Rule 11 Sanctions Imposed Where Plaintiff's Failure To Evaluate And Understand The Accused Product Was Unreasonable And Easily Avoided

In Smart Options, LLC v. Jump Rope, Inc., Case No. 12-C-2498 (N.D. Ill. March 25, 2013), plaintiff Smart Options brought suit for infringement of U.S. Patent No. 7,313,539 against Jump Rope. The '539 Patent relates to a method for purchasing an "option" to buy a good or service (e.g., concert ticket) at a "reservation price" within a designated time period. If the option to buy is not exercised then it expires and there is no refund of the "option fee."Smart Options utilizes the patent in the operation of its website www.optionit.com. Jump Rope operated a smart phone application that allows users to bypass entrance lines at events by purchasing a "Jump" which allows immediate access to the event without any additional purchase required.

After the suit was filed, Jump Rope served Smart Options with a Rule 11 motion and cover letter stating that Jump Rope would seek its attorneys' fees and costs if Smart Options proceeded with the suit and the Court entered a finding of non-infringement. Jump Rope explained why it considered the suit to be meritless:

Plaintiff alleges violation of a patent that covers providing options on the right to purchase goods or services at a future time. Defendant's software application, however, does not provide options or charge option fees. Rather, it allows someone to buy the service provided - a right to "jump the line" at an event or facility. Plaintiff and its counsel could have and easily should have discovered this, as the iPhone/Android application they accuse is free to download. Id. at *2.Smart Options proceeded with the suit undeterred and Jump Rope filed a motion for summary judgment of non-infringement. In granting the motion, the Court noted the clear distinction between selling an actual good or service (i.e., Jump Rope's sale of a "Jump" that provides immediate access to the event) as opposed to the sale of a "right" or "option" to obtain a good or service pursuant to the '539 patent.

As promised, Jump Rope subsequently filed a motion for Rule 11 sanctions seeking its fees and costs. The Court noted that while regional circuit law should be used to determine whether sanctions were appropriate, Federal Circuit law should be applied to determine what type of pre-filing investigation Rule 11 requires in the patent context.Carter v. ALK Holdings, Inc., 605 F.3d 1319, 1323 (Fed. Cir. 2010) ("In reviewing Rule 11 sanctions, we apply the law of the regional circuit."); Pregis Corp. v. Kappos, 700 F.3d 1348...