Attorney Fee Award: District Court Erred in Not Awarding Fees

In another successful appeal by Prof. Mark Lemley, the Federal Circuit has reversed on fees – finding that the E.D. Texas Court (Judge Gilstrap) erred by not awarding fees to the successful defendant Newegg.

AdjustaCam v. Newegg (Fed. Cir. 2017) [16-1882.Opinion.6-29-2017.1] [regarding U.S. Patent No. 5,855,343]

AdjustaCam dropped its infringement case against Newegg following an adverse claim construction and reexamination. The basic issue on claim construction involved the claimed camera “rotatably attached . . . about a first axis of rotation” as compared with Newegg’s ball-and-socket attachment.  Under the district court’s construction, clearly no infringement.

After the voluntary dismissal, all that remained wasthe extent that AdjustaCam owes in attorney fees (if any).  Under Section 285 of the Patent Act, fees may be awarded in exceptional cases. The district court initially rejected any fee award, but that decision was vacated by the Federal Circuit in 2015 following Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014).  Octane Fitness gave more discretion to district courts in awarding fees, but it also lowered the standards for proving an exceptional case (both eased the elements needed to be proven and the standard of proof required).  By the time remand came around, Judge Davis had retired and the case moved to Judge Gilstrap who again denied the fee award. Now, the appellate court has reversed Gilstrap’s decision – holding that a fee award is required.

The decision here is based upon two grounds:

(1) The remand required a re-evaluation of the evidence based upon the new totality-of-the-circumstance standard and lower-burden required by Octane Fitness.  Judge Gilstrap failed to conduct that review of the evidence and thus erred.

(2) In addition, the appellate panel found  “clearly erroneous findings about the substantive strength of AdjustaCam’s case [sufficient to] independently support reversal.”  Here, the appellate panel wrote that what began with a “weak infringement lawsuit . . . became baseless” after the claim construction order.  Based upon this claim construction, the appellate court found simply “AdjustaCam’s lawsuit was baseless.”

[Under the claim construction] there is no possible way for Newegg’s products to infringe the ’343 patent. No reasonable factfinder could conclude that Newegg’s products infringe; therefore, AdjustaCam’s litigation position was baseless. These are traits of an exceptional case. The district court’s contrary conclusion was based on “a clearly erroneous assessment of the evidence.” Highmark, 134 S. Ct. at 1748 n.2. Fees are warranted.

Note here that the claim construction and post-claim construction activity is an important aspect of the decision. Although not mentioned in the present decision, a difficult aspect of the case for the patentee is that it was not permitted to appeal the claim construction.  Rather, it did appeal the claim construction, but the Federal Circuit refused to hear that portion of the case since it was moot following the dismissal of the merits case.

In addition to the baselessness of the lawsuit, the Federal Circuit also found that the patentee litigated the case in an unreasonable manner as shown through “repeated use of after-the-fact declarations. . . .  [W]e recognize today, the totality of the circumstances demonstrates other dubious behavior that, when considered collectively, warrants fees under § 285.”

Finally, the court addressed the fact that the patentee’s strategy included a large number of low-dollar settlements (lower than the cost of litigation).  The appellate court began by noting that “there is no minimum damages requirement to file a patent infringement case” and a strategy that involves low damages against multiple defendants “does not necessarily make a case ‘exceptional.'”  However, practice further supports a fee award. “The irregularities in AdjustaCam’s damages model and the purported nuisance value of many of its settlements should have played a role in the evaluation of whether this is case exceptional.”

 

 

On remand, the district court will now determine the amount of attorney fees to award. Unanswered questions include whether (1) fee award should begin with the filing of the complaint (2) what level of fees is ‘reasonable,’ and (3) whether Lemley’s appellate costs can be included.