[00:00:00] Speaker 02:
Thanks.

[00:00:34] Speaker 00:
Okay, the next case before the court is SFA Systems LLC versus New Egg Inc.

[00:00:40] Speaker 00:
Case number 141712.

[00:00:42] Speaker 00:
Mr. Lemley, you want three minutes for rebuttal?

[00:00:45] Speaker 03:
Yes, Your Honor.

[00:00:46] Speaker 00:
Okay.

[00:00:48] Speaker 00:
You may begin.

[00:00:49] Speaker 03:
May it please the court, Your Honor.

[00:00:50] Speaker 03:
I'd like to start by acknowledging my co-counsel, Mr. Breen, because he's doing double duty today.

[00:00:55] Speaker 03:
At the end of this argument, he's going to walk over to the other side and argue the next case.

[00:01:01] Speaker 03:
Your Honor, SFA sued New Egg.

[00:01:04] Speaker 03:
It litigated for four years, and then it dropped the case with no payment and no settlement.

[00:01:08] Speaker 03:
It did this for a very simple reason.

[00:01:10] Speaker 03:
SFA was a shell company of a company called IPNAV, and IPNAV is in the business of filing patent lawsuits against, so far, 1,770 defendants, including 87 in the particular SFA campaign, and settling them for nuisance value fees without regard to the merits of the case.

[00:01:28] Speaker 03:
When SFA realized that New Egg wouldn't pay a nuisance value settlement, it dropped the case.

[00:01:33] Speaker 03:
That wasn't a context-specific strategic decision.

[00:01:36] Speaker 03:
That was SFA's business model, litigation without regard to the merits.

[00:01:40] Speaker 03:
And that was bad-face litigation.

[00:01:45] Speaker 00:
In EONnet, we've certainly said that was a factor that the court could consider.

[00:01:50] Speaker 00:
In this particular instance, though, even the chart of settlements, which they're confidential.

[00:01:58] Speaker 00:
We can't discuss the numbers.

[00:01:59] Speaker 00:
But the ranges are a lot bigger than they were in EONnet, aren't they?

[00:02:02] Speaker 03:
Well, Your Honor, yes and no.

[00:02:04] Speaker 03:
The chart of settlements includes, I should note, settlements as to the entire SFA portfolio, not just the patented issue here.

[00:02:11] Speaker 03:
There are some settlements that are in the seven figures with regard to software companies accused of infringing CRM software, a different technology than is at issue here.

[00:02:22] Speaker 03:
If you look at the retailers, like my client Newegg, you'll see settlements that hover around 25,000, 50,000, in only one case, more than $500,000.

[00:02:32] Speaker 03:
That is all well less than the cost of litigating a case.

[00:02:37] Speaker 01:
Why are the numbers higher on the software?

[00:02:40] Speaker 03:
I don't know the answer to that, Your Honor.

[00:02:42] Speaker 01:
You made the distinction.

[00:02:44] Speaker 01:
I thought you'd have an answer.

[00:02:45] Speaker 03:
Well, I think it could be because there are other patents or other patent claims at issue, but it could also be that those are larger companies and that their discovery costs are accordingly higher.

[00:02:56] Speaker 03:
That would be consistent, I think, with the business model for litigation.

[00:03:01] Speaker 01:
So the range between the lower number and the seven million, six, seven million?

[00:03:08] Speaker 03:
I don't think any numbers are as high as that, Your Honor.

[00:03:10] Speaker 03:
But I think, well, the AIPLA suggests that the cost of litigating a patent case all the way to trial these days is as high as $5.5 million immediately.

[00:03:21] Speaker 01:
The argument's the same on all of them.

[00:03:23] Speaker 01:
They cut and run.

[00:03:24] Speaker 03:
I think that's exactly right, Your Honor.

[00:03:26] Speaker 03:
They take as much money as they can get in litigation.

[00:03:28] Speaker 03:
depending on the negotiating strategy.

[00:03:32] Speaker 01:
So is there any evidence of vexatious conduct here?

[00:03:36] Speaker 01:
I mean, do SFA lawyers lie and cheat?

[00:03:41] Speaker 01:
Irritate the judge?

[00:03:43] Speaker 03:
No, Your Honor.

[00:03:44] Speaker 01:
We are not arguing that there was any real 11 sanctions sought here at all at any stage in the proceeding.

[00:03:51] Speaker 03:
No, Your Honor.

[00:03:52] Speaker 01:
Why not?

[00:03:53] Speaker 01:
You thought you said this was an egregious case.

[00:03:56] Speaker 03:
We believe it is an egregious case, Your Honor.

[00:03:58] Speaker 01:
But the egregiousness... Let's assume that your case is utterly frivolous on the merits, which you believe this one is.

[00:04:07] Speaker 01:
then Rule 11 would provide an avenue of relief, would it not?

[00:04:11] Speaker 03:
Your Honor, Rule 11 might provide an avenue of relief with respect to merits determinations, but I don't think Rule 11 provides the relief that we're asking for in Section 285 with respect to a business model that is based on nuisance value litigation and based on settlement without regard to the merits.

[00:04:29] Speaker 03:
And we think there is abundant evidence of that.

[00:04:32] Speaker 01:
If a judge has an inherent power to grant some monetary relief, right?

[00:04:40] Speaker 03:
That is correct, Your Honor.

[00:04:41] Speaker 01:
Then you even rely on that.

[00:04:42] Speaker 01:
So let's assume that somebody has misbehaved in the fashion that you say SFA has.

[00:04:49] Speaker 01:
I would have thought that a district court judge that agreed with you would have all the tools necessary to give you all the relief you're asking for under 285 under Rule 11.

