SFA Sys., LLC v. Newegg Inc.
| Decision Date | 10 July 2015 |
| Docket Number | No. 2014–1712.,2014–1712. |
| Citation | 793 F.3d 1344,115 U.S.P.Q.2d 1758 |
| Parties | SFA SYSTEMS, LLC, Plaintiff–Appellee v. NEWEGG INC., Defendant–Appellant. |
| Court | U.S. Court of Appeals — Federal Circuit |
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.
Before O'MALLEY, CLEVENGER, and HUGHES, Circuit Judges.
SFA Systems, Inc. (“SFA”) brought this patent infringement action against multiple accused infringers, including Newegg, Inc. (“Newegg”), in the United States District Court for the Eastern District of Texas. After the district court issued its claim construction order, but before the parties exchanged expert reports, SFA voluntarily dismissed the suit with prejudice under Federal Rule of Civil Procedure 41(a), and covenanted not to sue Newegg for infringement of the patents at issue. Newegg then moved for attorneys' fees under 35 U.S.C. § 285 (2012). Because we find that the district court did not abuse its discretion in denying Newegg's § 285 motion, we affirm.
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 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).
Under 35 U.S.C. § 285, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” In Octane Fitness, the Supreme Court clarified that:
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 argues that the district court erred in finding that this case was not exceptional because: (1) the district court's analyses on claim construction and indefiniteness were wrong and, under the correct analyses, SFA's lawsuit is meritless; and (2) SFA maintained and filed this lawsuit in bad faith for the improper purpose of obtaining a nuisance value settlement (“the unreasonable manner in which the case was litigated”). Octane Fitness, 134 S.Ct. at 1756. Although, under Octane Fitness, we ultimately consider these issues together under the “totality of the circumstances,” id., it helps to first parse Newegg's arguments because Newegg argues that we should apply different standards of review to them.
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...
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