Source: https://caselaw.findlaw.com/us-federal-circuit/1707547.html
Timestamp: 2019-11-20 08:05:38
Document Index: 205570795

Matched Legal Cases: ['§ 285', '§ 285', '§ 1295', '§ 285', '§ 285', '§ 285']

SFA SYSTEMS LLC v. NEWEGG INC | FindLaw
SFA SYSTEMS LLC v. NEWEGG INC
Before O'MALLEY, CLEVENGER, and HUGHES, Circuit Judges. John J. Edmonds, Collins, Edmonds, Pogorzelski, Schlather & Tower PLLC, Houston, TX, argued for plaintiff-appellee. Also represented by Elizabeth A. Wiley, The Wiley Firm PC, Austin, TX; Andrew W. Spangler, Spangler Law PC, Longview, TX. Mark A. Lemley, Durie Tangri LLP, San Francisco, CA, argued for defendant-appellant. Also represented by Kent E. Baldauf, Jr., Daniel H. Brean, The Webb Law Firm, Pittsburgh, PA; Richard Gregory Frenkel, Latham & Watkins LLP, Menlo Park, CA; Edward R. Reines, Weil, Gotshal & Manges LLP, Redwood Shores, CA.
There are two related patents at issue in this appeal, U.S. Patent Nos. 6,067,525 (“the ′525 patent”) and 7,941,341 (“the ′341 patent”). Both patents relate to a computer sales system that includes a plurality of subsystems or components, where each of the components corresponds to a different phase of the sales process. The patents disclose “an event manager” that integrates all of the different sales process components. The event manager detects the occurrence of “events” and automatically implements operations based on those events. For example, the event manager allows data from one component to be shared with all of the other components in the sales system so that when data is entered in one component, it will also be available in all of the other components.
On July 28, 2009, SFA filed this patent infringement suit in the United States District Court for the Eastern District of Texas against multiple online retailers, including Newegg, alleging infringement of the ′525 patent. A little over two years later, after some parties settled with SFA and were dropped from the suit, SFA filed a separate suit against the remaining accused infringers, this time asserting the ′341 patent, which had issued on May 10, 2011. On October 21, 2011, after all of the other accused infringers settled, Newegg and SFA jointly agreed to consolidate the two lawsuits.
Prior to the consolidation of the two suits, the district court held a Markman hearing regarding the disputed terms of the ′525 patent. The magistrate judge issued a Markman order on August 8, 2011, rejecting Newegg's proposed constructions that limited the asserted claims to systems that assist a salesperson, or are used by a salesperson. The district court adopted the magistrate judge's constructions.
After the district court granted the parties' joint motion to consolidate the two lawsuits, the court held a second Markman hearing regarding the disputed terms of the ′341 patent. Newegg also moved for summary judgment that the claims at issue in both patents were invalid as indefinite. In that motion, Newegg argued that the system claims contained method step limitations, making it unclear when infringement occurs. While awaiting the district court's decisions on claim construction for the ′341 patent and definiteness of the patents, the parties filed a joint motion for an extension of the case schedule, arguing that the scheduled trial date conflicted with the scheduled trial date in another case in which SFA had asserted the same patents against a different defendant. See SFA Sys., LLC v. Amazon.com, Inc., No. 6:11–cv–52–LED (E.D.Tex. Nov. 11, 2011), ECF No. 243. The district court denied the motion for an extension as premature, urging counsel to refile the request closer to trial.
On April 11, 2013, the district court issued its Markman order on the terms in the ′341 patent, again siding with SFA that the claimed system did not require involvement of a salesperson. In that same order, the district court also denied Newegg's motion for summary judgment that the claims at issue were indefinite. The next day, on April 12, 2013, SFA moved to dismiss the case against Newegg with prejudice under Federal Rule of Civil Procedure 41(a), and covenanted not to sue Newegg on the patents at issue. Newegg filed motions to recover its costs and fees following the dismissal of the case.