[00:04:59] Speaker 03:
Your Honor, I'm not sure that Rule 11 is in fact the correct venue at that point.

[00:05:05] Speaker 01:
We did ask, in fact, under the inherent authority of the... Is there a Rule 11 motion at any time during the proceeding?

[00:05:09] Speaker 03:
Yes, Your Honor, and the Rule 11 motion... I have the complaint as filed.

[00:05:13] Speaker 01:
The complaint on his face is frivolous.

[00:05:16] Speaker 01:
And you don't want to go any further and you want to stop them, you go in and you fire your Rule 11 bullet.

[00:05:21] Speaker 03:
I think if a complaint on its face is frivolous, that's true, Your Honor.

[00:05:25] Speaker 03:
I don't think that that's this case.

[00:05:27] Speaker 03:
There's no, we don't know whether, at the time the complaint is filed, whether or not it's frivolous.

[00:05:32] Speaker 03:
Our complaint here is with respect to the litigation model, which is that the merits are irrelevant.

[00:05:39] Speaker 03:
SFA files the lawsuit, it settles the lawsuit, and it does the- Now, wait a second.

[00:05:43] Speaker 01:
Your adversary wouldn't agree with you.

[00:05:45] Speaker 01:
The merits here are totally frivolous or irrelevant.

[00:05:49] Speaker 01:
Did you depose whoever it is that governs their litigation strategy?

[00:05:56] Speaker 03:
Did you depose them?

[00:05:58] Speaker 03:
No, we sought limited discovery, Your Honor, on the fees motion.

[00:06:01] Speaker 03:
But the answer is we were met with privileged reactions.

[00:06:06] Speaker 01:
I mean, I wouldn't think there'd be any privilege with regard to litigation strategy, perhaps.

[00:06:12] Speaker 01:
Yes, Your Honor.

[00:06:12] Speaker 01:
Are you trying to mount your case

[00:06:14] Speaker 01:
I would think you'd want to put on the stand in a deposition.

[00:06:18] Speaker 01:
There's supposedly some genius behind their system that mandates that this is the way they always behave, right?

[00:06:24] Speaker 01:
Yes, Your Honor.

[00:06:25] Speaker 01:
You sort of said that.

[00:06:26] Speaker 01:
It's sort of the Mr. Big Bad Guy.

[00:06:29] Speaker 01:
You put him on the stand, you depose him to find out whether this is really the way he behaves, and you remind him constantly that he's under oath.

[00:06:37] Speaker 03:
Your Honor, I think the problem is that because it's a litigation strategy decision, we're met with privilege objections at every issue.

[00:06:46] Speaker 03:
And this court recognized that in Killipass when it said, we understand that you're not going to have very often clear, direct evidence of bad faith.

[00:06:53] Speaker 03:
That's why you look to circumstantial evidence of bad faith.

[00:06:56] Speaker 04:
What if these patents aren't actually worth that much money?

[00:06:59] Speaker 04:
So you describe their litigation strategy as file a claim, get whatever small dollar amount they can get.

[00:07:05] Speaker 04:
and if they can't, they don't want to bear the litigation cost.

[00:07:08] Speaker 04:
Well, they have the same strategy, but their view is, you know, we're going to try to get what we can.

[00:07:14] Speaker 04:
We'll spend the money to file a complaint.

[00:07:16] Speaker 04:
If the defendants realize they're infringing, they'll pay for the small value of these patents, and we'll move on.

[00:07:22] Speaker 04:
If somebody's going to fight it, we're not going to spend $5 million when their damages are only $50,000.

[00:07:29] Speaker 04:
I mean, it seems to me that those are both accurate, could be accurate descriptions

[00:07:33] Speaker 03:
I think it is entirely possible that there is such a case, Your Honor, and a patentee in such a case would be entitled to try to seek to enforce their rights, even though there are only small dollar amounts.

[00:07:44] Speaker 03:
I think there are several things about this case that suggest that this is not such a case.

[00:07:48] Speaker 03:
The first is that SFA didn't behave that way.

[00:07:52] Speaker 03:
It doubled down on this suit more than two years in.

[00:07:54] Speaker 03:
It went and litigated for more than two years.

[00:07:56] Speaker 03:
It got discovery, including discovery about how much my client makes in sales.

[00:08:01] Speaker 03:
And then it filed a new patent two years later in a separate lawsuit.

[00:08:04] Speaker 03:
And they had to later be consolidated.

[00:08:06] Speaker 03:
By that time, it's completed extensive fact discovery.

[00:08:09] Speaker 03:
It knows how much money might be at stake.

[00:08:11] Speaker 03:
So the idea that this is a small value.

[00:08:13] Speaker 01:
At this stage in the game, both of you are burning up money like gang busters.

[00:08:17] Speaker 03:
Well, Your Honor.

[00:08:18] Speaker 01:
Is there any evidence in the record that they were being fronted by somebody as opposed to burning up their own money?

[00:08:24] Speaker 03:
I think it is a matter of record that they were in fact being fronted by IPNAV and I don't think that they'll deny that.

[00:08:31] Speaker 03:
What we don't know

[00:08:32] Speaker 03:
Quite normally with this business model, the plaintiffs are not burning up money because they're on contingency fee.

[00:08:38] Speaker 03:
We sought that evidence in discovery.

[00:08:39] Speaker 03:
They refused to give us their arrangement on privilege grounds.

[00:08:43] Speaker 03:
So we can't know, but it is a reasonable... Somebody's burning money.

[00:08:47] Speaker 01:
The lawyers are burning their own money, but somebody's burning the money, right?

[00:08:51] Speaker 03:
I think that's right, Your Honor, and therefore the lawyers have an incentive to settle the case.

