Site Update Solutions LLC v. Accor North America Inc et al

Filing 665

ORDER [REDACTED] DENYING DECLARATION OF EXCEPTIONAL CASE AND AWARD OF ATTORNEYS' FEES by Judge Paul S. Grewal denying 649 Motion for Attorney Fees (psglc2, COURT STAFF) (Filed on 5/21/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
For the Northern District of California

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SITE UPDATE SOLUTIONS, LLC,

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Plaintiffs,
v.

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ACCOR NORTH AMERICA, INC., et al,
Defendants.

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Case No.: 11-3306 PSG
ORDER DENYING DECLARATION
OF EXCEPTIONAL CASE AND
AWARD OF ATTORNEYS’ FEES
(Re: Docket No. 649)

In this patent infringement case, Defendant Newegg Inc. (“Newegg”) moves to declare this

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case exceptional and for an award of attorneys’ fees pursuant to 35 U.S.C. § 285. Plaintiff Site

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Update Solutions, LLC (“SUS”) opposes. The parties appeared for a hearing. Having carefully

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considered the parties’ papers and oral arguments, the court DENIES Newegg’s motion.

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I.

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BACKGROUND

This case originated in the Eastern District of Texas in May 2010 when SUS filed suit

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against Newegg and thirty-four other defendants. 1 In its complaint, SUS alleged that the various

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See Docket No. 209. The other named defendants were Accor North America, Inc., Adobe
Systems Incorporated, Amazon.com, Inc., American Broadcasting Companies, Inc., CBS
Interactive Inc., CDW, Choice Hotels International, Inc., CNN Interactive Group, Inc., Deli
Management, Inc., Daily News L.P., Electronic Arts, Inc., Enterprise Rent-A-Car Company,
Facebook, Inc., Gannett Satellite Information Network, Inc., HSN, Inc., Intuit, Inc., Linkedin
Corporation, Monster Worldwide, Inc., Myspace, Inc., MSNBC Interactive News LLC, NBC
Universal, Inc., Nissan North America, Inc., Office Max, Inc., Overstock.com, Inc., Red Hat, Inc.,
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Case No.: 11-3306 PSG
ORDER

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defendants infringed on United States Reissue Patent No. RE40,683 (“RE’683 Patent”), a reissue

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of United States Patent No. 6,253,198, titled “Process for Maintaining Ongoing Registration for

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Pages on a Given Search Engine.” 2

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The case arrived in this court on July 6, 2011, following an order on June 8, 2011 from the

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Eastern District of Texas granting a request to change venue. 3 The defendants 4 first requested the

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transfer on November 3, 2010, noting in particular that several search engine companies with
evidence relevant to the case fell within the jurisdiction of the Northern District of California. 5 In
its two-page opposition, SUS stated that it “disagree[d] with the contentions and allegations made

United States District Court
For the Northern District of California

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in the Motion to Transfer” and pointing to the speed with which the Eastern District of Texas could

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move the case to trial in comparison to this district. 6 But SUS concluded that it was “agreeable to

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the transfer if the Court deems that such transfer is in the interests of justice of all the parties.” 7

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In the seven months between the request and the district court’s order, the parties moved
forward toward claim construction, which the court had set for July 13, 2011. 8 The parties jointly

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sought extension of the claim construction deadlines on March 7, 2011 and the district court,
granting the request, moved the claim construction hearing back to August 3, 2011. 9 SUS,

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Salesforce.com, Inc., Sears, Roebuck and Co., Staples, Inc., Starwood Hotels & Resorts
Worldwide, Inc., Target Corporation, Thomson Reuters Holdings, Inc., Ticketmaster LLC, Time,
Inc., Wal-Mart Stores, Inc., and Wyndham Worldwide, Inc. See id.
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See id.

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See Docket No.

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Enterprise Rent-A-Car Company, CDW LLC, and Wal-Mart Stores, Inc. did not join the motion
but they did not oppose transfer. See Docket No. 503.

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See Docket No. 373.

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Docket No. 410.

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See id.

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See Docket No. 357 Ex. 1.

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See Docket Nos. 467, 468.
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Case No.: 11-3306 PSG
ORDER

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however, opposed the defendants’ subsequent request to vacate altogether the claim construction

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hearing until the motion to change venue was resolved. 10 The district court denied the request to

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vacate the dates, finding that the claim construction preparation could follow the case to this

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district if the motion was granted but that if the hearing was vacated and the transfer request

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denied, the case would be unnecessarily delayed. 11 Pursuant to the court’s order, the parties filed

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their claim construction briefs and a motion for summary judgment before the district court’s order
granting the transfer request. 12
Throughout the litigation, SUS regularly dismissed defendants, beginning with MSNBC

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United States District Court
For the Northern District of California

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Interactive News LLC in mid-October 2010. 13 From the end of 2010 until July 2012, SUS

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dismissed fourteen defendants, 14 at least nine of which were subject to settlement agreements

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between SUS and the individual defendants. 15 The amounts of those settlement agreements ranged

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. 16

from

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Once the case moved to this court, the parties again filed their claim construction briefs and
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sought construction of twelve terms. 17 The court held a tutorial on July 13, 2012 18 and a claim

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See Docket No. 476.

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See Docket No. 480.

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See Docket Nos. 494, 499, 500, 501.

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See Docket No. 355.

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See Docket Nos. 372 (Salesforce.com on Oct. 29, 2010), 380 (Accor North America, Inc. on
Nov. 11, 2010), 415 (Office Max, Inc. on Dec. 3, 2010), 429 (Wyndham Worldwide Corp. on Jan.
5, 2011), 432 (Thomson Reuters Holdings, Inc. on Jan. 6, 2011), 433 (Nissan North America, Inc.
on Jan. 7, 2011), 451 (Deli Management, Inc. on Jan. 20, 2011), 489 (Starwood Hotels & Resorts
Worldwide, Inc. on May 6, 2011), 490 (Red Hat, Inc. on May 6, 2011), 537 (MySpace, Inc. on
Aug. 22, 2011), 538 (Monster Worldwide, Inc. on Aug. 22, 2011), 572 (Wal-Mart Stores, Inc. on
Dec. 6, 2011), 600 (CDW on Apr. 24, 2012), 611 (HSN, Inc. on July 6, 2012).
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See Docket No. 649 Exs. B – J.

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See id.

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Case No.: 11-3306 PSG
ORDER

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construction hearing on July 20, 2012. 19 At the hearing, the court issued its constructions from the

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bench. 20 As part of its construction, the court declined to construe four of the terms, citing

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concerns that the terms were indefinite. 21 The court then invited the defendants to move for

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summary judgment on indefiniteness grounds. 22

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Following the claim construction hearing, SUS and all of the remaining defendants except
for Newegg stipulated to a dismissal of all claims brought by SUS. 23 Newegg refused to dismiss

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its declaratory relief counterclaims and indicated that it would file a summary judgment motion in
line with the court’s suggestion. 24 On October 18, 2012, SUS filed a motion to dismiss its claims

United States District Court
For the Northern District of California

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with an accompanying covenant not to sue to end the dispute between the parties. 25 Newegg

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opposed SUS’s motion because it believed the covenant not to sue was inadequate to protect

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against future suit by SUS. 26 Following SUS’s amendment of the covenant not to sue, Newegg and

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SUS agreed to dismiss the claims between them. 27

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See Docket Nos. 603, 605, 607.

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See Docket No. 618.

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See Docket No. 619.

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See Docket No. 632 at 153:3-10. The court assured the parties that an order with its reasoning
would precede any entry of judgment. See id.
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See id. at 157:5-15.

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See id. at 157:16-19.

