. And that Personal Audio is suing major content providers right and left to get what it claims it is owed doesn’t help.

Last year, Personal Audio sued Adam Corolla, ACE Broadcasting and other affiliated companies for alleged infringement of the ‘504 patent. Since the case was first filed in 2013, the usual back and forth of pleadings went on, including an amended complaint and Personal Audio’s motion to dismiss Lotzi Digital Inc.’s (another of the named defendants) affirmative defenses and counterclaims. Judge Rodney Gilstrap denied Personal Audio’s motion to dismiss Lotzi’s affirmative defenses and counterclaim in March of 2014.

In mid-July, Judge Gilstrap referred the case to mediation. Although Judge Gilstrap’s July 2014 order didn’t mention any specific mediation dates, it appears that the parties may have recently attended an unsuccessful mediation. Managing Intellectual Property reports that Personal Audio recently issued some terse statements regarding the parties’ apparent failure to come to an agreement. Specifically, Managingip.com reported that Personal Audio agreed to dismiss its complaint, but that Adam Corolla did not agree to drop his company’s counterclaims against Personal Audio (which would have ended the case).

We’re quite sure that many mainstream media outlets will feign confusion at Corolla’s decision. That would be a mistake, in our humble opinion. Speaking from experience, Corolla’s decision to reject Personal Audio’s offer is understandable, albeit potentially very expensive. While we can’t speak for the parties’ intentions in the Corolla/Personal Audio case, we have experienced a recurring scenario in patent litigation: a patent assignee (often a non-practicing entity) sues multiple defendants, apparently with the hope of forcing through licensing of its patent. The high cost of patent litigation very often makes this an attractive bet for the patent assignee, even where the patent scope may be narrow or the patent strength/quality may be weak.

At times, though, a defendant may have invested so much into the litigation that dropping its counterclaim against the plaintiff becomes an unattractive option, even considering the high cost to proceed. This is especially true since the Supreme Court’s last term when it addressed fee shifting in patent cases.  For example, in February 2014, we reported on the, then pending, Octane Fitness v. Icon Health case (prior post is here).  In April, the Court’s 9-0 opinion paved the way for a more flexible framework for finding a patent case to be “exceptional” and thus for fee shifting to come in to play (i.e. for a defendant to have a chance to collect its attorneys’ fees). A patent case may be found exceptional in many contexts. These include cases where there is gross discovery misconduct, blatantly willful infringement or where a plaintiff’s case (or patent) is so weak that the case might be viewed as one that should have never been filed.

Although showing that a case is exceptional still is a high hurdle to overcome, it is much less so since the Court’s decision in the Octane Fitness and Highmark Inc. v. Allcare Health Management Systems cases.

Getting back to the Personal Audio case, it appears that Personal Audio’s CEO was miffed that Corolla’s company decided not to drop its counterclaim to end the case. Managing Intellectual Property reported that CEO, Brad Liddle, stated:

Perhaps this is because he [Corolla] feels he can simply get his fans to fund his future, and now unnecessary, legal expenses. Or perhaps it relates to how he uses the case as material for the show.

While it’s not surprising to see opposing litigants throw jabs at each other, Mr. Liddle’s statement misses the point. Litigation is expensive. Patent litigation is ridiculously expensive. So, any patent plaintiff willing to file a complaint should be prepared to go the distance in litigation and to have the validity of its patent-in-suit addressed. And the plaintiff’s case should be solid enough to withstand a fee-shifting request by a prevailing defendant. If not, the case should have never been filed in the first place. Thus the justification for awarding the prevailing defendant its attorneys’ fees.

We have no way of determining how the case between Personal Audio and ACE Broadcasting will turn out, or how the ‘504 patent will fare in the challenges to its validity. But, as in some of the cases we’ve handled as well, it is always amusing when a plaintiff feigns surprise and holier-than-thou righteousness when it wants to drop its case but the defendant it dragged into court refuses to drop its counterclaim.

Stay tuned- things are likely to get even more interesting in the “Pod Wars!”

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