[00:08:58] Speaker 00:
Let me ask you what your legal theory is here.

[00:09:01] Speaker 00:
are you saying that under the totality of the circumstances analysis, that even if you have a case that's objectively not frivolous, maybe even fairly objectively reasonable, if you have someone whose entire strategy is simply to use litigation

[00:09:20] Speaker 00:
for an improper purpose, but that would be enough under octane.

[00:09:24] Speaker 03:
Yes, Your Honor.

[00:09:24] Speaker 03:
The Second Circuit and the Ninth Circuit have both expressly held that.

[00:09:27] Speaker 03:
The Second Circuit holds that if a litigant has made a practice of repeatedly bringing potentially meritorious claims and then dismissing them with prejudice after inflicting substantial litigation costs on the opposing party and the judicial system, awarding fees is appropriate.

[00:09:40] Speaker 03:
We think the Federal Circuit should join that case.

[00:09:43] Speaker 03:
Now, it is right to say that the cases this Court has so far decided, Eon Net and Monolithic,

[00:09:47] Speaker 03:
acknowledge it as a basis for fees, but there was also other conduct in those cases.

[00:09:52] Speaker 03:
But I think as a matter of policy, this Court should follow the Second and the Ninth Circuits.

[00:09:57] Speaker 03:
These lawsuits are, quite frankly, the thing that brings the patent system into disrepute.

[00:10:02] Speaker 03:
There's no, it's not an accident, I think, that they show up on the John Oliver show, IPNAV.

[00:10:08] Speaker 03:
These are the things that are causing people to worry, and I think, frankly, with good reason, because we want patent litigation to be about the merits.

[00:10:15] Speaker 03:
We don't want it to be about a business model that takes advantage of the cost.

[00:10:19] Speaker 04:
Even if we agree with you, though, I mean, you're essentially telling us that we can find the disdiscretion when there are scenarios where potentially they weren't litigating

[00:10:31] Speaker 04:
in the staff division.

[00:10:33] Speaker 03:
Your Honor, I think you can, because there are a number of facts here, including, frankly, their inability to come up with any explanation for why they dropped the case when they did that passes the straight face test, that do suggest that this is the business model.

[00:10:46] Speaker 03:
But I would suggest in the alternative that at a minimum, the district court should be required, under the legal standard we suggest, to take a look at the question.

[00:10:54] Speaker 03:
The district court devoted entirely two sentences to our argument here.

[00:10:58] Speaker 03:
And the only thing it said there was

[00:11:00] Speaker 03:
Just because you filed suit against multiple defendants doesn't mean you act in bad faith.

[00:11:04] Speaker 03:
We agree, but that's not an analysis of the argument that we're actually advancing.

[00:11:09] Speaker 00:
So you're saying that because we've said it's a factor that can be weighed, the fact that he wasn't willing to even weigh it at all,

[00:11:18] Speaker 00:
is an abuse of discretion?

[00:11:20] Speaker 03:
I guess the way I would phrase it, Your Honor, is I'm not sure he exercised discretion in a way that it could be abused.

[00:11:25] Speaker 03:
He simply didn't address the issue at all.

[00:11:27] Speaker 03:
But yes, alternatively, I would say it was an abuse of discretion to devote only two sentences to the issue and to not target the arguments on the merits.

[00:11:34] Speaker 00:
So what if he had said, OK, I accept the proposition that this is what their strategy is, and I accept the proposition that I could weigh it.

[00:11:43] Speaker 00:
But I still think that in the totality of the circumstances,

[00:11:46] Speaker 00:
It doesn't get me there.

[00:11:47] Speaker 03:
So I think, your honor, if the reason was because he didn't think that was the law, then this court should say, hey, the law actually does permit a finding of fees here and send it back.

[00:11:58] Speaker 03:
But alternatively, I think at a minimum, he would be entitled to a discretion in weighing the totality of the circumstances.

[00:12:06] Speaker 03:
It is worth noting here that the district court neither

[00:12:12] Speaker 03:
addressed our issue on the litigation business model, nor did he apply the correct standard on the merits.

[00:12:19] Speaker 03:
Instead, he said the question is whether the frivolity of the lawsuit is reasonably clear without looking into a mini trial on the merits.

[00:12:27] Speaker 03:
That bears no resemblance to the octane standard.

[00:12:30] Speaker 03:
So if this court is to remand and ask the district judge to consider the totality of the circumstances, including the bad faith litigation, we think it would be advisable to look to the substantive merits issues as well, because otherwise we're going to be back here in a year as the district court says, well, I already ruled on the merits issues.

[00:12:48] Speaker 00:
But if the district court already considered your claim construction positions and largely rejected them,

[00:12:57] Speaker 00:
The district court considered your summary judgment and denied it.

[00:13:01] Speaker 00:
Isn't that enough for the district court, who's the one that's there, to know that we're not talking about a frivolous lawsuit?

[00:13:09] Speaker 03:
In this case, Your Honor, I think not, because both of the questions were questions of law, and we think the court simply got them wrong.

[00:13:15] Speaker 03:
That said, our primary argument here is that this court can resolve the issue on the basis of the litigation strategy behavior and not on the merits.

[00:13:24] Speaker 03:
With your permission, I'll reserve the rest of my time for rebuttal.

[00:13:35] Speaker 02:
I think the starting point for the court's analysis of whether the trial court abused its discretion in denying the motion is to look at the motion that was filed.

[00:13:51] Speaker 02:
There's been a lot of advocacy done by NEWEG that's taken place on appeal, but when you look at what was filed with the district court and the lack of facts that were put forward to support any relief, then

[00:14:03] Speaker 02:
That helped explain how the district court reached its conclusion.