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See Docket No. 624 (Amazon.com Inc., American Broadcasting Companies, Inc., CBS
Interactive Inc., Choice Hotels International, Inc., CNN Interactive Group, Inc., Daily News L.P.,
Electronic Arts, Inc., Enterprise Rent-A-Car Company, Facebook, Inc., Gannett Satellite
Information Network, Inc., Home Box Office, Inc., Intuit Inc., Linkedin Corporation, NBC
Universal, Inc., Newegg, Inc., Overstock.com, Sears, Roebuck and Co., Staples, Inc., Target
Corporation, Ticketmaster L.L.C., and Time Inc. on Aug. 13, 2012).
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See Docket No. 623.

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See Docket No. 642.

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See Docket No. 645.

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Case No.: 11-3306 PSG
ORDER

Newegg then filed this motion requesting the court to determine this case exceptional and to

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award Newegg its attorneys’ fees.
II.

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LEGAL STANDARDS

Although under the traditional “American rule” parties to litigation are responsible for their

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own legal costs and fees, 28 Congress determined that in certain “exceptional cases” the court may

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award to the prevailing party “reasonable attorney fees.” 29 The statute does not define what an

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“exceptional case” is, but the Federal Circuit has established two instances in which a party's
behavior may transform an ordinary case into an “exceptional” one, specifically when a party either

United States District Court
For the Northern District of California

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engages in litigation misconduct or pursues a “frivolous claim.” 30 If the court determines that the

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case is “exceptional” under one of the two criteria, it must then ascertain “whether an award of

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attorneys’ fees is appropriate and, if so, the amount of the award.” 31 “The amount of the attorney

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fees awarded depends on the extent to which the case is exceptional.” 32 “To receive attorney fees

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under § 285, a prevailing party must establish by clear and convincing evidence that the case is
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exceptional.” 33
III.

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Newegg primarily accuses SUS of pursuing frivolous claims that were both objectively

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DISCUSSION

baseless and brought in bad faith. Newegg also points to other behavior by SUS during the

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See Docket No. 646.

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See Checkpoint Sys., Inc. v. All-Tag Sec. S.A., 711 F.3d 1341, 1345 (Fed. Cir. 2013).

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See 35 U.S.C. § 285.

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See Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1308 (Fed. Cir. 2012).

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Id.

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Id.

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Checkpoint Sys., Inc. v. All-Tag Sec. S.A., 711 F.3d 1341, 1346 (Fed. Cir. 2013).
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Case No.: 11-3306 PSG
ORDER

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litigation in what appears to be an argument that SUS engaged in litigation misconduct. 34 The

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court thus considers whether the case is exceptional under both prongs.

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A.

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Frivolous Claims
To be “frivolous,” a claim must meet two criteria: (1) it must be “brought in subjective bad

faith” and (2) it must be “objectively baseless.” 35 “To be objectively baseless, the infringement
allegations must be such that no reasonable litigant could reasonably expect success on the
merits.” 36 To satisfy the subjective prong, the prevailing party must show “that [the] lack of
objective foundation for the claim was either known or so obvious that it should have been known

United States District Court
For the Northern District of California

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by the party asserting the claim.” 37 “[T]here is a presumption that an assertion of infringement of a

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duly granted patent is made in good faith” and so the subjective prong “must be established with

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clear and convincing evidence.” 38

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Newegg asserts that SUS’s infringement claims were objectively baseless because they
ignored “well-established” means-plus-function law in arguing for its constructions. For the

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subjective prong, Newegg points to the settlements and dismissals with other defendants earlier in

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the case to argue that SUS sought “nuisance, shake-down” settlements, which, according to

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Newegg, evince its bad faith in bringing the claims. SUS unsurprisingly disputes both of these

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arguments, asserting that its positions during claim construction were reasonable given the

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complicated issues involved in the construction and that the settlements reflect only its right to

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pursue royalties from infringers.

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Newegg offers these other actions as evidence of subjective bad faith, but the conduct does not
fall within the framework that the Federal Circuit has established for the “frivolous claim” basis for
an exceptional case finding. See Checkpoint Sys., Inc., 711 F.3d at 1346. The court therefore
considers the conduct under the litigation misconduct prong.

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Id.

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Id.

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Id. (internal quotations and citations omitted).

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Id. at 1309.

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Case No.: 11-3306 PSG
ORDER

The court begins with an evaluation of SUS’s positions during claim construction and in

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alleging infringement. The merits of SUS’s arguments and claims necessarily color the settlements

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it reached with other defendants and whether bad faith may be inferred from those agreements.

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To ascertain the legitimacy of SUS’s position, the court must engage in a type of “meta-

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claim construction.” 39 Because the court did not have the opportunity to issue a complete claim

Claim Construction

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construction opinion before all claims were dismissed, it must explain here why it construed the
terms in the manner in which it did before it can explain the merit, or lack thereof, of SUS’s

United States District Court
For the Northern District of California

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arguments. Rather than present an entire claim construction analysis, against which it also has to

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determine the validity of SUS’s arguments, the court limits itself to explaining its construction of

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the terms for which Newegg challenges SUS’s positions. But first, the court provides the

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background of the claim construction and the claim at issue.

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SUS pursued an infringement claim against the defendants for only Claim 8 of the RE’683
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Patent. 40 The parties agreed that Claim 8 was a means-plus-function claim under 35 U.S.C. §
112(6). 41 Claim 8 describes:
An apparatus for updating an internet search engine database with current content from a
web site, comprising:

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a means for creating and modifying a database of a web site wherein said website
database contains content capable of being indexed by an internet search engine;

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a means for identifying, using said web site database, new, deleted, [unmodified] or
modified content;

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See Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1319 (Fed. Cir. 2011)(noting that without
an explanation of the claim construction determinations, an exceptional case finding on grounds
that positions during claim construction were baseless is not supported); see also Eon-Net LP v.
Flagstar Bancorp, 249 Fed. Appx. 189, 198 (Fed. Cir. 2007) (remanding to district court for “full
claim construction analysis” to determine whether position was baseless).

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See Docket Nos. 605, 607.

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See Docket Nos. 605, 607.

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Case No.: 11-3306 PSG
ORDER

a means for transmitting to said internet search engine a set of indices, wherein said
set of indices comprises said new, deleted, unmodified or modified database
content;

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a means for opening, by a user, a form on a computer to enable or disable internet
search engines to be updated with information;

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a means for enabling or disabling, by said user, the appropriate internet search
engines on said form;

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a means for submitting, by said user, said information to a script;

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a means for parsing, through the user of said script, said information from said form;
and

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a means for updating, through the use of said script, said database of search
engine. 42

United States District Court
For the Northern District of California

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The parties sought construction of twelve terms from the claim. At issue in this motion,
however, are only seven terms for which Newegg asserts SUS’s positions were “objectively
baseless”:

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Term
“information”

SUS Proposed Construction
Plain meaning

“website
database”

Record of resources on the
website

“a means for
creating and
modifying a
database of a
website where in
said website
database
contains content
capable of being
indexed by an
internet search
engine”

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Function: creating and
modifying a database of a web
site wherein said website
database contains content
capable of being indexed by an
internet search engine

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Structure: The combination of
a web server, Common
Gateway Interface script,
website database and form and
equivalents

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42

See Docket No. 605 Ex. A.
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Case No.: 11-3306 PSG
ORDER

Defendants’ Proposed Construction
Indefinite because it is used in the
claim in a contradictory and
irreconcilable way
Structure of fields or records built by
software that catalogues the resources
of a website, other than the resources
themselves
Function: creating and modifying a
database of a web site wherein said
website database contains content
capable of being indexed by an
internet search engine
Structure:
(i) a website server or surrogate
website server; (ii) the Table of Files,
which is a field in the Table of Search
Engines (as described at 6:51–7:18;
7-29-50); and (iii) the disclosed
server algorithm, which: (1) builds
the Table of Files list containing

