Under the American rule, each party to a lawsuit pays its own attorney’s fees. However, the American rule can be circumvented by statute enacted by the government or by contract through agreement by the parties. In patent litigation, fee shifting is appropriate by statute under 35 U.S.C. § 285. Section 285 states that “the court in exceptional cases may award reasonable attorney fees to the prevailing party.”
Fee Shifting Standard
The Supreme Court in Octane defined exceptional cases or when fee shifting would be appropriate as “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 [Litigation Conduct].”
AdjustaCam, LLC v. Newegg, Inc. (Fed. Cir. July 5, 2017) is an example of a case when fee shifting would be appropriate both with respect to (1) the substantive strength of the plaintiff’s infringement allegations and (2) the unreasonable litigation conduct of the plaintiff. In this case, AdjustaCam was the exclusive licensee of the patent and it was AdjustaCam that sued the defendant for patent infringement, not the patent owner.
AdjustaCam is the exclusive licensee of U.S.Pat. No. 5,855,343 (“’343 Patent”) which is directed to a camera clip that supports a camera both on a flat surface and when attached to a computer monitor. A drawing of the camera clip is shown below.
The claimed invention allows the camera to be rotatable via a hinge member rotatable about first and second axes of rotation.
Unlike the invention disclosed in the ’343 Patent, Newegg’s product (see below) uses a ball and socket joint, which facilitates rotation about multiple axes.
Because the claimed invention recited two separate rotating axes, the Exclusive Licensee had to argue that Newegg’s product also included a hinge that rotated about two separate rotating axes. In order to do so, the Excluisive Licensee argued that the constraint on Newegg’s ball-and-socket joint limited the rotation to a single axis at a time. (Emphasis in original).
When the complaint was first filed, the Federal Circuit found that the Exclusive Licensee had a weak patent infringement claim but that it was not baseless. However, during litigation, the District Court interpreted the claim language and defined the meaning of the claim language through a Markman order. The Markman order explained that:
“every reference to a ‘rotatably attached’ object in the specification and claims describes the attachment as permitting motion over a single axis of rotation,” and “[t]he claims plainly describe each ‘rotatably attached’ object as rotating about a single axis.”
The Federal Circuit found that after the Markman order, the allegations of patent infringement by Newegg’s products were now baseless because no reasonable factfinder could conclude Newegg’s products infringe the patent’s claims. The Federal Circuit stated that:
“Where AdjustaCam may have filed a weak infringement lawsuit, accusing Newegg’s products of infringing the ’343 patent, AdjustaCam’s suit became baseless after the District Court’s Markman order, where the court found ‘that the claims of the ’343 patent describe ‘rotatably attached’ objects as rotating over a single axis.” (Emphasis added).
For this reason, the Federal Circuit found that the allegations of patent infringement was substantively baseless.
The Federal Circuit also appeared to suggest that AdjustaCam (i.e., exclusive licensee) exhibited patent trollish behavior in litigating the case. The Federal Circuit called out AdjustaCam’s conduct of asserting seemingly low damages against multiple defendants or settling with defendants for less than the cost of litigation. Although this conduct alone, according to the Federal Circuit, does not necessarily make the case exceptional under § 285, the Federal Circuit when looking at the totality of circumstances recognized that AdjustaCam asserted nuisance-value damages against many defendants, settled with them for widely varied royalty rates, and continued to press baseless infringement contentions well past an adverse Markman order and expert discovery.
Additionally, the Federal Circuit pointed to other instances of litigation misconduct in support of its conclusion that fee shifting under § 285 would be appropriate in this case. For example, the Federal Circuit identified AdjustaCam’s repeated use of after-the-fact declarations as another instance of litigation misconduct. In discussing the after-the-fact declarations, the Federal Circuit noted in footnote 2 of the opinion that the conduct being reviewed was in reference to a pattern and not a one-off occurrence.
Based on the evidence above, the Federal Circuit reversed and remanded the case for further proceeding by the District Court with respect to fee shifting.
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