Newegg fought its way through two appeals to win fees from this patent-holder

Newegg Chief Legal Officer Lee Cheng.

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In 2010, AdjustaCam LLC filed suit (PDF) in Eastern Texas against dozens of companies, saying that they infringed US Patent No. 5,855,343, which describes a type of movable camera clip.

AdjustaCam is a subsidiary of Acacia Research Corporation, the biggest public patent-holding company. The AdjustaCam lawsuit included camera makers like Gear Head and Creative Labs, as well as retailers like Amazon, Newegg, K-Mart, Overstock.com, and Wal-Mart.

Many of those companies paid relatively small amounts to settle their cases, based in the patent hotspot of East Texas. But Newegg litigated instead. By 2012, with summary judgment motions lined up, AdjustaCam tried to take the route of many patent-holding companies: simply walk away. Having been paid most of the settlements they were going to get, AdjustaCam lawyers dismissed the case.

Newegg filed a motion for attorneys’ fees, saying that the case was “an objectively baseless lawsuit brought in bad faith.”

The district court denied that motion, saying that AdjustaCam’s business model—suing dozens of defendants, seeking low payouts—wasn’t enough for Newegg to get fees. Other than small settlement amounts, there was “no other evidence” that AdjustaCam was in the wrong.

Newegg appealed the ruling on the fee motion. In April 2014, while Newegg’s appeal was pending, the US Supreme Court decided the Octane Fitness case, which made it substantially easier for defendants to collect legal fees in patent cases. Since that case “substantially changed the analysis” on the fees issue, the Federal Circuit kicked the case back to the lower court.

The case was re-briefed in front of a new judge in the Eastern District of Texas, US District Judge Rodney Gilstrap, since the previous judge had retired from the bench. Even under the new Octane Fitness standard, Newegg was denied fees again in 2016.

Gilstrap wrote:

The determination of whether a case is ‘exceptional’ under § 285 necessarily involves intangible elements uniquely available to the district court that has lived with the case for a period of months or years… [T]he Court, in an exercise of its statutory grant of discretion, does not find that AdjustaCam’s infringement and validity arguments were so weak, or its litigation conduct so poor, as to make this case stand out from others.

Truly exceptional

In today’s opinion (PDF), a three-judge panel from the US Court of Appeals for the Federal Circuit strongly disagrees with Gilstrap’s reasoning. The district court judge’s “wholesale reliance on the previous judge’s fact-finding” was a major error, according to Circuit Judge Jimmie Reyna, who wrote the opinion for a unanimous panel.

“We specifically instructed the judge on remand to ‘evaluate’ the merits of Newegg’s motion in the first instance based on the new Octane standard, which did not occur,” Reyna states. “Based on the circumstances presented here, the wholesale reliance on the previous judge’s fact-finding was an abuse of discretion.”

Adjustacam even continued to present new infringement arguments in a case that had no rational basis for continuing, in the appeals court’s view. Adjustacam owned a patent on a camera that the court construed as rotating on a single axis, while the cameras sold by Newegg use a ball-and-socket joint that rotate on multiple axes.

“AdjustaCam filed a weak infringement case against Newegg that became objectively baseless after the district court’s Markman order,” wrote Reyna.

Now the case has been reversed and remanded, with an instruction for the judge to calculate Newegg’s fees. Newegg has said in court papers that it paid more than $350,000 to defend the lawsuit and file its motion for fees.

“Justice delayed can be justice denied, but justice obtained, even if delayed, is sweeeeet,” said Lee Cheng, Newegg’s former chief legal officer, in a text exchange with Ars. “This award aged like a fine wine.” He continued:

We believe that, between this decision and TC Heartland, those who want to abuse patents will have to work harder and smarter to generate the same returns. We also are encouraged to see the Federal Circuit send a clear message that, while district court judges rightfully enjoy and should have tremendous discretion, they are not gods.

While Newegg became known for its uncompromising position against so-called “patent trolls,” Cheng, who is still a legal adviser to Newegg, said in an interview that Newegg only pursued fees in egregious cases.

“We’re very careful, and we didn’t file fee motions in most of our cases,” he said.

In his analysis of the ruling, Prof. Dennis Crouch points out that there are still a few unanswered questions about the fee award that will be important to Newegg. Does the fee award begin with the filing of Adjustacam’s complaint back in 2010 or at a later time? What level of fees is “reasonable?” And finally, will the costs of Newegg’s appeal be included?

Separately, Newegg won $15,000 in fees after an appeal by AdjustaCam that was deemed frivolous by a different panel of Federal Circuit judges.