Pragmatus Telecom LLC v. Newegg Inc.

Filing 399

MEMORANDUM OPINION re 230 and 231 Motions for Costs and Fees. Signed by Judge Richard G. Andrews on 7/25/2014. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

PRAGMATUS TELECOM LLC,
Plaintiff;
v.
Civil Action No. 12-1533-RGA
NEWEGG INC.,
Defendant.

MEMORANDUM OPINION

Brian E. Farnan, Esq., Farnan LLP, Wilmington, DE; Michael J. Farnan, Esq., Farnan LLP,
Wilmington, DE; M. Elizabeth Day, Esq., Feinberg Day Alberti & Thompson, Menlo Park, CA;
Marc C. Belloli, Esq. (argued), Feinberg Day Alberti & Thompson, Menlo Park, CA; Clayton
Thompson, Esq., Feinberg Day Alberti & Thompson, Menlo Park, CA, attorneys for the Plaintiff.

Dominick T. Gattuso, Esq., Proctor Heyman LLP, Wilmington, DE; Daniel H. Brean, Esq.
(argued), The Webb Law Firm, Pittsburgh, PA; Kent E. Baldauf, Jr., Esq., The Webb Law Firm,
Pittsburgh, PA, attorneys for the Defendant.

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July

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2014

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Presently before this Court for disposition is Defendant Newegg's Motion for costs (D.I.
230) 1 and Motion for Attorney's Fees (D.I. 231). This matter has been fully briefed (D.I. 295,
316, 317, 232, 293, 315, 336) and the Court heard oral argument on June 26, 2014 (D.I. 383).
For the reasons set forth herein, the Defendant's motions are DENIED.

PROCEDURAL BACKGROUND
Pragmatus brought this suit against Defendant Newegg on December 12, 2012 in the
Central District of California. (2:12-cv-10629-MRW D.I. 1). The case was then transferred
from the Central District of California to this Court on August 19, 2013. (2:12-cv-10629-MRW
D.I. 47). On February 12, 2014, Pragmatus filed an unopposed Motion to Dismiss pursuant to
Federal Rule of Civil Procedure 41(a)(2). (D.I. 210 at 1). The motion was granted that same
day. (D.I. 212).
ANALYSIS
Newegg seeks a fee award under 35 U.S.C. § 285 and the Court's inherent powers and

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costs pursuant to Federal Rule of Civil Procedure 54(d) and Local Rule 54.1. The Court will
take these two issues in tum.
35 U.S.C. § 285
Newegg moves the Court to award it attorney's fees. (D.I. 231).
Legal Standard

The Patent Act provides that "in exceptional cases [the court] may award reasonable
attorney fees to the prevailing party." 35 U.S.C. § 285. Thus, under the statute there are two

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basic requirements: (1) that the case is "exceptional" and (2) that the party seeking fees is a

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Unless specifically noted, all references to the docket refer to case 1:12-cv-01533-RGA.

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"prevailing party." The Supreme Court recently defined an "exceptional" case as "simply one
that stands out from others with respect to the substantive strength of a party's litigating position
(considering both the governing law and the facts of the case) or the unreasonable manner in
which the case was litigated." Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct.
1749, 1756 (2014). When determining whether a party is a prevailing party, the Federal Circuit
has followed the Supreme Court's definition of a prevailing party as used in other fee-shifting
statutes. Inland Steel Co. v. LTV Steel Co., 364 F.3d 1318, 1320 (Fed. Cir. 2004). In Inland

Steel, the Federal Circuit held that district courts are to "apply the general principle that to be a
prevailing party, one must receive at least some relief on the merits, which alters ... the legal
relationship of the parties." Id. (quotation marks omitted, ellipses in original).
The Federal Circuit definition of a prevailing party derives from a series of Supreme
Court decisions. The term "prevailing party" is "a legal term of art." Buckhannon Bd. & Care

