A federal appeals court ruled on June 5 that Rothschild Connected Devices Innovations LLC (RCDI) must pay legal fees to security dealer ADS, ranked No. 20 on the SDM 100 and SDM’s 2014 Dealer of the Year, overturning an eastern Texas district court decision that had sided with RCDI in a patent infringement case.
RCDI has filed against more than 50 companies, claiming these companies have infringed upon a patent RCDI holds for a system for creating drinks by connecting a device to the Internet.
Some of the companies include Coca-Cola, Ford Motor Company, Exxon Mobile, Garmin, Whirlpool and Verizon. Among the companies are a number of security companies, including ADT, Tyco, Vivint, Guardian Alarm, Monitronics, Guardian Protection Services, Honeywell and ADS.
“This patent is so far from what we do,” said John Cerasuolo, president and CEO of ADS. “The original patent is related to mixing beverages using instructions over the Internet, and they basically extended it to essentially any device that’s controlled from a server over the Internet community. It’s just insane what they tried to extend it to.”
Cerasuolo said that while receiving these types of demands is not common, this certainly isn’t the first time ADS has received one, adding, “This is the most ridiculous one for sure.”
Cerasuolo explained RCDI’s plan is obviously not appropriate for what they’re claiming. “They send demand letters to a bunch of companies, and they ask for a very small settlement; and it’s a nuisance settlement of $20,000 or $25,000. Most companies say, ‘Well, I don’t want to fight this; I’ll write this guy a $25,000 check, and essentially [RCDI] will give me a license to use a patent that I really don’t need.’ But that’s a lot cheaper than litigation.”
Cerasuolo said any time a company fought back, RCDI dropped the case against that company, leaving that company to pay its own legal fees. “They don’t want to go to court — they don’t want it to be litigated.”
He explained that ADS refused to give in to the demands. “We just were not going to do it,” he said. “Honestly the logic would have dictated that we write the check, but it just didn’t seem right to reward that behavior, and we were determined even if it was going to cost us a little bit more that we were not going to give in to essentially what is extortion. So as soon as we showed some backbone they folded, and then we pursued them for our fees.”
At that point, the case went to a district court in east Texas that sided with RCDI. According to an article in Law360, U.S. Magistrate Judge Roy Payne ruled that ADS Security LP was not entitled to attorneys’ fees after RCDI dismissed its case, ruling the case against ADS did not stand out from others and is therefore not entitled to receiving legal fees (referencing the U.S. Supreme Court’s 2014 Octane Fitness decision requiring a case be found exceptional to be awarded legal fees).
However, ADS appealed that decision, spending even more money, but doubling down on its commitment to stop RCDI, not wanting to give up, Cerasuolo said. The appeals court ruled in an opinion by U.S. Circuit Judge Evan Wallach that the judge of the lower court “clearly erred by failing to consider Rothschild’s willful ignorance of the prior art” after ADS presented evidence that it said showed the patent was invalid as anticipated, and also said, “The undisputed evidence regarding Rothschild’s vexatious litigation warrants an affirmative exceptional case finding here,” according to the Law360 article.
Cerasuolo said the case was then remanded back to the circuit court, which will be responsible for determining how much in legal fees RCDI must pay ADS. He said ADS has submitted to the court ADS’ legal fees so far and says what they will receive will certainly be more than the amount RCDI originally requested.
Cerasuolo believes RCDI would have continued these frivolous litigations had ADS not taken the stand it did. “We were one of many security companies they went after, and had they continued to have nothing but success, it’s likely they would have continued going after other security companies — maybe pull out the SDM 100 and they could have gone to town.”
He said he hopes this is the beginning of a movement that brings rationality to situations such as this one. “This case is getting a lot of attention because it’s a federal appeals court that’s planting the flag about the danger of these nuisance patent lawsuits by these patent trolls.”
Cerasuolo added, “I’m proud of a lot of things that we do, and this is certainly one to add to the list of accomplishments that I think all of our team takes a lot of pride in.”