[00:14:07] Speaker 02:
And the fact that Newegg, what it alleged was that a lot of defendants had been sued over a four to five year period for infringing a patent.

[00:14:20] Speaker 02:
That there were many settlements below the average cost to defend.

[00:14:24] Speaker 02:
As the court's pointed out, there were also some very large settlements.

[00:14:29] Speaker 00:
On this patent?

[00:14:32] Speaker 02:
I haven't seen anything in the record to support the statement made that these were something broader, but if he's saying that it included other patents, that would be typical in a license.

[00:14:44] Speaker 02:
Typically when there's a litigation and it's over a patent, there would be, not surprisingly, maybe other patents put in, but these are the numbers that they have relied on, and I haven't heard them dispute them until today in terms of these numbers being inaccurate.

[00:14:59] Speaker 00:
Was there anything

[00:15:02] Speaker 00:
any differentiation between retailers and manufacturers?

[00:15:08] Speaker 02:
Well, all I can say is these parties settled at arm's length for what they thought was the right business and legal decisions for them.

[00:15:17] Speaker 02:
Not surprisingly, these large software companies or sales force providers had significant exposure.

[00:15:26] Speaker 02:
And perhaps even not surprisingly as well, that once you've now licensed out this huge swath

[00:15:32] Speaker 02:
of the industry, then as you enforce the patents against others, it may be that significant portions of the accused functionality come off the table because their software providers are already licensed.

[00:15:46] Speaker 02:
Some parties have more exposure, but the numbers that I look at, I average them, and when you average, you see 47 different names on this list, but they're only

[00:16:01] Speaker 02:
really 42 because some of them pay multiple times in payments.

[00:16:04] Speaker 02:
And the average settlement, when you include in the last settlement, which was the Amazon case, which was what SSA was trying to put priority over this case in terms of getting it to trial, those are over three quarters of a million dollars, over $800,000 when you add in the Amazon.

[00:16:23] Speaker 02:
It's a significant amount.

[00:16:24] Speaker 02:
These are not, again, RV nuisance value settlements.

[00:16:26] Speaker 02:
I think a problem is that, oh,

[00:16:29] Speaker 04:
In all those cases involving this past over the years, have any of them ever proceeded to a decision, a merits decision, on infringement and or validity?

[00:16:41] Speaker 02:
The closest was the N4 case, which this trial court presided over.

[00:16:45] Speaker 02:
And that case made it all the way through pre-trial and the eve of trial.

[00:16:49] Speaker 02:
And N4 flinched, and it had a very sizable settlement, non-nuisance value.

[00:16:53] Speaker 02:
It was not a, quote, cut and run settlement at all.

[00:16:55] Speaker 02:
So this court, who'd heard all these allegations,

[00:16:58] Speaker 02:
made had already presided over in for and seen that this was a serious plaintiff that was serious about enforcing its rights.

[00:17:06] Speaker 02:
In addition, the Amazon case was marching along and the court could see that this plaintiff was trying to push that case to trial because they thought they had a very, very sizable damage model against Amazon.

[00:17:19] Speaker 02:
This court had also seen the same trial team who represented on another one of the Johnson patents had taken two cases to trial.

[00:17:27] Speaker 02:
on that patent and had prevailed twice.

[00:17:30] Speaker 02:
And by the time this court reviewed this motion, the same trial team that had the conflict, they had a pretrial hearing during what was a scheduled trial of this.

[00:17:39] Speaker 02:
They trial what's called a TQP case and prevailed over a new egg at trial.

[00:17:42] Speaker 00:
But the problem is the district court doesn't cite any of that in its decision.

[00:17:46] Speaker 00:
The district court just says, I'm not going to consider it because there's lots of times that people enforce a lot of patents.

[00:17:54] Speaker 00:
And isn't that a problem?

[00:17:56] Speaker 00:
I mean, our case law is very specific, that it is a relevant factor.

[00:18:01] Speaker 00:
And for him to just say it's not relevant, isn't that sort of a failure to even exercise discretion?

[00:18:08] Speaker 02:
I think what the fundamental statement by the district court was, that it looked at, it was New Egg's, New Egg is the movement, and New Egg's motion

[00:18:20] Speaker 02:
makes some allegations, but if they had no proof to back it up.

[00:18:23] Speaker 02:
All they did was they said, they sued a lot of descendants, here's their settlement numbers, we think this is a cut and run strategy, they dismissed their case against us, we don't think that their explanation of why they dismissed it, we don't think that's credible, and now we're gonna also, we're gonna incorporate my reference all over the briefing in the case, and we allege that you got the claim constructions wrong,

[00:18:46] Speaker 02:
We allege that you erroneously denied our motion for summary judgment indefinite, and we also allege the patent's invalid CR 1281 pages of invalidity contentions we incorporate by reference.

[00:18:56] Speaker 02:
That's what the judge was presented with.

[00:18:59] Speaker 02:
He was presented with no facts that this alleged extortion tactics litigation model exists.

[00:19:06] Speaker 02:
And the statement said, well, we couldn't take discovery and try to prove it up.

[00:19:11] Speaker 02:
If that's something that they thought was viable, they had that opportunity.

[00:19:16] Speaker 02:
I've heard there's nothing in the briefing, nothing in the record about privilege objections or no motion to compel was denied.

[00:19:23] Speaker 02:
And the fact of the matter is they didn't have any facts to back up these allegations.

[00:19:29] Speaker 02:
And so when the district court looked at it, the court said, well, I'd already rejected these.

[00:19:35] Speaker 02:
I'd already rejected their claim construction positions, which is essentially their non-infringement argument.

