Federal Circuit Dissects Grewal Order on 'Exceptional Case' Fees

Federal Circuit Dissects Grewal Order on 'Exceptional Case' Fees Jason Doiy / The Recorder Yar Chaikovsky

Online retailer Newegg Inc. renewed its campaign for attorney fee awards against nonpracticing entities at the U.S. Court of Appeals for the Federal Circuit this past week.

The company and its firebrand general counsel, Lee Cheng, haven’t won many fee awards yet—a point opponent Acacia Research Corp. has emphasized—but Newegg came into the Jan. 5 hearing on a one-appeal winning streak. The case could determine whether November’s modest $15,000 win against another Acacia entity was a one-off or part of an evolution at the Federal Circuit toward Newegg’s viewpoint that district judges should grant fees more frequently to discourage abusive patent suits.

Questioning from the appeals court suggested a close call. All three judges on Tuesday’s panel reminded Newegg attorney Yar Chaikovsky that they can’t reverse U.S. Magistrate Judge Paul Grewal’s decision denying fees unless they find he abused his discretion. Judge Jimmie Reyna noted that Grewal, a former patent litigator who sits in San Jose, has “quite a bit of experience in patent cases.”

But Judge Timothy Dyk sounded as if he might be willing to go there. He grilled Collins Edmonds Schlather & Tower partner John Edmonds, representing Acacia subsidiary Site Update Solutions, on the vagueness of its patent for registering web pages on a search engine. “It talks about these software tools again and again and again. But it never says what the software tools are,” Dyk said. “It just totally leaves it up in the air.”

Edmonds said that, although his client and its trial counsel had lost the case, they had not been unreasonable. “In almost every claim-construction battle one side is wrong, and that’s not the touchstone” for a fee award, he said.

Site Update Solutions v. CBS puts the Federal Circuit in a tricky spot. Grewal has held two hearings on Newegg’s motion, the second one stretching nearly two hours. He issued a 34-page opinion in February thoroughly explaining his reasons for not finding Site Update’s case against Newegg so “exceptional” as to merit fee-shifting, even under the looser standard adopted by the U.S. Supreme Court in 2014′s Octane Fitness decision.

Given the Supreme Court also has instructed the Federal Circuit to afford deference to district judges on Section 285 fee-shifting, that’s a tall hill to climb on appeal. “Octane works both ways,” Reyna told Chaikovsky on Tuesday. “It creates deference to the district court both in establishing attorneys fees and in denying attorneys fees.”

On the other hand, Grewal had been critical of Site Update during claim-construction proceedings, calling its position “highly problematic” at one point and saying it “misunderstood” Federal Circuit case law on means-plus-function claiming. Newegg ridicules the idea that Acacia, one of the nation’s most sophisticated patent licensing shops, misunderstood the law behind the single patent claim at issue in the case. Rather, it says, Acacia and Site Update were trying to coerce a nuisance-value settlement out of the company.

Cheng has made clear he’s champing at the bit to take a case like Site Update to the Supreme Court, which reminded district judges last summer they have “the authority and responsibility” to discourage frivolous patent cases. While certiorari is always a long shot, Site Update appears to tee up the breadth of judicial discretion on Section 285 fee-shifting pretty cleanly.

It’s “a case where a judge says that positions are [likely] frivolous, highly problematic, they strain credibility, they’re difficult to make logical sense of, they didn’t follow the law,” Chaikovsky, a Paul Hastings partner, recounted at Tuesday’s hearing. “If this doesn’t meet the considerably lower standard [of Octane Fitness], I’m not sure what does, even under the abuse-of-discretion standard.”

Like Reyna, Chief Judge Sharon Prost sounded skeptical. The law of means-plus-function claiming—specifically, the requirement that the claim specification disclose structure in the form of an algorithm—wasn’t completely settled until last year, she said. “Clearly they lose, they were wrong” under the prior case law, she suggested, “but it’s not sufficient to make it frivolous or unreasonable.”

That wasn’t promising for Chaikovsky. But when Edmonds took the lectern, Dyk began with the words no lawyer wants to hear.

“Let me tell you what the problem is,” Dyk said. “I have a very hard time finding any structure here that even arguably performs the functions.”

Edmonds said Site Update’s expert witness testified that a common gateway interface script combined with a website database provided the necessary structure. “Ultimately this was a factual dispute where there were experts on both sides,” he said.

Dyk pushed back on that repeatedly. “What I’m suggesting to you is the description of the structure here is so vague and indefinite, that it can’t possibly, potentially satisfy the requirements of having some structure in the claims that would perform the function,” he said.

Edmonds returned to the notion of deference. “I think this district court is very experienced, this district court in Northern California I think is very no nonsense,” he said. It wasn’t clear if he meant Grewal specifically or the Northern District of California bench generally, but surely the point was made either way.

If the judges do ultimately defer to Grewal, Newegg won’t have to wait long for another try at the win column. A Federal Circuit hearing is scheduled Feb. 1 in its fee dispute with another publicly traded company, MacroSolve Inc. Newegg accuses of MacroSolve of “extortive patent litigation practices.” MacroSolve in turn says Newegg is appealing “solely to advance its publicly announced program of trying to intimidate patent owners from seeking to vindicate their patent rights against Newegg.”

Kent Baldauf Jr. of The Webb Law Firm is scheduled to argue that appeal for Newegg, with Matthew Antonelli of Antonelli, Harrington & Thompson representing MacroSolve.

Contact the reporter at sgraham@alm.com.

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