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United States District Court
For the Northern District of California

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“a means for
identifying,
using said web
site database,
new, deleted, or
modified
content”

Function: identifying, using
said web site database, new
deleted or modified content

“a means for
transmitting to
said internet
search engine a
set of indices,
wherein said set
of indices
comprises said
new, deleted or
modified
database
content”

Function: transmitting to said
internet search engine a set of
indices, wherein said set of
indices comprises new, deleted
or modified database content

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Structure: the combination of a
web server, Common Gateway
Interface (CGI) program,
website database, form and
equivalents

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Structure: the combination of
web server and Common
Gateway Interface (CGI) script
and equivalents

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Case No.: 11-3306 PSG
ORDER

records that store URLs that are
obtained from either (a) a manually
entered list; (b) a specified map page;
or (c) a spider crawling from
specified entry points of the web site;
and (2) modifies records in the Table
of Files list when content is added,
altered, or removed (all as described
at 7:55-8:13 and Fig. 1a, boxes 203ac, 204a-c, and 206b-c).
Function: identifying, using said web
site database, new deleted or
modified content
Structure: (i) a website server or
surrogate website server; and (ii) the
server algorithm that automatically
checks a database
representing a historical version of a
website against the current version of
the website to detect changes, and:
(1) marks a resource as new if it is
present on a website server but not
yet in the website database; (2) marks
a resource as deleted if it is listed in
the web site database but cannot be
retrieved; (3) marks a resource as
modified if the date and time of last
modification in the web site database
for the resource is earlier than the
date and time of last modification
provided by a web server for the
resource; and (4) does not mark any
unmodified resources (all as
described at 4:56-67 and 9:30-10:25)
Function: transmitting to said internet
search engine a set of indices,
wherein said set of indices comprises
new, deleted or modified database
content
Indefinite: The patent discloses no
structure for “transmitting to said
internet search engine a set of
indices, wherein said set of indices
comprises said new, deleted, or
modified database content.” Although
the specification implies that the

website server or surrogate transmits
information relating to a resource to a
search engine, the specification does
not disclose the function of
transmitting a “set of indices” to a
search engine, and does not disclose
any specific structure that transmits
anything to a search engine.

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United States District Court
For the Northern District of California

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“a means for
parsing, through
the use of said
script, said
information
from said form”

Function: parsing information
from a form
Structure: agents (programs
that can travel over the internet
and access remote resources)
and their equivalents

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“a means for
updating,

Function: (agreed to by ALL
parties) updating, through the
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Case No.: 11-3306 PSG
ORDER

Structure: The structure disclosed in
the specification that comes closest to
performing the claimed function is at
most incomplete and does not
perform the complete claimed
function. Specifically, that disclosed
structure is a website server or
surrogate website server, which
implicitly transmits resources (but not
a “set of indices”) to the search
engine index (as described at 10:4244).
Function: parsing, through the user of
said script, said information from said
form.
Indefinite: The patent discloses no
structure for performing the claimed
function. Although the specification
states that a “web site server or
surrogate parses CGI script,” the
parsing of CGI script is not the same
as the parsing of “said information
from said form,” and the specification
fails to identify an algorithm for
performing parsing.
Structure: The structure disclosed in
the specification that comes closest to
performing the claimed function is at
most incomplete and does not
perform the complete claimed
function. Specifically, that disclosed
structure is: (i) a website server or
surrogate website server, which
parses CGI script (as shown by Fig.
1b, box 103).
Function: (agreed to by ALL parties)
updating, through the use of said

through the use
of said script,
said database of
search engine”

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United States District Court
For the Northern District of California

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use of said script, said database script, said database of search engine.
of search engine.
Indefinite: The patent discloses no
Structure: Common Gateway
structure for “updating, though the
Interface (CGI) program of
use of said script, said database of
search engines and equivalents search engine.” Although the
specification does disclose that a
search engine executes a particular
script to update its database (10:4411:44; 12:18-13:44; Figs. 3a and 3b),
that script is executed by the search
engine, and must be different from
the script that parses said information
from said form, which executes on
the website server or surrogate. The
specification discloses no script that
performs both functions, and thus
cannot disclose any structure for
executing such a script.

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Structure: The structure disclosed in
the specification that comes closest to
performing the claimed function is at
most incomplete and does not
perform the complete claimed
function. Specifically, that disclosed
structure is: (i) a search engine; and
(ii) the “register file” CGI script
executed by the search engine (as
described at 10:39-41 and 10:43-44),
that (1) removes entries from the
search engine database for files that
no longer exist; (2) adds entries to the
search engine database for newly
registered files; and (3) updates
entries in the search engine database
for files that have changed (all as
described at 10:46-11:44; at 12:1813:44; and in Figs. 3a and 3b).

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The court construed those terms as follows 43:
Term
“information”
“website database”
43

Court’s Constructions
Not construed because of concerns regarding indefiniteness
Record of resources on the website, other than the resources of the

See Docket No. 632 at 153:17 – 157:15.
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Case No.: 11-3306 PSG
ORDER

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“a means for creating and
modifying a database of a
website where in said website
database contains content
capable of being indexed by
an internet search engine”

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“a means for identifying,
using said web site database,
new, deleted, or modified
content”

United States District Court
For the Northern District of California

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website themselves
Function: Creating and modifying a database of a website wherein
said website database contains content capable of being indexed
by an internet search engine
Structure: A website server or surrogate website server; the table
of files which is a field in the table of search engines; and the
disclosed server algorithm which builds the table of files list
containing records that store URL’s that are obtained from either a
manually entered list, a specified map page, or a spider crawling
from specified entry points of the website and modifies records in
the table of files list when content is added, altered, or removed
Function: Identifying, using said website database, new, deleted,
or modified content
Structure: A website server or surrogate website server and the
server algorithm that automatically checks the database
representing a historical version of a website against a current
version of a website to detect changes, and marks a resource as
new if it is present on a website server but not yet in the website
database; marks a resource as deleted if it is listed in the website
database, but cannot be retrieved; marks a resource as modified if
the date and time of last modification in the website database for
the resource is earlier than the date and time of last modification
provided by a web server for the resource, and does not mark any
modified, unmodified, resources
Not construed because of concerns regarding indefiniteness

“a means for transmitting to
said internet search engine a
set of indices, wherein said set
of indices comprises said new,
deleted or modified database
content”
“a means for parsing, through Not construed because of concerns regarding indefiniteness
the use of said script, said
information
from said form”
“a means for updating,
Not construed because of concerns regarding indefiniteness
through the use of said script,
said database of
search engine”

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Newegg asserts that SUS’s position regarding “website database” ignored the

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specifications, that SUS’s positions regarding “means for creating” and “means for identifying”

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ignored means-plus-function case law, and that SUS should have known that several of its terms

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Case No.: 11-3306 PSG
ORDER

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were indefinite. Newegg also suggests that SUS’s claim construction positions before the Eastern

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District of Texas were so contrary to means-plus-function law that they also were objectively

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baseless.