After briefing was completed, but before the district court acted on Newegg's motions for costs and fees, the Supreme Court decided Octane Fitness, LLC v. ICON Health & Fitness, Inc., ––– U.S. ––––, 134 S.Ct. 1749, 188 L.Ed.2d 816 (2014). The parties did not request leave to file additional briefing and the district court decided that none was required. On July 8, 2014, the district court found that Newegg was the prevailing party and granted Newegg's bill of costs. That same day, the district court also denied Newegg's § 285 motion for attorneys' fees. The district court cited the Supreme Court's standard in Octane Fitness, finding that, “[e]ven under the new, lower standard for an exceptional case designation, Newegg has provided no evidence that this case ‘stands out from others with respect to the substantive strength of [SFA's] litigating position.’ “ SFA Sys., LLC v. 1–800–Flowers.com, Inc., No. 6:09–cv–340, slip op. at 4 (E.D.Tex. July 8, 2014), ECF No. 473 (“Section 285 Order ”) (quoting Octane Fitness, 134 S.Ct. at 1756). The district court rejected Newegg's assertions that it would have prevailed on the merits, pointing out that the court had already rejected Newegg's attempts to limit the scope of the patent through claim construction and had denied Newegg's motion for summary judgment. The district court explained that Newegg's primary complaint was that SFA filed many suits against many defendants, showing a pattern of abusive and vexatious litigation to extract settlements. The district court concluded, however, that “the fact that SFA has filed several lawsuits against numerous defendants is insufficient to render this case exceptional. In many cases, patent infringement is widespread and the patent owner may be forced to revert to widespread litigation against several infringing parties to enforce its intellectual property rights.” Id.
Newegg timely appealed the district court's denial of its § 285 attorneys' fees motion.1 We have jurisdiction under 28 U.S.C. § 1295(a)(1).
an “exceptional” case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances. Octane Fitness, 134 S.Ct. at 1756 (footnote omitted). On appeal, we review the district court's exceptional case determination under § 285 for an abuse of discretion. Highmark Inc. v. Allcare Health Mgmt. Sys., ––– U.S. ––––, ––––, 134 S.Ct. 1744, 1747, 188 L.Ed.2d 829 (2014).
Newegg contends that the district court erroneously construed the claims of the patents to not require a salesperson. Newegg asserts that, under the proper claim construction, its online sales website does not infringe because the website sells products without any salespeople, rendering SFA's suit meritless. According to Newegg, moreover, the district court also erred in finding the claims at issue were not indefinite. Because claim construction and indefiniteness are matters of law, Newegg insists that we review the district court's orders on these issues de novo as part of our review of the district court's exceptional case determination under Highmark. Newegg argues that a searching merits review is required in this context because, otherwise, “plaintiffs could file frivolous cases in front of judges or courts that typically deny summary judgment or defer deciding summary judgment motions until the last minute before trial.” Appellant's Br. 29–30.
Newegg latches onto footnote 2 in Highmark, where the Supreme Court states that “[t]he abuse-of-discretion standard does not preclude an appellate court's correction of a district court's legal or factual error: ‘A district court would necessarily abuse its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.’ “ 134 S.Ct. at 1748 n. 2 (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990)). This language, however, does not mean that we must evaluate and determine all issues of law decided by the district court de novo as part of our review of the district court's exceptional case determination.
In this case, we conclude that the district court did not abuse its discretion in finding that SFA's claim construction and indefiniteness positions did not stand out. Newegg does not contend that the district court used the wrong law, only that its conclusions were flawed. The district court did not clearly err in its assessment that SFA's claim construction position—that the claims at issue did not require a salesperson—was reasonable. See, e.g., ′525 patent col. 36 ll. 55–61 (requiring a “sales person” in dependent claims); ′341 patent col. 15 ll. 12–14 (“The Kiosk module 302, illustrated in FIG. 3, is utilized at public forums where the salesperson may not necessarily be present.”); id. fig. 3 (depicting a “kiosk” and “web site” as inputs to the event manager). Nor did the district court clearly err in its assessment that the claims at issue were not indefinite because they were distinguishable from the claims in cases like IPXL Holdings, L.L.C. v. Amazon.com, Inc., 430 F.3d 1377, 1384 (Fed.Cir.2005). See SFA Sys., LLC v. 1–800–Flowers.com, Inc., 940 F.Supp.2d 433, 455 (E.D.Tex.2013) (“However, the claims in those cases suffered from a true ambiguity as to whether the claims require building a product or performing a method. In particular, those cases involved apparatus claims incorporating steps where a user acts upon the system. Here, the claims involve capabilities of the system, as limitations on the ‘event manager’ and ‘subsystem’ structural elements.”). Where, as here, a party's motion for fees does no more than refer the court back to its previous rulings, the district court has no obligation to reconsider or re-explain its prior rulings. Section 285 Order at 4 (characterizing Newegg's arguments regarding the merits of SFA's claims as “bare allegations”).