[00:19:45] Speaker 02:
their motion for summary judgment of indefiniteness.

[00:19:48] Speaker 02:
All they pointed out is that they followed several lawsuits and says Newegg's provided no evidence that this case stands out from others.

[00:19:56] Speaker 02:
There is no evidence.

[00:19:57] Speaker 02:
It's just a bunch of base allegations without any evidence.

[00:20:00] Speaker 02:
So I think the court addressed the very little it was presented with by Newegg in what was a throwaway motion that they probably never intended to win.

[00:20:10] Speaker 00:
What about the fact that the trial court appeared to adopt a different standard

[00:20:15] Speaker 00:
for cases that were dismissed before judgment or before trial.

[00:20:21] Speaker 00:
He seemed to say that he's not going to really question the merits very closely.

[00:20:26] Speaker 00:
He's just going to say, I can't do a mini trial.

[00:20:30] Speaker 02:
Well, I think that, okay, so the merits, that's different then.

[00:20:33] Speaker 02:
So in one part we have just unsupported baseless allegations of a quote business model and a motivation of which there was no evidence of support.

[00:20:43] Speaker 02:
So that's one thing.

[00:20:44] Speaker 02:
As far as the mini trial, so Newegg's motion that filed said many of the claims are invalid, CR and validity contentions.

[00:20:53] Speaker 02:
Many of the claims are indefinite.

[00:20:55] Speaker 02:
Not all CR summary judgment of indefiniteness that you denied.

[00:21:00] Speaker 02:
And it said Newegg believes it doesn't infringe.

[00:21:04] Speaker 02:
It had no evidence of non-infringement.

[00:21:07] Speaker 02:
It had no charts, nothing.

[00:21:09] Speaker 02:
It just stated the belief that they don't infringe.

[00:21:11] Speaker 02:
That's all their motion said.

[00:21:13] Speaker 02:
In terms of the court being faced with that, where somebody files a motion and says, well, we don't believe we infringed, but we're not going to put forth any evidence of that.

[00:21:20] Speaker 02:
We don't believe the patent's invalid, but we're going to put forth 1,300 pages of stuff.

[00:21:25] Speaker 02:
It's just kind of a see also.

[00:21:27] Speaker 02:
And we don't believe that the patent is definite.

[00:21:31] Speaker 02:
You've already denied that.

[00:21:33] Speaker 02:
That's what he was faced with.

[00:21:35] Speaker 02:
So no, there wasn't even any evidence to have him any trial on.

[00:21:38] Speaker 02:
I think the fundamental thing is that there was just simply New Egg had no evidence.

[00:21:43] Speaker 02:
But as far as in that situation, what is the trial court supposed to do?

[00:21:48] Speaker 02:
There's no evidence of non-infringement to weigh, none presented to weigh.

[00:21:52] Speaker 02:
There's no evidence of invalidity to weigh.

[00:21:54] Speaker 02:
Certainly a trial court can't be expected.

[00:21:55] Speaker 00:
If you were so confident in your merits positions, having won your claim construction arguments, having won the indefiniteness motion, then why did you dismiss the lawsuit?

[00:22:08] Speaker 02:
The reason for the dismissal for lawsuit was that as discovery went on, it revealed a diminished value of the case.

[00:22:18] Speaker 02:
And in addition, New York's counsel had conflicting trial schedules.

[00:22:23] Speaker 00:
And I understand- They were before the same judge in the same courtroom.

[00:22:26] Speaker 00:
Both trials aren't going to go.

[00:22:28] Speaker 00:
You knew that.

[00:22:29] Speaker 00:
That's the way this judge does things.

[00:22:31] Speaker 00:
He would set a bunch of cases for trial, and then he'd pick one.

[00:22:34] Speaker 02:
They can't go on the same day, but they very well could go

[00:22:37] Speaker 02:
on it could be that one gets called, the other one falls immediately thereafter.

[00:22:41] Speaker 02:
It could be that one gets called and they announce settlement.

[00:22:43] Speaker 02:
The other one goes right there.

[00:22:45] Speaker 02:
So also in addition, the same lawyers had a pretrial hearing in a very significant case that was during the trial.

[00:22:52] Speaker 02:
And it was a real conflict for them.

[00:22:54] Speaker 02:
So in this case, as you've seen, the Amazon case took much higher priority because the damages against Amazon were in order of magnitude higher than the damages against Newegg.

[00:23:07] Speaker 04:
And also because they were much more likely to settle than Newegg was, too, right?

[00:23:12] Speaker 02:
Well, that's Newegg's argument.

[00:23:14] Speaker 02:
I mean, we don't know Amazon's going to settle until they say they settled.

[00:23:18] Speaker 02:
So I don't know.

[00:23:19] Speaker 02:
I mean, that's an argument they've made.

[00:23:20] Speaker 02:
But again, they've asserted Amazon's a pushover or something, and they really don't have anything to back that up.

[00:23:26] Speaker 02:
But our view is that it's reasonable when they're faced with this conundrum and they're only, these are small law firms, there's only so much effort they can devote.

[00:23:35] Speaker 02:
They're trying to devote.

[00:23:36] Speaker 02:
their full attention to this Amazon case, which is maybe the biggest case that they could have, would have ever tried the TQP case as well.

[00:23:43] Speaker 02:
And they made a hard decision with the fact that New Egg, the damages weren't at that point, weren't going to be enough to really justify a trial, made a hard decision that it doesn't make sense.

[00:23:53] Speaker 00:
What kind of numbers was your damage expert going to say with respect to New Egg?

[00:23:57] Speaker 02:
It's my understanding if they were in the range of these lower settlement values.