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In its discussion of both its constructions and the merit of SUS’s arguments, the court keeps
in mind the Federal Circuit’s guidance regarding claim construction. “To construe a claim term,
the trial court must determine the meaning of any disputed words from the perspective of one of
ordinary skill in the pertinent art at the time of filing.” 44 This requires a careful review of the
intrinsic record, comprised of the claim terms, written description, and prosecution history of the

United States District Court
For the Northern District of California

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patent. 45 While claim terms “are generally given their ordinary and customary meaning,” the

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claims themselves and the context in which the terms appear “provide substantial guidance as to

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the meaning of particular claim terms.” Indeed, a patent’s specification “is always highly relevant

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to the claim construction analysis.” 46 Claims “must be read in view of the specification, of which

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they are part.” 47

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Although the patent’s prosecution history “lacks the clarity of the specification and thus is

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less useful for claim construction purposes,” it “can often inform the meaning of the claim

18

language by demonstrating how the inventor understood the invention and whether the inventor

19

limited the invention in the course of prosecution, making the claim scope narrower than it would

20

otherwise be.” 48 The court also has the discretion to consider extrinsic evidence, including

21

dictionaries, scientific treatises, and testimony from experts and inventors. Such evidence,

22
44

Chamberlain Group, Inc. v. Lear Corp., 516 F.3d 1331, 1335 (Fed. Cir. 2008).

45

Id.; Phillips v. AWH Corp, 415 F.3d 1303, 1312 (Fed. Cir. 2005) (internal citations omitted).

46

Phillips, 415 F.3d at 1312-15.

23
24
25
47

26
27

Markman v. Westview Instruments, Inc., 52 F.3d 967, 979 (Fed. Cir. 1995) (en banc), aff’d, 517
U.S. 370 (1996). See also Ultimax Cement Mfg. Corp v. CTS Cement Mfg. Corp., 587 F. 3d 1339,
1347 (Fed. Cir. 2009).
48

28

Phillips, 415 F.3d at 1317 (internal quotations omitted).
13

Case No.: 11-3306 PSG
ORDER

1
2

however, is “less significant than the intrinsic record in determining the legally operative meaning
of claim language.” 49
The court turns now to the terms at issue and the merit of SUS’s arguments.

3
4

a.

5
6

“Website Database”

SUS argued that the “website database” is “simply [a] record of resources on the website”
and pointed to the Summary of Invention in the RE’683 Patent. 50 The Summary of Invention states

7
8
9

that “[u]pon initial execution, the software builds a database of the resources on the website” and
that “[t]he resources catalogued can be specified by the user, or automatically through spidering

United States District Court
For the Northern District of California

10

function of the software.” 51 The summary further provides that “[t]he database consists of one

11

record per resource indexed on the site.” 52

12
13
14

Newegg 53 argued that SUS’s construction was “so vague that it would encompass the
website itself” and that Newegg’s construction more properly established that the resources on the
website are distinct from the website itself. Newegg also looked to the Summary of Invention,

15
16
17

highlighting its description of the database as “consist[ing] of one record per resource indexed on
the site” and that “[e]ach record contains fields.” 54
The court construed “website database” as a “record of resources on the website, other than

18
19

the resources of the website itself.” The court agreed with Newegg’s concerns that the website

20

database had to be distinguished from the underlying website to fit within the claims and the

21
22
49

Id. (internal quotations omitted).

50

See Docket No. 605.

51

RE’683 Patent at 4:35-39.

52

Id.

23
24
25
26
53

27

The twenty-two remaining defendants filed a joint claim construction brief opposing SUS’s
constructions, but for convenience, the court refers only to Newegg as maintaining the arguments.

28

54

RE’683 Patent at 4:35-40.
14

Case No.: 11-3306 PSG
ORDER

1

specifications in the RE’683 Patent. 55 The language of the claim in which “website database”

2

appears requires that any construction of the term include a distinction between the website and the

3

resulting database. The claim states “a means for creating and modifying a database of a web site

4

wherein said website database,” which, in conjunction with the language of the Summary of

5

Invention, supports that the “website database” is separate from the underlying resources on the

6

website itself. 56 The inventor likewise noted during reexamination that “the process in the . . .

7
8
9

invention checks a database representing a historical version of a web site against the current
version of the Web site to detect changes.” 57

United States District Court
For the Northern District of California

10

Although the court added a clause distinguishing the “record of resources” from the

11

“resources on the website itself,” it found less support for Newegg’s position that the term meant a

12

“structure of fields or records built by software that catalogues the resources of a website.” The

13

Summary of Invention references “fields” in describing the database, but the intrinsic evidence

14
does not support that a person of ordinary skill in the art would consider a “website database” to be
15
16
17

limited to a “structure” built by “software that catalogues the resources of a website.” Newegg in
fact pointed to no other intrinsic evidence to support the extra language in its construction. 58
Having now explained the reasoning for its construction, the court cannot say that SUS's

18
19

position was “objectively baseless.” Its proposed construction, although broadly worded, was not

20

entirely unsupported by the intrinsic evidence. SUS’s construction came from language in the

21

Summary of Invention and is not so problematic that the court finds it was frivolous. As SUS

22
explained at the hearing, it was concerned that Newegg’s construction suggested a “separate and
23
24
25

55

See Docket No. 632 at 90:25 – 91:12.

26

56

RE’683 Patent at 15:28-29.

27

57

See Docket No. 607 Ex. 2.

28

58

See Docket No. 607.
15

Case No.: 11-3306 PSG
ORDER

1

distinct” database that was not an included limitation in the claim language and that appeared to

2

preclude the website itself from hosting the database. 59 SUS, however, agreed at the hearing that

3

the “website database” had to be distinct from just the content of the website. 60

4
5
6

The court in fact adopted its description – “record of resources on the website” – and added
the limiting clause in part because of Newegg’s concerns. Newegg argues that because SUS’s
proposed construction could be read as including the website itself, SUS's position was untenable

7
8
9

and baseless. It is true that SUS's proposal could be read to include the website, which SUS at one
point forwarded as an argument 61 and which would in fact contradict the intrinsic evidence, but

United States District Court
For the Northern District of California

10

that interpretation is not the only one. First, at the hearing, SUS agreed that this interpretation of

11

“website database” or its construction was not supported by the claim or the specification. Second,

12

although SUS’s construction could have swept in the website itself, “record of resources” likewise

13

suggests that the record is separate from the website. The construction was problematic, but the

14
court cannot say that it was so clearly unsupported by the patent and the specification as to be
15
16

frivolous. 62
The types of claim construction positions the Federal Circuit has held to be frivolous are

17
18

illustrative. In Raylon, LLC v. Comoplus Data Innovations, Inc., for example, the plaintiff

19

proposed a construction of a “display being pivotally mounted on said housing” to mean “an

20

electronic device attached to a housing for the visual presentation of information, the display

21

capable of being moved or pivoted relative to the viewer’s perspective.” 63 Both the figures in the

22
23
59

See Docket No. 632 at 88:15-18.

60

See id. at 88:19-24.

61

See Docket No. 608.

24
25
26
62

27
28

See iLOR, LLC v. Google, Inc., 631 F3d 1372, 1378-89 (Fed. Cir. 2011) (“The question is
whether [the] broader claim construction was so unreasonable that no reasonable litigant could
believe it would succeed.”).
16
Case No.: 11-3306 PSG
ORDER

1

patent and the specification described that the screen itself must pivot relative to the machine, not

2

relative to the user. 64 The Federal Circuit held that the plaintiff's position was not just unsupported

3

by the patent but actually contradicted by it. 65 In Eon-Net LP v. Flagstar Bancorp, the Federal

4

Circuit agreed with the district court that the patentee's position that the terms “documents” and

5

“files” were not limited to “hard copy documents” was contradicted by the numerous references in

6

the patent to “hard copy documents” as being the essence of the invention at issue. 66 SUS’s

7
8

proposed construction does not reach those levels of speciousness.
b.

