District Court Abused Discretion Refusing to Award Attorneys’ Fees Where Patentee Continued to Litigate After Claim Construction Rendered Infringement Case Baseless

August 2017

AdjustaCam, LLC v. Newegg, Inc., 861 F.3d 1353 (Fed. Cir. 2017)

The Federal Circuit reversed a holding by the Eastern District of Texas declining to award attorneys’ fees to the prevailing patent defendant.  The suit, which became baseless after the district court’s Markman ruling, was “exceptional” and supported the award of attorneys’ fees.  According to the Federal Circuit, the district court’s clearly erroneous findings about the substantive strength of the litigating position justified reversal.

AdjustaCam sued fifty-eight defendants for infringement of their licensed camera clip patent, settling with most for amounts less than the cost of litigation.  The court held a Markman hearing, where it court construed the claim term “rotatably attached” to require a single axis of rotation.  Newegg’s products rotated on a ball-and-socket joint.  Even so, AdjustaCam proceeded with the litigation against Newegg until the eve of summary judgment briefing, when AdjustaCam unilateral moved to dismiss its claims with prejudice.

Newegg requested its attorneys’ fees pursuant to Section 285 of the Patent Act, which permits fee shifting in “exceptional” cases.  The district court denied Newegg’s motion, holding that AdjustaCam’s manner of litigation was not exceptional because AdjustaCam could have reasonably argued that Newegg’s products were constricted such that the ball-and-socket joint rotated on a single axis.

The Federal Circuit reversed, holding that the district court’s decision was based on a clearly erroneous assessment of the evidence.  The district court, not AdjustaCam, made the argument for how AdjustaCam could have reasonably maintained the case despite the adverse claim construction.  And the Federal Circuit determined that this argument was baseless.  Furthermore, the Federal Circuit found that AdjustaCam’s nuisance-level damages, widely varying royalty rates, and their use of after-the-fact declarations to press frivolous arguments, all contributed to their finding that the case was “exceptional.” Accordingly, the district court’s denial of fees was reversed and the case was remanded for calculation of attorney’s fees to be awarded to Newegg.

Key Takeaway: Continuing an infringement suit which becomes baseless after claim construction may support the award of attorney’s fees.  A district court’s refusal to award fees in such circumstances may constitute clear error.