United States: Motivating Suppliers To Take A License By Suing Several Customers Was Not Improper And Did Not Justify Awarding Attorney Fees


A Delaware court recently found that, absent other aggravating factors, a patent owner's strategy of filing multiple patent infringement suits against customers to get suppliers of an accused product to take licenses was not an improper motivation meriting the patent owner to pay the attorney fees of the customers it sued.

In "exceptional" cases, courts may require the losing party to pay the attorney fees of the winning party. Such exceptional cases stand out from other cases as to either "the unreasonable manner in which the case was litigated" or "the substantive strength of [the losing] party's litigating position."

In Pragmatus Telecom LLC v. Newegg Inc.1, a Delaware court rejected a motion for attorney fees, recognizing that while a pattern of filing lawsuits in order to force settlements can render a case exceptional, the accused infringer had failed to provide facts sufficient to prove the patent owner's motives were exceptionally improper. The court also held that because the accused infringer failed to provide sufficient evidence to support its non-infringement and invalidity arguments, it could not find the patent owner's litigating positions exceptionally meritless.


Pragmatus sued 70 companies, including Newegg for using its patented live chat technology on their websites. Suppliers of the accused live chat technology intervened in the dispute by asking for the court to declare the patents invalid and not infringed. Ultimately, the suppliers settled, taking licenses to Pragmatus' patent. Because Newegg was licensed as a result of Pragmatus' settlements with the suppliers, the court agreed to dismiss the case against Newegg.

Newegg then asked the court to award attorney fees and costs available to "prevailing" parties in exceptional cases. While the trial court initially found that Newegg was not a prevailing party, the Federal Circuit on appeal reversed the trial court, holding that Newegg was a prevailing party, and it remanded the case to the trial court to determine whether the case was "exceptional," entitling Newegg to reimbursement for attorney fees.

In determining whether the case was "exceptional" the trial court considered Pragmatus' litigation behavior and strategy and its legal arguments and positions.

Pragmatus' Litigation Behavior and Strategy

Newegg argued that Pragmatus engaged in vexatious litigation tactics and strategy that demonstrated Pragmatus' lack of intent to ever pursue the case on the merits. Newegg's central argument was that, rather than pursuing meritorious claims for patent infringement against suppliers of the live chat technology, Pragmatus brought lawsuits against 70 customers of those suppliers to force the suppliers to take licenses to the Pragmatus patents. Newegg claimed that Pragmatus' lack of diligence in discovery and deficient infringement contentions demonstrated that Pragmatus never intended to pursue the cases against customers on their merits. Newegg also claimed that Pragmatus' initial opposition to Newegg's motion to transfer the case to the District of Delaware, followed by its later stipulation to the transfer, demonstrated Pragmatus' intent to delay the case unreasonably.

Pragmatus responded that it received core technical documents from Newegg under the local rules of the court, and therefore had no need to serve additional discovery on Newegg. Pragmatus claimed that it didn't need to pursue the litigations against customers once settlements with Newegg's suppliers were imminent, and that it only stipulated to the transfer because the District of Delaware lifted an earlier stay of the case.

The court found that the patent laws expressly allowed Pragmatus to bring suits against customers, rather than the suppliers, of the live chat technology. And it distinguished cases awarding attorney fees based on a pattern of litigation abuses when a plaintiff repeatedly sued the same accused infringer's customers in order to motivate or force the supplier to get involved and settle cases. Newegg did not persuasively point to any recurring patterns in Pragmatus' litigation conduct, or to any other aggravating behaviors by Pragmatus (e.g. as false testimony, destruction of evidence, or other offensive conduct), and so, the court declined to second-guess Pragmatus' motivation.

The court also pointed to the nearly $6 million settlement between Pragmatus and three of the suppliers as evidence that Pragmatus was not abusing the litigation process by seeking mere nuisance settlements. Newegg alleged that when the large settlement amount was distributed among the numerous underlying customer suits, each customer case was only settled for nuisance amounts. But the court noted that Newegg did not specifically quantify the value of the settlements by customer defendant, elaborate on how many customer suits were terminated as a result of the supplier settlements, or provide any other evidence or expert testimony to substantiate its claims. Without such information, the court would not accept Newegg's assertion that Pragmatus sued the customers solely for the purpose of extracting nuisance settlements.

The court also disagreed with Newegg's criticism of Pragmatus' behavior in discovery. The court found that Pragmatus' behavior was not unusual for the early stages of discovery, especially in light of the ongoing settlement talks between Pragmatus and the suppliers. The court found that Newegg had not presented sufficient facts to support its position that Pragmatus' behavior was exceptional compared to other cases. Similarly, as to Newegg's argument that Pragmatus' intention to delay the case was clear from its opposition and then later stipulation to transfer venues, the court found Pragmatus' explanation of its decision plausible and therefore declined to speculate that Pragmatus' intentions were inappropriate.

In summary, although suing 70 customers and then reaching settlements with the suppliers might suggest that Pragmatus possessed a bad motive, the facts presented by Newegg, including the discovery, infringement contention, and transfer, did not substantiate this assertion.

Pragmatus' Legal Arguments and Positions

Newegg also argued that Pragmatus' claims were exceptionally meritless because there is no reasonable basis for infringement and all the patents at issue are invalid. The court disagreed, finding Newegg's arguments cursory and failing to demonstrate that Pragmatus' position was exceptionally meritless, and noting that without full-blown litigation including claim construction and expert testimony, Newegg was facing an up-hill battle to prove that Pragmatus' position was exceptional and without merit based on invalidity and infringement positions.

Strategy and Conclusion

This decision illustrates the challenges of adequately supporting arguments for allegations of bad faith or improper motivation in pursuing an award of attorney fees. It also points out the difficulty of demonstrating that a lawsuit was meritless before claim construction and expert testimony. Finally, it confirms the ability of a patent owner to seek damages from either customers or suppliers of infringing technology absent inappropriate repeated patterns of behavior or other extenuating circumstances.


1. The Pragmatus Telecom LLC v. Newegg Inc.  opinion may be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/ded-1-12-cv-01533-523.pdf.

Previously published by LES Insights

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
2 Nov 2017, Webinar, Washington, DC, United States

Join us for a two-part webinar series exploring recent developments in machine learning and other technologies that have greatly advanced artificial intelligence (AI) since its origins more than 50 years ago.

9 Nov 2017, Webinar, Washington, DC, United States

As part of Strafford Publications’ webinar series, Finnegan attorneys Adriana Burgy, Chris Johns, and Kai Rajan will discuss the Examiner Count System and provide strategies for interacting with examiners.

15 Nov 2017, Conference, California, United States

Finnegan is a Gold sponsor of the second annual Digital Media & IP Forum, hosted by World Congress.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.