9

“Means for Creating” and “Means for Identifying”

United States District Court
For the Northern District of California

10

The parties disputed only the construction of the structures that performed the functions “a

11

means for creating and modifying a database of a website where in said website database contains

12

content capable of being indexed by an internet search engine” and “a means for identifying, using

13
14

said web site database, new, deleted, or modified content.” For the “means for creating” term, SUS
sought a construction of the structure as a “combination of a web server, Common Gateway

15
16

Interface script, website database and form and equivalents.” For the “means for identifying” term,

17

SUS sought a nearly identical construction with only a substitution of “script” for “program” in the

18

“Common Gateway Interface” (“CGI”) language. SUS supported its constructions with references

19

to the specification. For example, it pointed to language stating that “[i]nstallation of the software

20

tools places a number of CGI scripts, database tables, and HTML forms on the server,” and that

21

“[t]he user is provided with an HTML form and CGI script . . . in order to configure the Enabled

22
and Table of Files fields.” Relying on these references, SUS asserted that the structure necessary
23
24

to create the database consisted of a web server, a CGI program, a website database and a form.

25

63

700 F.3d 1361, 1365 (Fed. Cir. 2012).

26

64

See id. at 1368-69.

27

65

See id. at 1369.

28

66

653 F.3d at 1326.
17

Case No.: 11-3306 PSG
ORDER

Newegg disagreed, asserting that SUS’s position improperly referenced only a general

1
2

purpose computer or general computer functions in violation of the Federal Circuit’s requirements

3

under computer-related means-plus-functions claims. Newegg instead asserted that for both

4

“means for creating” and “means for identifying” the proper structure was not only a website

5

server or surrogate website server but also “the Table of Files, which is a filed in the Table of

6

Search Engines . . . [and] the disclosed server algorithm” that builds the Table of Files and

7
8
9

United States District Court
For the Northern District of California

10

modifies the table’s records as content is “added, altered, or removed.” Newegg argued that only
with the addition of the algorithm that explained how the website server and the Table of Files
were created and updated could the structure comply with 35 U.S.C. § 112(6).

11

The court adopted Newegg’s construction of the structure for both “means for identifying”

12

and “means for creating.” Although the specification described that the user “is provided with an

13

HTML form and CGI script, hereinafter referred to as a CGI program, in order to configure the

14
Enabled and Table of Files fields,” the court found this instruction insufficient to describe the
15
16

requisite structure for means-plus-function claims. Relying in part on Newegg’s expert, the court

17

found that the CGI program was a general tool for allowing data to move between a web client, a

18

web server, and different processes on the web server and so it was only a “general purpose

19

computer” requiring an algorithm to meet the Section 112(6) requirement. 67

20
21

The court then looked to the rest of the specification, which describes both the “Table of
Files” and the algorithm necessary to create both that table and to update it with changes to the

22
website. That algorithm explains that the CGI program (a combination of the CGI script and the
23
24

HTML form) “configure[s]” the “Table of Files” through one of three methods: (1) “[t]he user may

25

list all the resources to be registered manually”; (2) “[t]he user may specify a map page”; or (3)

26

“[t]he user may specify entry points to the web site” at which point “the CGI program will enter the

27
28

67

See Docket No. 607 Ex. 1 at & 16.
18

Case No.: 11-3306 PSG
ORDER

1

site and spider to all resources referenced on those entry points” and add them to the Table of Files.

2

The court found this description to be the algorithm necessary to describe what steps the CGI

3

program needed to perform to embody both the “means for creating” and the “means for

4

identifying” terms.

5
6

Newegg asserts that SUS’s proposed constructions for the structures for “means for
creating” and for “means for identifying” were so contrary to means-plus-function case law that

7
8
9

they were frivolous. Newegg specifically points to SUS’s failure to account for the Table of Files
within the Table of Search Engines algorithm in its proposed construction, asserting that SUS’s

United States District Court
For the Northern District of California

10

position contradicted the patent itself, which, according to Newegg, taught that structure as the

11

heart of the invention. Newegg contends that, combined with its proposed construction of “website

12

database,” SUS’s arguments for the structures impermissibly sought an interpretation of the patent

13

far broader than the invention the patent actually described.

14
SUS responds that its position was not frivolous because the combination of a web server,
15
16

CGI program, website database, and form acts as a “special-purpose computer,” which, pursuant to

17

the Federal Circuit’s teachings, does not require an algorithm to explain adequately the structure

18

for the means-plus-function claims. According to SUS, the elements of the structure it proposed

19

already contained sufficient programming such that it did not err by not including an algorithm.

20

SUS maintains that this area of law is complicated and subject to dispute and so its position cannot

21

be considered “objectively baseless.”

22
The court begins by considering the law governing means-plus-functions and computer23
24

related patents in particular. Patents may not claim pure functions – they must recite a structure

25

that performs the function the patentee seeks to protect. 68 The claim itself need not describe the

26

structure: “[a]n element in a claim for a combination may be expressed as a means or step for

27
28

68

See Ergo Licensing, LLC v. CareFusion 303, Inc., 673 F.3d 1361, 1363 (Fed. Cir. 2012).
19
Case No.: 11-3306 PSG
ORDER

1

performing a specified function without the recital of structure, material, or acts in support thereof,

2

and such claim shall be construed to cover the corresponding structure, material, or acts described

3

in the specification and equivalents thereof.” 69 In other words, in exchange for being excused from

4

describing the structure within the claim, the patentee must limit itself to the structures described in

5

the specification. 70 Failure to describe a structure that can perform the function in either the

6

specification or the claim renders the patent indefinite. 71

7
Computer-related inventions present a special situation under means-plus-function law.

8
9

Because a computer generally cannot perform a particular function without further instructions,

United States District Court
For the Northern District of California

10

identifying a general purpose computer does not satisfy the “structure” requirement for a computer

11

function. 72 The specification therefore must describe an algorithm that explains the instructions for

12

the computer to satisfy means-plus-function specificity. 73 In other words, for a computer apparatus

13
14

claimed in a means-plus-function manner, the claim and the specification must disclose essentially
three elements: (1) the function, (2) the part of the computer that can perform the function, and (3)

15
16

the algorithm that makes the computer perform that particular function. The last two elements

17

combine to describe a “special purpose computer” programmed to perform the function described

18

in the claim. 74 The “special purpose computer” thus described satisfies the structure component of

19

a means-plus-function claim. 75

20
21

69

35 U.S.C. § 112(6).

22

70

See Ergo Licensing, 673 F.3d at 1363.

23

71

See id.

24

72

25
26
27

See id. at 1364; see also Aristocrat Tech. Austl. Pty Ltd. v. Int’l Game Tech., 521 F.3d 1328,
1333 (Fed. Cir. 2008) (“Because general purpose computers can be programmed to perform very
different tasks in very different ways, simply disclosing a computer as the structure designated to
perform a particular function does not limit the scope of the claim to the corresponding structure,
material, or acts that perform the function, as required by section 112 paragraph 6.”) (internal
quotations omitted).
73

28

See Ergo Licensing, 673 F.3d at 1363; Aristocrat, 521 F.3d at 1333.
20

Case No.: 11-3306 PSG
ORDER

The Federal Circuit also advises that a disclosed algorithm that “supports some, but not all,

1
2

of the functions associated with a means-plus-function limitation” requires treating the

3

specification “as if no algorithm has been disclosed at all.” 76 An expert’s testimony cannot remedy

4

a deficiency in the specification by “supplant[ing] the total absence of structure from the

5

specification.” 77

6
7
8
9

The Federal Circuit has carved out a limited exception to this requirement that an algorithm
must be disclosed. 78 In situations where the claimed functions can be performed by a generalpurpose computer “without special programming,” patentees need not “disclose more structure

United States District Court
For the Northern District of California

10

than the general purpose processor that performs those functions.” 79 But “[i]f special programming

11

is required for a general-purpose computer to perform the corresponding claimed function, then the

12

default rule requiring disclosure of an algorithm applies.” 80 “It is only in the rare circumstances

13
14

where any general-purpose computer without any special programming can perform the function
that an algorithm need not be disclosed.” 81

15
SUS did not argue at claim construction that the structure it proffered was a “general-

16
17

purpose computer” that could perform the claimed functions without additional programming.

