The Software IP Report

Federal Circuit Reverses Failure to Impose Rule 11 Sanctions

The Federal Circuit has reversed a decision from the Eastern District of Texas not to impose Rule 11 sanctions where the plaintiff’s theory of patent infringement was objectively baseless.  Raylon, LLC v. Complus Data Innovations, Inc., Nos. 2011-1355, -1356, -1357, -1358, -1359 (Fed. Cir. Dec. 7, 2012).

Raylon, the plaintiff, alleged that three defendants infringed U.S. Patent No. 6,655,589, directed to a hand-held “[i]dentification investigating and ticket issuing system.”  The patent’s independent claims recited that the device included, among other elements, a housing and a display, “said display being pivotally mounted on said housing.”  The accused devices did not include displays that pivoted on a housing.  Nonetheless, Raylon pressed a theory of infringement according to which, as Judge Prost described it, “a display with a fixed-mounted screen meets the ‘pivotally mounted on said housing’ limitation when the user pivots the device by moving his elbow, wrist, or other joint.”

Under Fifth Circuit law, which applied here, decisions on Rule 11 motions are reviewed for an abuse of discretion.  Further, “the standard under which an attorney is measured is an objective, not subjective standard of reasonableness under the circumstances.”  (Citation omitted.)  Here, the District Court had abused its discretion because Raylon’s conduct was objectively unreasonable.

The District Court had stated that Raylon did not “cross the line” into unreasonableness partly because the settlement value of its prior suits did not suggest it was simply litigating for nuisance value.  However, the Federal Circuit thought that this analysis of Raylon’s motives was irrelevant to the inquiry into objective reasonableness.

Further, Raylon’s claim construction was objectively unreasonable.  Raylon’s sole support for its position was a sentence from the ‘589 patent Specification stating that “another object of the present invention is to provide a new identification investigating and ticket issuing system that permits a police officer to maintain visual contact of a stopped person while investigating whether the person has any warrants or suspended license.”  None of the claims nor any other other instrinsic evidence supported Raylon’s position.  It was clear that the display had to pivot on the housing, and therefore Raylon’s claim construction was frivolous.

The District Court further abused its discretion by failing to consider other of Raylon’s frivolous claim constructions argued by one of the defendants.  Among other things, the Court explained that “Raylon’s position that the printer could be in an entirely different housing from the rest of the components is objectively unreasonable and an independent violation of Rule 11 with respect to Symbol, whose products lack a printer entirely.”

The defendants had also appealed the District Court’s refusal to award fees and costs under the “exceptional case” provision of 35 U.S.C. § 285.  Because the District Court’s Rule 11 holding was being reversed, it could “no longer rely on its Rule 11 analysis to find the objectively baseless prong [of the exceptional case analysis] not met.” Therefore, the District Court was directed to consider, on remand, whether this was an exceptional case, and to “consider all of Raylon’s conduct.”

Judge Reyna offered a detailed concurring opinion, explaining why, based on the record, he would have simply held this case exceptional.  Rule 11 and Section 285 are intertwined, and “a § 285 inquiry is compelling where the case progresses beyond the pleading stages and a party’s unwillingness to abide by precedent controlling claim construction lends to escalation of avoidable costs.”  Judge Reyna would have found bad faith under Section 285, and would have “limit[ed] the remand to determination of appropriate sanctions.”