[00:24:02] Speaker 02:
So, you know, one thing is that these numbers tend to take on a life of their own.

[00:24:05] Speaker 02:
So that doesn't, now you're getting to where the cost of the trial might very well exceed the damages number when you're trying to get ready for another trial with exponentially larger damages.

[00:24:16] Speaker 02:
So that's the hard decision.

[00:24:18] Speaker 00:
So did you have your damages expert report as it relates to Newegg?

[00:24:22] Speaker 02:
It's my understanding.

[00:24:24] Speaker 02:
I was not part of the trial team.

[00:24:25] Speaker 02:
I'm a public counsel, so I'm going on the record.

[00:24:27] Speaker 02:
And the record is that in its opposition to Newegg's motion for attorney's fees, they said,

[00:24:34] Speaker 02:
that our expert reports were underway and we could have had them ready if we had to.

[00:24:39] Speaker 02:
This is an abuse of discretion standard.

[00:24:42] Speaker 02:
Judge Davis heard all this.

[00:24:43] Speaker 02:
He heard their justifications for why the dismissal was made.

[00:24:48] Speaker 02:
He heard at what point the case was ready.

[00:24:51] Speaker 02:
He also saw how hard they were working on the Amazon case.

[00:24:54] Speaker 02:
He'd also seen motions that had been filed showing that the plaintiff was being diligent in discovery and the plaintiff was trying to get his experts.

[00:25:01] Speaker 02:
The statement that they weren't going to provide expert reports

[00:25:03] Speaker 02:
They had to file a motion to compel to get their expert access to the source code because it was being blocked.

[00:25:08] Speaker 02:
Clearly, they're working on expert reports.

[00:25:11] Speaker 02:
So all these facts were weighed by the trial court, who had a picture of the whole case from 2009 all the way through 2013, who was able to see, judge the credibility, weigh all this, and it came to this decision.

[00:25:25] Speaker 02:
I think that asking this court on a debris abuse of discretion standard to come in and second guess all that is just

[00:25:33] Speaker 02:
And again, it runs against the abuse of expression standard and fails to give proper deference to the trial court on a decision in which it had intimate knowledge of all the facts of the attorneys and was able to judge the credibility of all these things.

[00:25:46] Speaker 02:
And able to judge what facts were put forth.

[00:25:53] Speaker 02:
In the district court, it had constricted these claims three times.

[00:25:59] Speaker 02:
It had ruled on numerous motions.

[00:26:02] Speaker 02:
in the Infor case and the Big Machines case and what we call the 800 Flowers case and the district court had the best bird's eye view of this case, the best knowledge of the facts, the motivations, the credibility, the inferences, something unparalleled that this court just simply couldn't... Even if that's all true, I'm the first person to defer to district court decisions that are

[00:26:27] Speaker 00:
discretionary, but the district court has to give us something to defer to.

[00:26:32] Speaker 00:
In this particular instance, you're criticizing the other side for making a better argument on appeal, but you're arguing things on appeal that just don't show up in the district court's opinion.

[00:26:43] Speaker 02:
Well, I think that the district court, what a district court generally does is it decides the facts that are put forth before it, and those are the ones it comments on.

[00:26:52] Speaker 02:
And the fundamental flaw in Newegg's case and in their motion was,

[00:26:57] Speaker 02:
They just simply had no facts to back up these allegations.

[00:27:00] Speaker 02:
They said the plaintiff is a bad actor.

[00:27:05] Speaker 02:
And the proof we have that is that they have a bunch of lawsuits and hear the settlements.

[00:27:10] Speaker 02:
And you've seen the settlements too.

[00:27:12] Speaker 02:
They just don't bear that out.

[00:27:13] Speaker 00:
OK, so that's a different argument, though.

[00:27:15] Speaker 00:
I mean, your whole theory about, well, the district judge knew these people.

[00:27:18] Speaker 00:
He'd seen all these other cases.

[00:27:20] Speaker 00:
He didn't say any of that.

[00:27:22] Speaker 02:
Well, what he said was New Egg hasn't put forth any facts, which is exactly what happened here.

[00:27:27] Speaker 00:
OK, but again, that's a very different argument than you putting forth facts.

[00:27:31] Speaker 02:
Well, I think that the district court doesn't necessarily need to.

[00:27:33] Speaker 02:
I mean, the district court has wide discretion as to how detailed this opinion is going to be.

[00:27:39] Speaker 02:
I think when New Age.

[00:27:41] Speaker 04:
I mean, if their theory is that you go out and litigate these cases and you get nuisance settlements, what kind of evidence do you expect them to get if you don't allow them discovery into litigation strategy, other than there are x number of cases that are settled at x number of dollars?

[00:27:57] Speaker 02:
I'm not aware that discovery wasn't allowed.

[00:27:59] Speaker 02:
That's not, it's not part of the record.

[00:28:01] Speaker 02:
That's the first I've heard of it, the statement to you.

[00:28:03] Speaker 04:
So it seems to me that I mean, why isn't raising that those two facts alone enough to make an inference of that, that the district court should have at least considered.

[00:28:11] Speaker 02:
Well, first of all, they're not even they're brief.

[00:28:13] Speaker 02:
I mean, this, this, this claim that we were denied discovery discovery.

[00:28:18] Speaker 04:
I mean,

[00:28:19] Speaker 04:
If they come in and say, this is their litigating strategy.

[00:28:22] Speaker 04:
Over the last however many years, they've had this many cases.

[00:28:25] Speaker 04:
They've all resulted in settlements.

[00:28:27] Speaker 04:
They've never taken anything to trial.