Home, Inc. v. W Virginia Dep 't of Health & Human Res., 532 U.S. 598, 603 (2001). In Hensley,
the Supreme Court defined a prevailing party, for the purpose of attorney's fees shifting, to be a
party which "succeed[s] on any significant issue in litigation which achieves some of the benefit
the part[y] sought in bringing suit." Hensley v. Eckerhart, 461 U.S. 424, 433 (1983) (defining a
prevailing party in the context of a 42 U.S.C. § 1988 attorney fee shifting claim). The Supreme
Court then further clarified in Hewitt that, while is it "settled law ... that relief need not be
judicially decreed in order to justify a fee award," there must be at least the "settling of some
dispute which affects the behavior of the defendant towards the plaintiff." Hewitt v. Helms, 482
U.S. 755, 761 (1987) (italics omitted). The Supreme Court further clarified its ruling in Farrar
by holding that the relief must actually affect the parties' behavior. Farrar v. Hobby, 506 U.S.
103, 111 (1992). Furthermore, the Court emphasized that "the touchstone of the prevailing party

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inquiry must be the material alteration of the legal relationship of the parties." Id. at 111
(brackets omitted); see also Lefemine v. Wideman, 133 S. Ct. 9, 11 (2012). Independent of what
relief is received, it "must directly benefit [the party] at the time of the judgment or the
settlement." Id. However, in Buckhannon the Supreme Court made clear that even "nominal
damages suffices under this test." Buckhannon Bd. & Care Home, Inc. v. W Virginia Dep't of

Health & Human Res., 532 U.S. 598, 604 (2001) (citing Farrar, 506 U.S. 103). Finally, the
Supreme Court has made clear that:
We have only awarded attorney's fees where the plaintiff has received a judgment
on the merits or obtained a court-ordered consent decree - we have not awarded
attorney's fees where the plaintiff has secured the reversal of a directed verdict or
acquired a judicial pronouncement that the defendant has violated the Constitution
unaccompanied by judicial relief. Never have we awarded attorney's fees for a
nonjudicial alteration of actual circumstances.

Buckhannon, 532 U.S. 598, 605-06 (2001). In sum, precedent from both the Supreme Court and
the Federal Circuit make clear that for a party to be a prevailing party, that party must win a
dispute within the case in favor of it that materially alters the legal relationship between the
parties at the time of the judgment.

Discussion
The Plaintiff contends that N ewegg is not a prevailing party because, "The dismissal here
did not have sufficient judicial imprimatur because the Court dismissed the case based solely on
the fact that settlements by Newegg's suppliers had made Newegg's use of the infringing
technology licensed after the case had begun." (D.I. 293 at 17). Furthermore, the Plaintiff
argues that, "There was no judicially sanctioned change in the legal relationship of the parties
sufficient to make Newegg a prevailing party." Id. Conversely, Newegg contends that it is the
prevailing party because "a dismissal with prejudice is undisputedly favorable relief that removes
all liability from N ewegg for any infringement of Pragmatus' s patents." (D .I. 315 at 5).

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Specifically, Newegg argues it is the prevailing party both because the dismissal was a result of
Pragmatus's motion, not a joint stipulation, and because the motion to dismiss included a
covenant not to sue. Id. at 6.
The Federal Circuit has determined whether there is a prevailing party in several
instances. In Power Mose/et, the Court determined that when a party voluntarily dismisses its
case with prejudice against the defendant, after it had been determined that the patent-in-suit was
not infringed and had not been proven invalid or unenforceable, the defendant is the prevailing
party. Power Mos/et Technologies, L.L.C. v. Siemens AG, 378 F.3d 1396, 1406, 1416 (Fed. Cir.
2004). Similarly, in Highway Equipment, not only had the case progressed "through the final
pretrial conference to the eve of trial," but the District Court had found that the patentee had
provided no explanation as to why it had decided to dismiss the case with prejudice on such a
late date. Highway Equip. Co., Inc. v. FECO, Ltd., 469 F.3d 1027, 1035 (Fed. Cir. 2006). The
Federal Circuit held that, "as a matter of patent law, the dismissal with prejudice, based on the
covenant and granted pursuant to the district court's discretion under Rule 41(a)(2), has the
necessary judicial imprimatur to constitute a judicially sanctioned change in the legal
relationship of the parties" sufficient to award fees under 35 U.S.C. § 285. Id.
This case is unlike Power Mose/et and Highway Equip. I have made no finding regarding
any substantive issue in the case. I have not construed any terms, resolved a contested motion to
dismiss, or resolved any motions for summary judgment. Discovery was ongoing when the case
was dismissed. Furthermore, unlike in Highway Equip., where there was no reason given for the
motion to dismiss, here the unopposed motion to dismiss states that it is a result of a licensing
agreement with Moxie Software, Inc. and LivePerson, Inc., the two companies that provide the
live chat software to Newegg. (D.I. 210 at 1). Furthermore, no evidence has been provided to

