CAFC Reverses and Remands Attorney’s Fees Issue in Newegg’s Favor

AdjustaCam v. Newegg, Inc., No. 2016-1882, 2017 U.S. App. LEXIS 11922 (Fed. Cir. July 5, 2017) (Before Reyna, Mayer, and Hughes, J.) (Opinion for the court, Reyna, J.).

AdjustaCam owns a patent (the ’343 Patent) disclosing a camera clip. Claim 1 of the ’343 Patent recites a hinge member “rotatably attached” to a camera and a support frame such that the hinge member can rotate about a first and a second axis of rotation. AdjustaCam sued Newegg, alleging that its products incorporating a ball-and-socket joint infringe the ’343 Patent. At the Markman hearing, the district court construed “rotatably attached” to require each of the camera and support frame to rotate about a single axis. For example, a hinge member rotatably attached to the camera only rotates about a first axis of rotation. This interpretation would necessarily exclude Newegg’s ball-and-socket joints, which facilitate rotation about multiple axes. AdjustaCam pursued the case against Newegg, and the case continued to expert discovery.

Newegg moved to dismiss the case with prejudice and for fees under 35 U.S.C. § 285. Newegg alleged that AdjustaCam’s infringement allegations were objectively baseless, particularly considering the Markman order, and accused AdjustaCam of serving a substantively different supplemental infringement report the day of its infringement expert’s deposition without explaining the delay. The court denied Newegg’s motions, finding that reasonable arguments existed in AdjustaCam’s infringement allegations and that AdjustaCam delayed service of the supplemental declaration because it inadvertently served a draft expert report.

Newegg appealed the district court’s denial of fees for the first time. While the first appeal was pending, the Supreme Court issued its decision in Octane Fitness, LLC v. Icon Health & Fitness, Inc., which clarified what constitutes an “exceptional case” under § 285. The Court remanded the case to determine if this case was “exceptional” and whether Newegg’s arguments had “significant merit.” On remand, the case was reassigned to a new judge who found that this case was not “exceptional.” Newegg filed an appeal resulting in this opinion. The Court reversed and remanded the decision back to the district court.

The Court found that the district court abused its discretion for two reasons: 1) the district court ignored the Court’s original mandate to evaluate if the case was “exceptional” under Octane; and 2) the district court based its decision on “a clearly erroneous assessment of the evidence.”

The district court abused its discretion by failing to evaluate whether the case was exceptional based on the totality of the circumstances. Its order denying fees adopted wholesale the original district judge’s factual findings where the facts had changed. Namely, AdjustaCam submitted a supplemental brief on infringement supporting why its infringement claims were not baseless. Additionally, the district court did not independently evaluate the evidence by, for instance, considering AdjustaCam’s supplemental expert report.

The district court made clearly erroneous factual findings that independently supported reversal. Particularly, the record supported a finding that this case was exceptional given the weakness of AdjustaCam’s litigating position. The evidence offered by AdjustaCam showed that its lawsuit was baseless. However, the district court instead found that AdjustaCam’s litigation position was not exceptional because Newegg’s ball-and-socket products were constrained in such a way that AdjustaCam could reasonably argue that it rotated on a single axis, consistent with the original district judge’s Markman order. But the Court pointed out that AdjustaCam never advanced this argument.

Additionally, the district court failed to consider that AdjustaCam litigated the case in an “unreasonable manner.” For instance, AdjustaCam should have known that it inadvertently served a draft of its expert report before the date of the expert’s deposition. AdjustaCam filed a supplemental declaration identifying new infringement arguments without disclosing to the Court that the declaration was new. Additionally, AdjustaCam asserted “nuisance-value” damages against many defendants, settled with them for widely varied royalty rates and continued to press baseless infringement contentions past an adverse Markman order.

Fees are awarded where the case is exceptional. Continuing to pursue a lawsuit based on weak claims and after an adverse and dispositive Markman order may be a ground for a fee award. Offering belated new evidence, not disclosed as such, may contribute to the totality of circumstances. Additionally, evidence of pursuing baseless claims against a variety of defendants may support a pattern of exceptional behavior and justify a fee award.

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