Frivolous Patent Case Fighter Newegg Wins Attorneys’ Fees

By Tony Dutra, Bloomberg BNA

Newegg Inc. won attorneys’ fees in a July 5 federal appeals court ruling that struck at the practice of winning settlements by suing many parties for infringing the same patent.

Computer-mounted camera patent owner AdjustaCam LLC settled its lawsuits with about 50 defendants, but Newegg — an online retailer known for not settling infringement cases — held out, eventually asking AdjustaCam to pay its attorneys’ fees.

The U.S. Court of Appeals for the Federal Circuit, in awarding the fees to Newegg, reversed a lower court’s decision that AdjustaCam’s case was not objectively baseless. It chastised U.S. District Judge J. Rodney Gilstrap of the U.S. District Court for the Eastern District of Texas for giving AdjustaCam’s “dubious behavior” the benefit of the doubt.

Nuisance Value Lawsuit Filings Not Enough

Newegg alleged that AdjustaCam sued multiple parties for infringing its patent only with the intent of settling for less than each party’s cost of litigation, and with no plans to proceed on the merits of the case. The district court granted AdjustaCam’s motion to dismiss its complaint against Newegg after the retailer incurred $350,000 attorneys’ costs and just before the court was to rule on Newegg’s summary judgment motion.

The appeals court held that the business model alone “does not necessarily” make a case “exceptional”—the required finding that allows a court to award fees under 35 U.S.C. §285 of the Patent Act. But “the purported nuisance value of many of its settlements should have played a role” in that determination, the court said.

However, AdjustaCam’s actions, and the timing of those actions, pushed the case into the “exceptional” category, it said. The district court construed the patent claims in a way that “there is no possible way for Newegg’s products to infringe,” the court said. But AdjustaCam persisted. It filed expert reports late and added new infringement arguments well after the lower court had granted summary judgment of noninfringement.

Also, its widely varied settlement amounts—ranging from $0.10 to $161.29 per unit—showed “irregularities in AdjustaCam’s damages model,” the appeals court said.

Abuse of Discretion

Newegg had appealed the denial of attorneys’ fees previously. While that appeal was in progress, the U.S. Supreme Court in Octane Fitness, LLC v. Icon Health & Fitness, Inc.

loosened the definition, resulting in a greater likelihood of shifting attorneys’ fees. In 2015, the Federal Circuit remanded the case for reconsideration in light of the new standard, with instructions that favored Newegg.

Gilstrap took over the case from a colleague who had retired. He relied on the fact findings of his predecessor and again denied Newegg’s request.

The Federal Circuit was more definitive the second time around. Gilstrap abused his discretion by failing to follow its instructions, the court said, and he erred in not considering the totality of the circumstances—the Octane Fitness standard. The appeals court reversed, rather than sending it back to Gilstrap for a third consideration.

“We are pleased that the Federal Circuit recognized that this was a case that should never have been brought or pursued,” Newegg’s counsel, Mark A. Lemley of Durie Tangri LLP, San Francisco, told Bloomberg BNA. “We hope that the decision will discourage other patent plaintiffs considering bringing frivolous cases.”

Collins, Edmonds, Pogorzelski, Schlather & Tower PLLC, Houston, represented AdjustaCam. Counsel did not immediately respond to a request for comment.

Judge Jimmie V. Reyna wrote the court’s opinion, which was joined by Judges Haldane Robert Mayer and Todd M. Hughes.

Separate Case Comes Out Differently

The court issued a nonprecedential ruling on the same day in a second case featuring the same issue, but with the opposite result (Parallel Networks, LLC v. Kayak Software Corp., 2017 BL 230660, Fed. Cir., No. 2015-1681, 2016-1944, 7/5/17).

Parallel Networks LLC had sued over 100 defendants, with four holdouts who were granted summary judgment of noninfringement and sought attorneys’ fee awards. In this case, though, the Federal Circuit had ruled on the merits of the case before it remanded.

On remand, Parallel Networks appeared to confine its infringement contentions to products that didn’t match the ones exonerated by the merits decision. The district court—again, the Eastern District of Texas—did not abuse its discretion in finding those contentions reasonable, the appeals court said.

The case is:  AdjustaCam, LLC v. Newegg, Inc., Fed. Cir., No.2016-1882, 7/5/17

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com