[00:28:29] Speaker 04:
Why isn't that enough to raise an inference of a bad conduct litigating strategy?

[00:28:35] Speaker 02:
Well, because at a minimum, the district court.

[00:28:38] Speaker 04:
Obviously, there could be an inference the other way.

[00:28:40] Speaker 04:
I asked your friend about that inference.

[00:28:42] Speaker 04:
But why isn't that enough for at least the district court to say, I need to really seriously consider that?

[00:28:48] Speaker 04:
instead of brush it off and say, well, if that happens all the time, that doesn't mean that it's a bad conduct strategy.

[00:28:54] Speaker 02:
Well, the district court considered the facts that they had, which was that they'd sued these companies.

[00:29:00] Speaker 02:
The settlements were put forward.

[00:29:01] Speaker 02:
The settlements, if anything, in EONNET, you had the small cookie cutter.

[00:29:05] Speaker 02:
Here we have settlements across the board from very small to many that are very, very large.

[00:29:10] Speaker 02:
If anything, looking at these numbers,

[00:29:12] Speaker 02:
it shows that there's not some cookie cutter, to and settle, cut and run.

[00:29:15] Speaker 02:
It's just something different.

[00:29:16] Speaker 04:
How do we know that a large settlement is actually a large settlement?

[00:29:20] Speaker 04:
I mean, if you're claiming against a company like Amazon, a billion dollars, and they settle for half a million, to them, that might be a nuisance settlement.

[00:29:31] Speaker 04:
So the range of the numbers doesn't tell us a whole lot, necessarily.

[00:29:35] Speaker 02:
But that's all that Newegg put forward in its motion.

[00:29:38] Speaker 04:
What else could they have gotten?

[00:29:40] Speaker 02:
Well, as Judge Clemson said.

[00:29:42] Speaker 04:
I think this is the problem.

[00:29:43] Speaker 04:
It seems to me that the Supreme Court has sent the message in octane that these fee standards are different than rule 11 standards.

[00:29:51] Speaker 04:
But yet the district court here seemed to essentially apply a rule 11 standard.

[00:29:55] Speaker 04:
Why wouldn't that be an abuse of discretion?

[00:29:57] Speaker 02:
Well, I don't see that.

[00:29:58] Speaker 02:
I mean, they cited octane in one sentence.

[00:30:02] Speaker 02:
And they didn't want it re-briefed under octane.

[00:30:05] Speaker 02:
They just said, for the same reason we argued in our motion, which there were no facts to back it up.

[00:30:09] Speaker 02:
it stands out from the others.

[00:30:11] Speaker 02:
The district court acknowledged Octane.

[00:30:14] Speaker 02:
He went to the correct legal standard.

[00:30:15] Speaker 02:
I don't see how this court could say he applied the incorrect legal standard because it's in his order.

[00:30:22] Speaker 02:
It's there.

[00:30:23] Speaker 02:
So I think the complaint is that, as I've understood it, is that he didn't go into more detail as to why New Egg has provided no evidence, but they just simply didn't provide any evidence.

[00:30:35] Speaker 02:
And they still haven't provided any evidence.

[00:30:37] Speaker 02:
It's just a bunch of

[00:30:39] Speaker 02:
of supposition allegations on their part.

[00:30:41] Speaker 02:
So if this court said, well, the district court erred on that there was evidence, but there was no evidence.

[00:30:51] Speaker 02:
And it certainly can't be said that an abuse of discretion occurred when the district court found that there was no evidence, because there just simply wasn't.

[00:30:58] Speaker 00:
OK, you're out of time.

[00:30:59] Speaker 00:
Thank you, Your Honor.

[00:31:00] Speaker 00:
Mr. Lemley, we'll give you five minutes for rebuttal to even think that out here.

[00:31:07] Speaker 03:
Thank you, Your Honor.

[00:31:09] Speaker 03:
I want to start with the statement that they discovered during litigation the diminished value of the case, because that statement is in their brief, but it's in their brief with no record citation whatsoever.

[00:31:20] Speaker 03:
It's a simple statement.

[00:31:21] Speaker 03:
There's not even any indication of what made them think that.

[00:31:24] Speaker 03:
There's no citation to an expert report.

[00:31:26] Speaker 03:
The expert report is not in the record.

[00:31:28] Speaker 03:
This court in Kilopath said that it is, quote, easy to provide, unquote, evidence of good faith if it exists.

[00:31:34] Speaker 03:
There is no evidence of good faith here, none.

[00:31:37] Speaker 03:
And I think it's notable even that while my friend Dan... The burden on the motion for them to show good faith or for you to show bad?

[00:31:46] Speaker 03:
The burden, Your Honor, is for us to show bad faith.

[00:31:48] Speaker 03:
But as this court said in kilopaths, that can be done with circumstantial evidence because it's rare that we're going to have somebody stand up and say, yes, I admit that my business model is bad faith litigation.

[00:31:58] Speaker 03:
We think we've shown a pattern of filing an enormous number of suits across all industries without regards to the merits.

[00:32:04] Speaker 03:
We've shown they never go to trial or judgment.

[00:32:07] Speaker 03:
We've shown that the settlements are all below the nuisance value, at least in the retailer space, and none of them are very high.

[00:32:13] Speaker 03:
And we've shown that they can't come forward with any evidence whatsoever, to the extent that the explanation they actually offer and rely on in the briefing is frankly ludicrous.

[00:32:23] Speaker 03:
The idea that we settled eight months before trial, we had to drop the case for no fees

[00:32:29] Speaker 03:
for no payment, because it was set for trial at the same time as another case before the same judge, that's just inconsistent with the way litigation actually works.

