Eon-Net offers settlement for a fraction of the cost of litigation, with a settlement schedule based on a defendant's annual sales... Flagstar's counsel characterizes the litigation as a "bad faith shakedown suit."

Flagstar moves for sanctions pursuant to Rule 11, alleging that Eon-Net did not perform an adequate prefiling investigation and that its claim for infringement is baseless. Rule 11 imposes a duty on attorneys to certify by their signature that (1) they have read the plleadings or the motions they file, and (2) the pleading or motion is "well-grounded in fact," has a colorable basis in law, and is not filed for an improper purpose. Fed. R. Civ. P. 11; see also Cooter & Gdl v. Hartmarx COT., 496 U.S. 384, 393 (1990) ([T]he "central purpose of Rule 11 is to deter baseless filings . . .").

Rule 11 imposes specific requirements in the patent litigation context. See. e.g., View Inc. v. Robotic Vision Sys. Inc., 208 F.3d 981,986 (Fed. Cir. 2000). Prior to filing a complaint for infringement, Rule 11 requires an attorney to (1) apply the claims of each asserted patent to the accused device, and (2) satisfy himself that a proper construction of the claims permits an argument that each element of the claims appears in the accused devices. See id. at 986. In the Ninth Circuit, an attorney may not be sanctioned under Rule 1 1 "for a complaint that is not well-founded, so long as she conducted a reasonable inquiry . . . [nor] may she be sanctioned for a complaint which is well-founded, solely because she failed to conduct a reasonable inquiry." In re Keegan Management Co.. Sec. Litig., 7 8 F.3d 43 1,434 (9th Cir. 1996) (emphasis in original); see also S . Bravo Sys. Inc. v. Containment Techs. C-., 96 F.3d 1372, 1375 (Fed. Cir. 1996) ("A 'frivolous' argument or claim is one that is 'both baseless and made without a reasonable and competent inquiry.'").

The court found that Eon-Net "failed to perform a reasonable pre-filing inquiry."

A reasonable inquiry into an allegation of patent infringement requires a careful evaluation of the patent claims and the accused device. Speculation as to infringement does not constitute a reasonable inquiry. E.g. View Eng'g, 208 F.3d at 985; Judin v. United States, 110 F.3d 780, 784 (Fed. Cir. 1997) (mere belief that a device infringes does not constitute a reasonable pre-filing investigation).

The court found that Eon-Net failed to identify or investigate an accused product.

Eon-Net's complaint and claim chart are virtually identical to its other complaints in other cases. Nothing in the complaint or purported "claim chart" identify infringement contentions or accused products... In this case, Eon-Net brought suit without even deciding what products or functionality infringed... Eon-Net's claim charts (which purport to identify product function) fall below the requirements of Rule 11. Although crafted for versatility (fill in the blank for each new case), the claim charts are essentially worthless.

It appears, based on the facts before this Court, that Eon-Net has made the failure to investigate or identify infringing technology the hallmark of its litigation plan. Possible repercussions for failure to investigate are balanced against an economy of scale effected by filing numerous lawsuits which will cheaply settle. Here, it appears that Eon-Net began its investigation of Flagstar only after it realized that Flagstar would not pay the "inexpensive" settlement. Such litigation conduct is unacceptable.

The court found that Eon-Net "failed to reasonably evaluate the '697 Patent's claims."

A reasonable pre-filing investigation also requires objective evaluation of the claim terms. S. Bravo, 96 F.3d at 1375 (holding that pre-filing investigation requires that the claims be interpreted). Implicit is a requirement that claim construction in a pre-filing investigation be reasonable... Eon-Net does not bother to discuss its claim construction. It does not tell the Court which terms it construed... Eon-Net's argument that the '697 Patent covers far more than the specification's definition of the invention" borders on the illogical. There is no support for Eon-Net's argument... The disclosure of the '697 Patent contains nothing that supports Eon-Net' s unrealistic scope for the '697 claims. Eon-Net ignores the patent specification and purpose.

It's relatively common for a defendant to mouth in a press release that the charges are baseless, but that is seldom the case. Not this time.

There is no basis for Eon-Net's position in this litigation. Eon-Net ignored the specification and disclosure and the basic canons of claim construction in evaluating the '697 Patent and accused products. The Court must also conclude that Eon- Net's claims for infringement are baseless because Eon-Net has failed to identify any infringing product or functionality... Eon-Net's pleadings allege infringement without a reasonable pre-filing investigation. The allegations are completely devoid of merit.

Eon-Net had the gall to motion for sanctions against Flagstar for violating Rule 11. That got a laugh.

Likening Eon-Net to a notorious personal injury suit fraud, the court put the hammer down.

The Court is also very concerned with Eon-Net's continuing conduct. The Court was shocked to learn at oral argument that during the pendency of Flagstar's motion for Rule 11 sanctions, Eon-Net has filed eleven new identical Complaints. See Supp. Bdy Ded., Exs. 1-1 1. Plaintiffs conduct recalls Molski v. Mandarin Touch Restaurant, 359 F. Supp. 2d 924 (C.D.C d.2 005). A seria plaintiff under the Americans with Disabilities Act ("ADA") between 1998 and 2005, Mr. Molski filed more than 400 lawsuits under the ADA. In the great majority of his complaints, Mr. Molski alleged similar bodily injury on curbs, landscaping, stairs, and bathroom stalls. The court found his allegations to be "contrived." Mr. Molski's counsel sent letters to the (usually) unrepresented defendants advising them to quickly settle and avoid the high cost of litigation. Of 400 lawsuits, only one proceeded to trial and the jury unanimously found no violations of the ADA. The court found that the unusual number of settlements were indicative of an extortion scheme. Id. at 934 (citing Reed v. Great Lakes Cos., 330 F.3d 931,936 (7th Cir. 2003)). The court also found Mr. Molski was using the federal courts to leverage his frivolous lawsuits against less powerful litigants.

This Court finds that indicia of extortion are present in this case. Dozens of parties (regardless of their actual business) have received the same complaint, claim chart, and settlement letter. From SomethingSexyPlanet.com to CoolAmhalStuff.com, no website is safe from an Eon-Net suit for patent infringement. Like Molski, Eon-Net offers a nuisance settlement at the outset to avoid a hard look at the merits of its infringement claims. Given the extraordinary cost of patent litigation, even the finest patent attorney would need to think carefully before advising a client to spend hundreds of thousands of dollars in litigation when a $25,000, $50,000, or $75,000 settlement was on the table. Indeed, in the two other Eon-Net cases before this Court, and dozens before other courts, the plaintiffs have opted for the "cheap" standard offer of settlement. An appropriate sanction is required to deter future bad conduct.

The Court required Eon-Net to pay attorneys fees and costs. On top of that, the court ordered Eon-Net to notify all other defendants accused of '697 patent infringement of this ruling.

Within 5 days of this Order, Eon-Net shall provide a copy of this Order to every defendant charged with infringement of the '697 Patent for "collecting information over the internet" or "operating a website . . . pursuant to a claim of the '697 patent" and to the court in which the action was filed... Eon-Net's conduct violates the rules and other Defendants should be made aware.