On July 10, 2015, the US Court of Appeals for the Federal Circuit issued an opinion in SFA Systems, LLC v. Newegg Inc., holding that it would not review the correctness of a district court's ruling of underlying legal issues when reviewing the district court's exceptional case determination (No. 2014-1712, (Fed. Cir. July 10, 2015)).

SFA Systems, LLC brought two suits against Newegg Inc. and other defendants in the US District Court for the Eastern District of Texas for alleged infringement of two patents claiming computerized sales systems. The court consolidated the two suits and:

Even though it prevailed on claim construction and Newegg's summary judgment motion, SFA voluntarily dismissed the suit with prejudice and covenanted not to sue Newegg for infringement of the patents at issue again. Newegg then moved for attorneys' fees under 35 U.S.C. § 285. Citing the US Supreme Court's decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), the court denied Newegg's motion, finding that, although SFA had established a pattern of filing lawsuits against numerous defendants, that pattern was insufficient to make the instant case exceptional under Octane Fitness.

On appeal, in arguing that the district court erred in not finding the case exceptional, Newegg advanced the following theories:

Addressing the first prong of the Octane Fitness test, the substantive strength of the party's litigation position, the Federal Circuit noted that Octane Fitness does not require the court to rule on the correctness of the district court's underlying legal determinations, such as claim construction, de novo to review the district court's exceptional case determination. Instead, the court only needs to determine whether the district court abused its discretion in ruling whether the party's litigating position was so meritless as to make the case exceptional.

Accordingly, the Federal Circuit found that the district court did not abuse its discretion in determining that SFA's litigation positions on claim construction and indefiniteness were reasonable and did not stand out from others regarding their substantive strength under prong one of Octane Fitness. The court expressed no opinion on whether it would have affirmed these underlying district court legal determinations.

Next, the Federal Circuit addressed the second prong of the Octane Fitness test, whether the case was litigated in an unreasonable manner. Newegg claimed this suit was part of a pattern of bringing infringement suits to extract nuisance value settlements out of defendants and noted that SFA allegedly dragged out the litigation to increase Newegg's litigation costs, but dismissed the suit once it realized that Newegg would not settle. Additionally, Newegg pointed to the settlement amounts SFA received from previous accused infringers, all of which were substantially lower than the costs of complex litigation and what SFA would have obtained in damages had it prevailed in the suit.

Although the Federal Circuit agreed with Newegg that a pattern of litigation abuses like repeatedly filing patent infringement actions for the sole purpose of extracting settlements is relevant to a district court's evaluation of whether the exceptional case standard is met, it stopped short of holding that the district court here should have found SFA's strategy unreasonable, noting that Newegg had not sufficiently created a record proving its position. The Federal Circuit made clear that it was proper for a district court to consider a patentee's pattern of previous litigation when determining the exceptionality of a case, but that in the instant matter, the district court had not abused its discretion by failing to find SFA's pattern of previous litigation unreasonable.

Weighing both prongs of Octane Fitness, the Federal Circuit concluded that the district court did not abuse its discretion when it found that SFA's litigation position and the manner in which it litigated this case did not stand out as exceptional and affirmed the district court's denial of attorneys' fees accordingly.