18

SUS instead argued that the combination of the website server, CGI program, website database,

19

74

See Aristocrat, 521 F.3d at 1333.

20

75

See id.

21

76

Noah Sys., Inc. v. Intuit Inc., 675 F.3d 1302, 1318 (Fed. Cir. 2012).

22

77

23

Default Proof Credit Card Sys. V. Home Depot U.S.A., Inc., 412 F.3d 1291, 1302 (Fed. Cir.
2005); see also Noah, 675 F.3d at 1318.
78

25

See In re Katz Interactive Call Processing Patent Litig., 639 F.3d 1303, 1316 (Fed. Cir. 2011);
see also Ergo, 673 F.3d at 1364-65 (noting that Katz “identified a narrow exception to the
requirement that an algorithm must be disclosed for a general-purpose computer to satisfy the
disclosure requirement”).

26

79

Katz, 639 F.3d at 1316.

27

80

Ergo, 673 F.3d at 1365.

28

81

Id.

24

21
Case No.: 11-3306 PSG
ORDER

1

and form is a “special-purpose computer” that does not require an additional algorithm. To support

2

this argument, SUS compared the functions courts have identified “special purpose computers”

3

capable of performing and functions associated with “general purpose computers” and argued that

4

the functions that the CGI program and the web server performed make them “special purpose

5

computers.”

6
7
8
9

Typically, a “special purpose computer” is “what a general purpose computer becomes
when an appropriate algorithm is used.” 82 It is possible, however, for a structure known by a
person with ordinary skill in the art as a special purpose computer to be identified in the

United States District Court
For the Northern District of California

10

specification without any further algorithm. 83 SUS took that premise – that a computer-like

11

structure known to perform in a particular way can stand alone as a “special purpose computer” –

12

and argued that a structure that can perform in a manner beyond general processing without

13
14

additional programming qualifies as a “special purpose computer” that does not require an
algorithm.

15
SUS misunderstood the Federal Circuit’s guidance both during claim construction and

16
17

again here in its defense to this opposition. A structure can qualify as a stand-alone “special

18

purpose computer” only because a person with ordinary skill in the art knows it can perform in

19

essentially one way and that one way performs the claimed function. 84 The structure therefore is

20

sufficiently specific to qualify under Section 112(6). Underlying the Federal Circuit’s guidance in

21

this area is that the trade-off for means-plus-function claims is a sufficiently specific structure

22
identified in the specification. An algorithm explaining how a computer that is able to perform
23
24
25
26

82

Goss Intern. Am., Inc. v. Graphic Mgmt. Assoc., Inc., 739 F. Supp. 2d 1089, 1100 (N.D. Ill.
2010).
83

27

See id. (finding that a “controller” is a “known structure that is a type of special purpose
computer” as defined by extrinsic sources and so it did not need an algorithm).

28

84

See, e.g., id.
22

Case No.: 11-3306 PSG
ORDER

1
2

generalized functions can perform the specific function claimed in the patent respects that tradeoff.
Here, SUS argued that because the web server “receives requests in HTTP, HTTPS, or a

3
4

similar standardized web protocol,” “generates responses to those requests,” “[uses] CGI scripts . .

5

. to pass data between different processes running on the web server,” and “passes data between a

6
7
8
9

web server and web client,” the web server was a “special purpose computer” when combined with
the other structures in its construction. 85 None of those functions, however, include creating or
modifying a website database or identifying changes in the website by using the website database.

United States District Court
For the Northern District of California

10

The structures required an algorithm to reach the level of specificity required under Section 112(6).

11

Although the court disagreed that the combination of a CGI program, a web server, a

12

website database, and a form constituted a special purpose computer, SUS’s position was not

13

entirely frivolous. As the court’s lengthy discussion of this area of law makes clear, the Federal

14
Circuit and district courts have created a complicated framework from which to determine whether
15
16

a particular computer-related structure does or does not satisfy Section 112(6). SUS’s argument

17

overlooks a nuance in the Federal Circuit’s case law – namely that the functions the court has

18

identified in its computer-related means-plus-function opinions do not on their own transform

19

general purpose computers into special purpose computers. But given the disputes within the

20

Federal Circuit regarding this area of law, 86 the court cannot say that SUS’s argument is

21

objectively baseless or frivolous.

22
c.

Indefiniteness

23
For its third argument, Newegg contends that SUS should have realized that several of the

24
25

terms in claim 8 were indefinite and so should have avoided pursuing its case. It primarily points

26
85

27
86

28

See Docket No. 608 (quoting the defendants’ expert’s report); see also Docket No. 607 Ex. 1.

See Ergo, 673 F.3d at 1365 (Newman, J., dissenting) (noting that the court “again, irregularly
and unpredictably, departs from the established protocols of claim drafting”).
23
Case No.: 11-3306 PSG
ORDER

1

to the three means-plus-function terms that the court declined to construe on indefiniteness

2

grounds. 87 According to Newegg, the terms were so obviously indefinite that SUS’s pursuit of

3

infringement causes of action was objectively baseless. SUS responds that, as with the

4

constructions of “means for creating” and “means for identifying,” at least three of the terms could

5

be construed as requiring only the CGI script, web server, website database, and form structures.

6

The three terms – “a means for transmitting to said internet search engine a set of indices,

7
8
9

wherein said set of indices comprises said new, deleted or modified database content,” “a means
for parsing, through the use of said script, said information from said form,” and “a means for

United States District Court
For the Northern District of California

10

updating, through the use of said script, said database of search engine” – were indisputably

11

means-plus-function terms that required a sufficiently specific structure to be identified in the

12

specification. 88 SUS offered the same structure for these three terms as it did for the “means for

13
14

identifying” and “means for creating” terms. As the court already has explained, that structure on
its own is insufficient to satisfy the requirements of Section 112(6). But unlike “means for

15
16

creating” and “means for identifying,” the specification lacked the necessary algorithms to explain

17

how the CGI scripts, web server, website database, and form would perform the claimed functions.

18

The court thus found that the three terms likely were indefinite and so declined to construe them.

19
20
21

The court has explained at length its reasons for why SUS’s position regarding the structure
for the means-plus-function terms was not objectively baseless. Newegg’s arguments about the
three indefinite means-plus-function terms mirror its earlier argument, and so the court adopts that

22
reasoning here. SUS’s position relied on an incorrect but not objectively baseless interpretation of
23
24
25
87

27

Newegg also includes a reference to “information,” which the court also declined to construe on
indefiniteness grounds. Because Newegg provides no further argument about this term than to
include it in the description of terms the court found indefinite, the court does not address SUS’s
position.

28

88

26

See 35 U.S.C. § 112(6).
24

Case No.: 11-3306 PSG
ORDER

1
2

computer-related means-plus-function law. The court further finds that the terms were not so
obviously indefinite that SUS’s pursuit of infringement causes of action on claim 8 was frivolous.
d.

3

Eastern District of Texas Claim Construction Positions

4

Newegg also offers SUS’s claim construction positions before the Eastern District of Texas

5

as evidence that SUS’s causes of action were objectively baseless. Before the case was transferred

6

to this court, the parties prepared for claim construction while the defendants’ motion for transfer

7
8
9

was pending. The Eastern District of Texas transferred the case before it performed claim
construction, and so the parties prepared new claim construction briefs pursuant to this court’s case

United States District Court
For the Northern District of California

10

management order. Newegg asserts that SUS’s positions in the earlier claim construction

11

preparation were so egregious as to warrant an objectively baseless finding.