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the Court that the licenses provided to Moxie and Liveperson were token licenses. Instead,
Pragmatus has provided unopposed evidence that the each license was for a non-trivial payment.
(D.I. 294-1; D.I. 294-2).
Finally, it cannot be correct that a party can benefit from a bona fide license agreement,
obtained after the litigation began, and claim to be the prevailing party, without a single
substantial court decision that favors that party. The Supreme Court has made clear that there
must be a dispute that was settled in favor of the party seeking to be declared the prevailing party
that materially alters the legal relationship between the parties. Here, Pragmatus licensed the
suppliers of the technology, which led to downstream licensures for the users, i.e., Newegg.
Dismissal for a license obtained by a third party that protected Newegg does not settle a dispute
in favor ofNewegg. It is hard to see how it is any different in terms of prevailing party analysis
than ifNewegg had paid for the license itself. If there were a prevailing party, it would seem
that it would more likely be Pragmatus, as Pragmatus filed suit because it believed that its patent
was infringed, and as a result, in part because of the suit, Pragmatus was able to negotiate a
license covering potential infringement of its asserted patent.
Therefore, Newegg is not a prevailing party under 35 U.S.C. §285. Thus Defendant's
motion for fees under the aforementioned statute is denied.
Court's Inherent Power
Newegg moves the Court to award it attorney's fees under its inherent powers. (D.I.
231).

Legal Standard
"It has long been understood that certain implied powers must necessarily result to our

Courts of justice from the nature of their institution, powers which cannot be dispensed with in a

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Court, because they are necessary to the exercise of all others." Chambers v. NASCO, Inc., 501
U.S. 32, 43 (1991) (internal quotation marks and brackets omitted). Therefore, courts are
"vested, by their very creation, with power to impose silence, respect, and decorum, in their
presence, and submission to their lawful mandates." Id. The court's "power reaches both
conduct before the court and that beyond the court's confines" as the underlying purpose of the
Court's power is to stem "disobedience to the orders of the Judiciary, regardless of whether such
disobedience interfered with the conduct of trial." Id. at 44 (internal brackets and quotation
marks omitted).
The Third Circuit has held that
Because of their very potency, inherent powers must be exercised with restraint and
discretion. A primary aspect of a district court's discretion is the ability to fashion an
appropriate sanction for conduct which abuses the judicial process. Thus, a district court
must ensure that there is an adequate factual predicate for flexing its substantial muscle
under its inherent powers, and must also ensure that the sanction is tailored to address the
harm identified. In exercising its discretion under its inherent powers, the court should be
guided by the same considerations that guide it in the imposition of sanctions under the
Federal Rules. First, the court must consider the conduct at issue and explain why the
conduct warrants sanction. If an attorney, rather than a client, is at fault, the sanction should
ordinarily target the culpable attorney.

Republic of Philippines v. Westinghouse Elec. Corp., 43 F.3d 65, 74 (3d Cir. 1994).
Discussion
The Defendant's inherent powers argument was sketchily briefed- containing a total of
six lines in Defendant's Opening Brief-did not cite Third Circuit precedent, and was not raised
during oral argument. Therefore, the argument is waived.
Motion for Costs
The Defendant moves the Court to award it costs. (D.I. 230).

Legal Standard

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"Unless a federal statute, these rules, or a court order provides otherwise, costs--other
than attorney's fees--should be allowed to the prevailing party." FED. R. Crv. P. 54(d)(l)
(emphasis added). Furthermore, Local Rule 54.1 (a)(l) reads, "Unless otherwise ordered by the
Court, the prevailing party shall be entitled to costs." (emphasis added).
Discussion
An explicit requirement of both FED. R. Crv. P. 54(d)(l) and Local Rule 54.l(a)(l) is that

for a party to be awarded costs it must be a "prevailing party." As discussed above, here there is
no prevailing party. Therefore the Court denies Newegg's motion for costs.
CONCLUSION

For the reasons above, the Court will DENY the Defendant's Motion for Costs (D.I. 230)
and Motion for Attorney's Fees (D .I. 231 ). An appropriate order will be entered.

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