[00:32:38] Speaker 03:
I do note that while he dances around the issue, my friend never stands up and affirmatively says, this is not our business model.

[00:32:46] Speaker 03:
And I think there's good reason for that.

[00:32:49] Speaker 03:
The circumstantial evidence here is quite strong, and that circumstantial evidence, I think, does then warrant the easy-to-provide evidence of good faith

[00:32:57] Speaker 03:
from the other side, and we just don't have that.

[00:33:01] Speaker 00:
What's your response to the fact that your motion for attorney's fees was pretty thin?

[00:33:06] Speaker 03:
Your Honor, the motions in the Eastern District of Texas are not long motions by design in that court.

[00:33:13] Speaker 03:
We did on the merits.

[00:33:14] Speaker 03:
It is true we filed a fairly thin motion, and that's because the district judge had already ruled against us on those merits issues.

[00:33:21] Speaker 03:
We think this court can and should provide guidance to this district judge if it chooses to remand on those legal questions.

[00:33:29] Speaker 03:
But it was, they'd been fully briefed before and they'd been fully briefed before that judge.

[00:33:34] Speaker 03:
It didn't seem advisable or helpful to fully brief the same issues the judge had already identified.

[00:33:40] Speaker 03:
We argued them, we clearly raised them.

[00:33:42] Speaker 03:
They responded to them on the merits.

[00:33:45] Speaker 03:
I think the district court applied the wrong standard on the merits.

[00:33:48] Speaker 03:
in rejecting them, but I'm not surprised that the district court, having already ruled against us on those merit questions, also ruled against us on the merits parts of the fee motion.

[00:34:00] Speaker 04:
I do think if this court is to remand rather than simply... It seems to me that the problem, at least that I'm having, is you have your view of how this case went and the conduct of this plaintiff.

[00:34:16] Speaker 04:
The district court didn't necessarily agree with you.

[00:34:18] Speaker 04:
How is that an abuse of discretion?

[00:34:21] Speaker 04:
You have a short... I mean, if you were to describe what the precise abuse of discretion the district court here is that requires remand, what is it?

[00:34:30] Speaker 03:
Your Honor, I think on the nuisance value business model, it is the unwillingness or inability to address the arguments we did make.

[00:34:38] Speaker 04:
But he kind of did address it.

[00:34:40] Speaker 04:
That's the problem.

[00:34:42] Speaker 04:
Just the fact that there's a lot of different settlements and cases and things like that doesn't necessarily mean that's a bad business model.

[00:34:49] Speaker 03:
So that's correct.

[00:34:49] Speaker 04:
He did say that.

[00:34:50] Speaker 04:
It sounds to me like you're wanting us to do an opinion correction exercise rather than he didn't address it at all.

[00:34:56] Speaker 03:
Well, Your Honor, I think if that were the only circumstantial evidence, they filed many lawsuits.

[00:35:03] Speaker 03:
The district court would not have abused its discretion in saying that itself cannot be evidence of bad faith litigation.

[00:35:08] Speaker 03:
But here I think there's more.

[00:35:09] Speaker 03:
Here I think you add in the settlement payments, you add in the fact that they never go to trial, you add in the inability of the other side to come up with even a plausible explanation for why they would drop the case four years in, having put us to a lot of litigation expense and added a patent two years along the way.

[00:35:27] Speaker 01:
What percentage of patent cases that are filed every year go to trial?

[00:35:31] Speaker 03:
Go to trial, a fairly small number, Your Honor.

[00:35:33] Speaker 03:
It's about 3%.

[00:35:34] Speaker 03:
Go to judgment of some sort, it's about 15%.

[00:35:37] Speaker 01:
But you were talking about you were filing them for never going to trial.

[00:35:40] Speaker 01:
My recollection was that very, very few cases go to trial.

[00:35:43] Speaker 03:
That's correct, Your Honor, although it is quite notable.

[00:35:45] Speaker 01:
They have the cases they're disposed of before a response in pleadings ever filed.

[00:35:49] Speaker 03:
That's correct, Your Honor.

[00:35:50] Speaker 01:
I'm talking about all 7,000 cases that get filed, 6,000 that AO reports.

[00:35:57] Speaker 03:
I think that's right, Your Honor, but it is notable that in filing 87 suits, they've not only never gone to trial, they've never even gone to judgment.

[00:36:03] Speaker 03:
on a case.

[00:36:05] Speaker 03:
They've always settled.

[00:36:07] Speaker 03:
And here I'll note one thing.

[00:36:08] Speaker 01:
The public policy favors settlements.

[00:36:12] Speaker 01:
We teach that in law schools.

[00:36:14] Speaker 03:
It does, Your Honor, but I think it favors settlements.

[00:36:16] Speaker 01:
It serves judicial resources.

[00:36:18] Speaker 03:
I think it favors settlements.

[00:36:19] Speaker 01:
It drives amicable settlements, makes peace in the kingdom.

[00:36:23] Speaker 01:
You don't have angry

[00:36:25] Speaker 01:
people in industry out there?

[00:36:28] Speaker 03:
I suggest, Your Honor, that with this business model, you most certainly have angry people in the industry.

[00:36:33] Speaker 03:
And that's because the settlement is based not on the merits of the patent case.

[00:36:36] Speaker 01:
They may feel the settlement's unfair.

[00:36:38] Speaker 03:
They believe that the business model is unfair, Your Honor, because it has nothing to do with the merits of the case.

[00:36:43] Speaker 03:
And that's what we're concerned about.

[00:36:45] Speaker 03:
Thank you, Your Honor.

[00:36:47] Speaker 00:
Thank you.

[00:36:47] Speaker 00:
Case will be submitted.