12
13
14

In its first claim construction papers, SUS asserted that the structure for the six means-plusfunction terms in claim 8 could be satisfied with only a CGI script and further maintained that the
CGI script was only an “exemplary structure.” 89 Newegg contends that these positions were even

15
16

more egregious arguments in light of the means-plus-function law that the court described above.

17

SUS admits that after considering the defendants’ opposition in their original briefing, it revised its

18

positions to add more structure in the means-plus-function constructions.

19

The court agrees with Newegg that SUS’s positions in the Eastern District of Texas

20

represent worse arguments than its proposed constructions before this court. Had SUS maintained

21

those positions in the second claim construction, the court likely would find that SUS’s arguments

22
were frivolous. But the court cannot say that SUS’s highly problematic position in an opening
23
24

brief to a claim construction is sufficient, on its own, to warrant a finding of objective baselessness.

25

SUS had no opportunity to file a reply in the first claim construction, and it amended its proposals

26

in the claim construction in this court. SUS thus attempted to correct the defects the defendants

27
28

89

See Docket No. 494.
25

Case No.: 11-3306 PSG
ORDER

1

identified. 90 And so, even if the court were to find that SUS’s claim construction proposals before

2

the Eastern District of Texas were objectively baseless, SUS’s attempts to amend them do not

3

reveal subjective bad-faith. Newegg has not shown by clear and convincing evidence that this is an

4

exceptional case on these grounds.

5

2.

6

Subjective Bad Faith

Although the court has found that SUS’s positions were not objectively baseless, it

7
8
9

nevertheless addresses Newegg’s arguments regarding subjective bad faith. Relying on Eon-Net
LP v. Flagstar Bancorp, 91 Newegg points to SUS’s settlement conduct, specifically that SUS

United States District Court
For the Northern District of California

10

settled early with several defendants for amounts that Newegg asserts reflect SUS’s goal of

11

obtaining nuisance settlements. To support that argument, Newegg presents SUS’s offers to it

12

during litigation as well as nine settlement agreements with other defendants in the action.

13

Those nine settlement agreements Newegg submitted reveal that the amounts ranged from

14

with all but two of the settlements within a five-figure range. 92 The

15
16

settlements took place between October 2010 and June 2011. 93 Newegg also points to SUS’s

17

conduct with respect to its settlement offers to Newegg. In July 2010, SUS offered to settle the

18

case with Newegg for

. 94 According to Newegg, SUS’s settlement conduct mirrors the patentee in Eon-Net, and

19
20

and then in April 2012 dropped the amount of the offer to

so the court should find SUS acted with subjective bad faith.

21
22
90

24

See Raylon, 700 F.3d at 1365 (noting patentee maintained objectively baseless claim
construction position even after warning from defendants that the construction was entirely
erroneous); Highmark, 687 F.3d at 1312 (describing patentee’s early agreement that preamble
limited claim but then later claim construction in contradiction of the preamble).

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91

653 F.3d at 1327.

26

92

See Docket No. 649 Exs. 6 – 14.

27

93

See id.

28

94

See Docket No. 649 Ex. 4 at & 15, Ex. 18.

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Case No.: 11-3306 PSG
ORDER

To underscore its theory that SUS was entirely bent on extracting settlements from

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noninfringing defendants based on little more than the crushing costs of defense in even the

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simplest patent case, Newegg highlights the relationship between SUS and its parent corporation

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Acacia Research Corporation (“Acacia”). According to Newegg, Acacia has a “pattern” of

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extortionate litigation tactics, including parallel cases between Acacia subsidiaries Adjustacam

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LLC (“Adjustacam”) and Digitech Images Technologies, LLC (“Digitech”) and Newegg. Newegg

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asserts that Adjustacam decided to drop its claims against Newegg in the parallel case and that, as
with this case, Acacia played a substantial role in settlement talks involving both of its subsidiaries.

United States District Court
For the Northern District of California

10

These actions, Newegg asserts, reveal that Acacia is the real problem, and that the actions of

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Acacia and its subsidiaries in the various actions should serve as evidence of SUS’s bad faith here.

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SUS responds that at least one of its settlement agreements was for $450,000, which it
asserts belies that the agreements were for nuisance values. It also asserts that unlike in Eon-Net,

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where the patentee used defendants’ annual sales to determine appropriate settlement amounts,
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SUS’s valuation resulted from its assessment of “URL count, with flexibility given if the accused

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functionality was less important to the business, including in consideration of feedback from

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defendants, ALEXA ratings, how many visitors reached the site from search engine searches, and

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how many visitors are from the U.S.” 95 In response to Newegg’s claims about Acacia, SUS

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highlights that Newegg has not moved to include Acacia in this case under an alter-ego theory and

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that Newegg’s claims amount to nothing more than bald assertions.

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In Eon-Net, the Federal Circuit affirmed the district court’s exceptional case finding where
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the patentee, a non-practicing entity, and its related entities “had filed over 100 lawsuits against a
number of diverse defendants alleging infringement of one or more patents” and followed the

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95

Docket No. 654; see also Docket No. 654 Ex. 4.
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Case No.: 11-3306 PSG
ORDER

1

complaints with “a demand for a quick settlement at a price far lower than the cost of litigation.” 96

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Noting the expense of pursuing a case through claim construction, which is the first opportunity

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that a court can ascertain the merit of the underlying claims, the Federal Circuit explained that “low

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settlement offers . . . effectively ensure[] that [the patentee’s] baseless infringement allegations

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remain[] unexposed.” 97 Such requests for low settlement amounts, when combined with meritless

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infringement claims, thus can support a court’s determination that the patentee brought the case in
subjective bad faith. 98
As described at length above, the court does not find that SUS’s positions in this case were

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United States District Court
For the Northern District of California

10

objectively baseless. Because SUS’s argument is not frivolous – because it is only a losing

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argument – the court cannot say that SUS’s settlements with the defendants for amounts below the

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cost of defense are, by themselves, enough to warrant a finding of subjective bad faith. Patentees

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with meritorious arguments can seek settlements far below the cost of defense, especially if they do

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not want to spend significant amounts of money to protect their patents. SUS’s settlement pattern
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raises some eyebrows but because its positions were not entirely baseless, its attempts to settle

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claims early in the litigation for costs lower than the amounts of a defense are not sufficient, alone,

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to find subjective bad faith.

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The court also briefly addresses Newegg’s references to Acacia, Digitech, and Adjustacam
in support of its exceptional case argument here. In Eon-Net, the Federal Circuit pointed to the
patentee’s “related entities” and their pattern of filing numerous lawsuits against “diverse

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defendants” followed by a “demand for a quick settlement at a price far lower than the cost of
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96

653 F.3d at 1326.

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97

Id. at 1327.

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98

See id.
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Case No.: 11-3306 PSG
ORDER

1

litigation.” 99 Presumably following the Federal Circuit’s lead, Newegg presents the parallel

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litigations with Digitech and Adjustacam and their relationship to SUS and Acacia in support of its

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argument.