Prior to Octane Fitness, in addition to the test for § 285 fees set out in Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed.Cir.2005), we observed that a district court may declare a case exceptional based on unreasonable and vexatious litigation tactics, even where it finds the legal theories advanced not objectively baseless. See, e.g., MarcTec, LLC v. Johnson & Johnson, 664 F.3d 907, 919 (Fed.Cir.2012) ( “[T]he district court further found that [the patentee] engaged in litigation misconduct. This finding provides a separate and independent basis for the court's decision to award attorney fees.”); Eon–Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1324 (Fed.Cir.2011) (“[A]s a general matter, we have observed that many varieties of misconduct can support a district court's exceptional case finding, including lodging frivolous filings and engaging in vexatious or unjustified litigation.”). And, although the Supreme Court rejected our Brooks Furniture test in Octane Fitness, it gave no indication that we should rethink our litigation misconduct line of § 285 cases. Indeed, the Supreme Court sanctioned a district court's discretion to find a case exceptional based on “the unreasonable manner in which the case was litigated.” Octane Fitness, 134 S.Ct. at 1756. Accordingly, we conclude that, under Octane Fitness, the district court must consider whether the case was litigated in an unreasonable manner as part of its exceptional case determination, and that district courts can turn to our pre-Octane Fitness case law for guidance.
For example, in Eon–Net, this court affirmed the district court's finding of litigation misconduct based on the patentee's destruction of relevant documents and lodging of incomplete and misleading extrinsic evidence. 653 F.3d at 1324–25. This court also concluded that the record supported the district court's finding that the patentee acted in subjective bad faith “by exploiting the high cost to defend complex litigation to extract a nuisance value settlement.” Id. at 1327. We held that the district court properly considered the patentee's “ability to impose high costs to defend against its meritless claims,” and inducement of settlement payments by proposing low settlement offers of “less than ten percent of the cost that [the accused infringer] expended to defend suit.” Id. at 1327; see Kilopass Tech., Inc. v. Sidense Corp., 738 F.3d 1302, 1311 (Fed.Cir.2013) (holding that the district court should consider the “totality of the circumstances” in determining whether the patentee acted in subjective bad faith and should consider whether circumstantial evidence would support an inference of bad faith).
In Monolithic Power Systems, Inc. v. O2 Micro International, Ltd., 726 F.3d 1359 (Fed.Cir.2013), moreover, this court affirmed the district court's award of attorneys' fees based on “an overall vexatious litigation strategy and numerous instances of litigation misconduct.” 726 F.3d at 1367. The district court found that, over the course of a decade of litigation between the two parties, the patentee exhibited a pattern of litigation where it would sue the accused infringer's customers to prompt the accused infringer to file a declaratory judgment action, only to withdraw its claims after substantial litigation had taken place. Id. The district court also found that the patentee misrepresented the date of key evidence, and tried to mask its false testimony through motion practice. Id.
Although Newegg presented evidence of amounts SFA had obtained in previous settlements, there were several payments that were inconsistent with Newegg's argument that SFA always settled with accused infringers for far less than the cost to prosecute a case to judgment. Although Newegg argued at oral argument that the larger amounts were to settle claims of a different patent, Oral Arg. at 2:03, SFA Sys., LLC v. Newegg Inc., 2014–1712, available at http://oralarguments.cafc.us courts.gov/default.aspx?/fl=2014–11712.mp3, those larger settlements imply that SFA does not always seek nuisance value settlements for amounts far less than the cost of litigation as Newegg asserts. Accordingly, the district court's unwillingness to read bad faith motivations into SFA's settlement amounts, without more evidence about what prompted those settlements, was neither clearly erroneous nor an abuse of discretion.
Even taking all of this evidence together—SFA's dismissal of this case, the existence of other lawsuits by SFA, and its previous settlement amounts—we cannot conclude that the district court abused its discretion in finding that this case did not “stand[ ] out from others with respect to ․ the unreasonable manner in which the case was litigated.” Octane Fitness, 134 S.Ct. at 1756. Notably, the district court did not find any evidence of misrepresentation or misleading statements by SFA during the course of this litigation. Cf. Monolithic Power, 726 F.3d at 1367 (finding that the patentee misrepresented the date of key evidence, and tried to mask false testimony through motion practice); MarcTec, 664 F.3d at 920 (finding that the patentee misrepresented both the law of claim construction and the constructions ultimately adopted by the court); Eon–Net, 653 F.3d at 1324–25 (finding that the patentee lodged incomplete and misleading extrinsic evidence).
1. Although Newegg also argues the district court's denial of its motion for experts' fees on appeal, it fails to separately argue the merits of its case for experts' fees. As a result, we will not separately address that issue.