Federal Circuit denies Newegg attorneys’ fees, says case not ‘exceptional’

The US Court of Appeals for the Federal Circuit has refused to award legal costs to online retailer Newegg after it failed to show that its patent dispute with a licensing company met the definition of ‘exceptional’.

In a 3-0 decision handed down on Friday, July 10, the court backed a ruling by the US District Court for the Eastern District of Texas.

Newegg had requested attorneys’ fees in its dispute over the alleged infringement of two patents owned by SFA Systems that covered a computer sales system.

In 2009, SFA sued Newegg for infringing US patent number 6,067, 525 and then in May 2011 sued the retailer for infringing US patent number 7,941,341.

The Texas court consolidated the cases in October 2011.

Newegg argued that the claims in both of SFA’s patents required a salesperson and that, therefore, its online retail operation was not infringing them.

But, during a pre-trial hearing in the case, the district court ruled otherwise.

In April 2013, after attempts by SFA to settle the dispute, the company withdrew the lawsuit and promised no further litigation against Newegg.

But not content with just the dismissal, Newegg requested that the case be ruled as ‘exceptional’ under the standard set out by the Supreme Court in last year’s decision in Octane Fitness v Icon—in order to receive attorneys’ fees.

The decision in Octane Fitness said that for a prevailing party to receive its legal costs the court has to look at the “substantive strength of a party’s litigation position” and the “unreasonable manner in which the case was litigated”.

If a court finds the losing party’s position to be either weak or frivolous then it can rule that the case is ‘exceptional’.

Newegg claimed that the correct construction of the claims would have found SFA’s patent “meritless”.

Furthermore, Newegg said that SFA’s history of litigation and its settlements for small amounts showed its assertions were made “for the improper purpose of obtaining a nuisance value settlement”.

But the federal circuit said that the case was not ‘exceptional’.

The three-judge panel agreed with the district court that the claims in the patent did not require a salesperson and, therefore, SFA’s lawsuit was not meritless.

The court also ruled that Newegg failed “to a make a record supporting its characterisation of SFA’s improper motivations”.

Judge Kathleen O’Malley, writing the opinion, concluded that the “district court did not abuse its discretion in finding that SFA’s litigation position and the manner in which it litigated this case did not stand out”.

Neither Newegg nor John Edmonds, shareholder at IP boutique firm CEP IP and representing SFA, had responded to a request for comment at the time of publication, but we will update the story should the parties get in touch.