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Although the Federal Circuit appears to condone consideration of actions in other cases as a
way to justify an exceptional case finding, the court also looks to the Supreme Court’s direction in
State Farm v. Campbell. In holding a punitive damages award violated the defendant’s Due

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Process rights, the Court opined that a defendant “should be punished for the conduct that harmed
the plaintiff, not for being an unsavory individual or business.” 100 “Due process does not permit

United States District Court
For the Northern District of California

10

courts, in the calculation of punitive damages, to adjudicate the merits of other parties’ hypothetical

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claims against a defendant under the guise of the reprehensibility analysis” that is required in a

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punitive damages assessment. 101 The Court further observed although “a recidivist may be

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punished more severely than a first offender” because “repeated misconduct is more reprehensible
than an individual instance of malfeasance,” “in the context of civil actions courts must ensure the

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conduct in question replicates the prior transgressions.” 102
The court finds that reasoning in State Farm has equal application in the exceptional case

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analysis, specifically that Newegg must show that SUS engaged in repeated conduct that also

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harmed Newegg. Here, Newegg offers the complaint Adjustacam filed against Newegg and

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numerous other defendants and a declaration stating that Adjustacam offered to settle for a five-

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figure amount. 103 Newegg also offers screen shots of Acacia’s websites purportedly to show that

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Acacia and SUS are related because Acacia announced the settlement between SUS and Red Hat
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24

99

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100

538 U.S. 408, 423 (2003).

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101

Id.

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102

Id.

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103

See Docket No. 649 Exs. 2, 3.

Id. at 1327.

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Case No.: 11-3306 PSG
ORDER

1

and because the officers who signed on behalf of SUS also serve as executives at Acacia. 104 Even

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if this evidence is sufficient to show that Acacia and SUS are related, it is not enough to show the

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relationship between Acacia and Adjustacam or between SUS and Adjustacam. Newegg offers

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nothing to connect Digitech to any of the other entities.

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Even if the court presumes the entities are all related, settlement offers for small amounts
are not the injury that Newegg claims to suffer at SUS’s hands. It is the defense against a frivolous

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claim in light of the lure of a small settlement offer that Eon-Net identified as a harm warranting an
exceptional case finding. Newegg offers nothing in its disputes with either Adjustacam or Digitech

United States District Court
For the Northern District of California

10

that suggests their positions were objectively baseless. And if the court considers bad faith actions

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in other cases as justification for a finding of subjective bad faith in this case, it runs the risk of

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duplicating an assessment of attorneys’ fees against a losing party by awarding attorneys’ fees in

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this case for actions taken in the other cases. 105 Given those concerns, the court does not address

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further Newegg’s arguments regarding Acacia, Adjustacam, and Digitech.
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B.

Litigation Misconduct

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Newegg offers two other examples of SUS’s conduct that it believes supports a finding that

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this case is exceptional. While the case was still in the Eastern District of Texas, SUS opposed the

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defendants’ motion to transfer the case to the Northern District of California. 106 Newegg asserts

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that the opposition was frivolous because it was only two pages and because SUS concluded its

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brief argument by stating that it was “agreeable to the transfer if the Court deems that such transfer
is in the interests of justice of all parties.” 107 Newegg also points to SUS’s initial failure to include

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104

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105

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See id. Exs. O, Q, R, T.

See State Farm, 538 U.S. at 423 (noting that consideration of “hypothetical claims” “creates the
possibility of multiple punitive damages awards for the same conduct”).
106
107

See Docket No. 410.
Id.
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Case No.: 11-3306 PSG
ORDER

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Acacia and its other subsidiaries in its initial offer of a covenant not to sue following the claim
construction. Newegg offers these actions as further evidence of SUS’s bad faith in this action.
Litigation misconduct “generally involves unethical or unprofessional conduct by a party or

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his attorneys during the course of adjudicative proceedings, and includes advancing frivolous

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arguments during the course of litigation or otherwise prolonging litigation in bad faith.” 108 The

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court finds that neither of the actions Newegg offers meets this standard.

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In opposing the defendants’ motion to change venue to this district, SUS noted that not all

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of the defendants had joined the motion, which could result in duplicative proceedings. SUS also

United States District Court
For the Northern District of California

10

argued that the Eastern District of Texas had a shorter average complaint-to-trial timespan than the

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Northern District of California. The court notes that at least two defendants agreed to join the

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motion to change venue only after SUS filed its opposition 109 and that the Eastern District of Texas

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had entered a scheduling order before the defendants filed their motion. 110 Given these factors, the

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court cannot say that SUS frivolously opposed the motion to transfer the case to this district.
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The covenant not to sue (“CNS”) issue likewise does not amount to bad faith conduct on

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SUS’s part. Following the court’s claim construction, SUS apparently agreed to dismiss its claims

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against Newegg and offered a CNS for infringement resulting from Newegg’s website as it existed

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at the time of the covenant or for any past versions in exchange for Newegg’s dismissal of its

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counterclaims of invalidity. Newegg claims that it insisted on a covenant that included all future

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versions of the website as well. SUS asserts that Newegg in fact asked for a global covenant not to

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sue including not only SUS but also Acacia and other subsidiaries. Either way, SUS refused to
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provide a version of the covenant that satisfied Newegg and instead sought to divest the court of its

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108

Highmark, 687 F.3d at 1315-16.

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109

See Docket Nos. 417, 424.

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110

See Docket Nos. 362, 363, 364, 365.
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Case No.: 11-3306 PSG
ORDER

1

subject matter jurisdiction over the case by moving to dismiss the case and offering Newegg its

2

covenant not to sue addressing only current and past versions of the site. 111 Newegg opposed on

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the grounds that the covenant was not sufficient to prevent an ongoing controversy because

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Newegg’s site changes daily. 112 Following Newegg’s opposition, SUS offered the amended

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covenant and the parties stipulated to dismiss all claims. 113

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Given that Newegg concedes it was engaged in discussions with Acacia for a global
resolution, 114 the court does not agree with its contention that SUS is misrepresenting Newegg’s
position on a global CNS. Nevertheless, to the extent that the global settlement discussions broke

United States District Court
For the Northern District of California

10

down and the parties attempted to resolve only the CNS relevant to this case, the court again finds

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SUS’s position not objectively baseless.

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To divest a court of its jurisdiction, a patentee is obligated to provide a CNS that removes
“immediacy and reality from the declaratory action.” 115 From its review of the potential CNS, the

14
court cannot say that there is no way that SUS could assert that it divested the court’s jurisdiction
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16

by removing the requisite case or controversy requirement. To be sure, Newegg’s assertion that its

17

ongoing changes of its website created an ongoing controversy is also a plausible argument, but

18

SUS likewise could have argued that because those changes were sufficiently minimal, Newegg’s

19

concerns involved nothing more than the “residual possibility of a future infringement suit based

20

on [] future acts [that] is simply too speculative.” 116 The court engages no further in debating the

21

points the parties could have made in support of an order that never came to pass. It resolves the

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23

111

See Docket No. 642.

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112

See Docket No. 645.

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113

See Docket Nos. 646, 647.

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114

See Docket No. 649.

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115

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116

Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 556 F.3d 1294, 1298 (Fed. Cir. 2009) (quoting
Benitec Austl., Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1346 (Fed. Cir. 2007)).
Id.

32
Case No.: 11-3306 PSG
ORDER

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issue only with the point that both sides had legitimate arguments and so SUS’s position did not
amount to litigation misconduct.
IV.

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CONCLUSION

Having completed its meta-analysis not only of the parties’ claim construction positions but
indeed of several other positions taken in this case, the court finds that this case is not exceptional
and so does not warrant an award of attorneys’ fees to Newegg. SUS may have been on the losing

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United States District Court
For the Northern District of California

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side of several arguments, but losing is not enough to warrant a finding of objective baselessness
and also subjective bad faith. Newegg’s motion is DENIED.
IT IS SO ORDERED.
Dated: May 21, 2013

_________________________________
PAUL S. GREWAL
United States Magistrate Judge

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Case No.: 11-3306 PSG
ORDER