The Software IP Report

Federal Circuit Reverses E.D. Texas on Exceptional Case

By Dhegner

Categories: The Software IP Report

Reversing a decision from the Eastern District of Texas, the Federal Circuit held that AdjustaCam unreasonably litigated its Camera Clip patent (U.S. Pat. No. 5,855,343) and that its case was objectively baseless—holding the case to be exceptional under 35 U.S.C. § 285.  AdjustaCam LLC. v. Newegg, Inc., No. o.   6:10-cv-00329-JRG (E.D. Texas July 5, 2017).

AdjustaCam sued Newegg and dozens of other defendants for infringement of its ‘343 patent.  While it voluntarily dismissed many defendants early in litigation, it continued to litigate against Newegg (beyond a Markman order (April 2012) and extended expert discovery).  The district court determined that Newegg’s accused products used a ball-and-socket joint—facilitating rotation about multiple axes, and, per the Markman hearing, that AdjustaCam’s claims describe “rotatably attached” objects as rotating over a single axis.  Claim 1 is reproduced below with emphasis added.

Apparatus for supporting a camera, having a lens, on any generally horizontal, substantially planar surface and on an object having a first sur-face and a second surface and an edge intersecting the first surface and the second surface, comprising:

1. a hinge member adapted to be rotatably attached to the camera, said camera, when the hinge member is so attached, rotating, about a first axis of rotation, relative to said hinge member; and
2. a support frame rotatably attached to said hinge member and configured to support said hinge member on the surface and the object, said hinge member rotating about a second axis of rotation relative to said support frame, said first ax-is of rotation being generally perpendicular to said second axis of rotation, said second axis of rotation being substantially parallel to the first sur-face when said hinge member is supported on the object, said support frame having a first disposition positioned on said generally horizontal, substantially planar surface, and said support frame having a second disposition attached to the object when said first surface and said second surface are inclined from a generally horizontal orientation, the camera being maintained adjacent said edge in said second disposition of said support frame.

In September 2012 (just prior to Newegg’s summary judgment briefing), AdjustaCam moved to dismiss with prejudice (contingent on Newegg’s right to seek fees after dismissal).  In response, Newegg moved for a declaration of exceptional case under 35 U.S.C. § 285 and an award of fees on the basis that AdjustaCam brought an objectively baseless lawsuit in bad faith (e.g., simply to extract nuisance-value settlements unrelated to the merits and far below the cost of defense) and that AdjustaCam had no reasonable expectation of success on its infringement claims following the Markman order.  Accordingly, AdjustaCam had prolonged the litigation in bad faith.

The district court denied Newegg’s motion, and Newegg appealed (September 2013).  In April 2014, the Supreme Court issued its decision in Octane Fitness, LLC v. Icon Health & Fitness, Inc. clarifying what constitutes an “exceptional” case (“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”).  Accordingly, the Federal Circuit remanded the case to the district court for reconsideration in light of thereof, noting that Octane did not simply relax the standard under § 285, it substantially changed the analysis.  Further, the Federal Circuit noted that Newegg’s arguments appeared to have significant merit—particularly that AdjustaCam’s continued pursuit of its infringement claims after the district court construed the claim term ‘rotatably attached’ was baseless.

In the interim, the original district court judge retired.  The new judge permitted re-briefing on the § 285 issue under Octane which included a supplemental report by AdjustaCam’s expert containing issues not raised before the original judge (e.g., regarding the single axis of rotation).  On remand, the new judge held that it endeavored not to circumvent the judgments and in-person evaluation of the trial judge. 

Newegg appealed again, and the Federal Circuit reversed and remanded, granting attorneys’ fees to Newegg, holding that the district court abused its discretion for two independent reasons, stating:  (1) that the district court failed to follow the Federal Circuit’s mandate on remand; and (2) that the district court’s decision was based on a clearly erroneous assessment of the evidence.

Failure to Follow the Mandate

In its opinion, the Federal Circuit stated that instead of engaging in an independent analysis, the district court simply adopted the trial judge’s factual findings wholesale.  The Federal Circuit pointed out that reliance solely upon the previous findings was improper in light of AdjustaCam’s additional briefing and oral argument—which now provided the new judge with first-hand knowledge and in-person experience.  Further, the Federal Circuit noted that the new judge did not evaluate the merits of Newegg’s motion in light of the new Octane standard, as ordered.

Clearly Erroneous Factual Findings

The Federal Circuit found that AdjustaCam’s suit became baseless after the district court’s Markman order found “that the claims of the ‘343 patent describe ‘rotatably attached’ objects as rotating over a single axis.”  The Federal Circuit noted that, while the original judge stated that AdjustaCam could reasonably argue that Newegg’s ball-and-socket products rotated on a single axis, AdjustaCam did not advance that argument, and further, AdjustaCam did not introduce any evidence that Newegg’s ball-and-socket products were limited to a single axis of rotation.  As Newegg’s cameras rotate about at least two axes, the Federal Circuit stated that no reasonable factfinder could conclude that Newegg’s products infringe; therefore, AdjustaCam’s litigation position was baseless.

Additional Reasoning

The Federal Circuit further found the case exceptional because AdjustaCam repeatedly used ‘after-the-fact declarations’ to support its positions on appeal yet did not disclose them as new on appeal.  Furthermore, this fact was not considered by the district court.

Still further, the Federal Circuit found the damages model used by AdjustaCam to be suspect—e.g., with regard to the numerous defendants, AdjustaCam had demanded settlements varying between $0.10 per unit to $161.29 per unit.  Had this been the only issue on appeal, the Federal Circuit stated it would be inclined to affirm the district court’s holding of not exceptional; however, in light of AdjustaCam’s frivolous infringement argument and unreasonable manner of litigation, the Federal Circuit considered this further evidence of AdjustaCam’s objectively baseless litigation.

Lessons for Practice

The AdjustaCam case demonstrates that the entirety of a party’s litigation behavior may tip the scale in favor of a finding of exceptional case under 35 U.S.C. § 285—e.g., in the instant matter, AdjustaCam’s continued assertions in light the Markman order, as well as AdjustaCam’s varying nuisance-value damages model and its repeated use of after-the-fact declarations to submit new evidence.