United States: Unreasonable Claim Constructions That Are Contrary To Intrinsic Evidence Warrant Rule 11 Sanctions

In Raylon, LLC v. Complus Data Innovations, Inc., Nos. 11-1355, -1356, -1357, -1358, -1359 (Fed. Cir. Dec. 7, 2012), the Federal Circuit affirmed the district court's denial of attorneys' fees and costs under 28 U.S.C. § 1927 and vacated the district court's denial of the defendants' motion for Rule 11 sanctions under the Federal Rules of Civil Procedure and attorneys' fees and costs under 35 U.S.C. § 285.  The Court remanded for further proceedings in accordance with its opinion.

Raylon, LLC ("Raylon") brought three suits against Complus Data Innovations, Inc. ("Complus"), Casio America, Inc. and Casio Computer Co., Ltd., and Symbol Technologies, Inc. (collectively "Defendants"), alleging that Defendants infringed claims 1-17 of U.S. Patent No. 6,655,589 ("the '589 patent").  The claimed device is a handheld identification-investigating and ticket-issuing system with a display pivotally mounted on the system's housing.  In response to the suits, Defendants sent several letters to Raylon, expressing their concern that Raylon's complaints violated Rule 11 because, inter alia, Raylon's claim construction positions were unsupportable and unreasonable. 

Raylon disagreed, maintaining that the patent supported broad claim constructions and that the accused products infringed the claims of the '589 patent.  Raylon specifically alleged that the accused devices all literally met the requirement of a pivotally mounted display because the systems all had a display that was mounted in a housing and could be pivoted relative to the user, i.e., a device with a fixed-mounted screen met the pivotally mounted limitation when the user pivoted the device by moving his elbow, wrist, or other joint.  Defendants' handheld systems had fixed displays, and their proposed constructions excluded from "pivotally mounted" any displays that are fixed or incapable of pivoting.

The district court rejected Raylon's proposed construction of "display pivotally mounted on said housing" to include displays that are fixed or incapable of moving and accepted Defendants' construction.  Additionally, the district court granted SJ in Defendants' favor.  The district court further denied Defendants' motion for Rule 11 sanctions, concluding that while Raylon's proposed constructions stretched the bounds of reasonableness, they did not cross the line justifying sanctions, and Raylon's settlements and damages model tended to show that Raylon did not believe its case was weak or frivolous.  The district court also denied attorneys' fees and costs pursuant to 35 U.S.C. § 285 and 28 U.S.C. § 1927 based on the conclusion that Raylon's suits were not objectively baseless.

On appeal, the Federal Circuit relied on the language of Rule 11 and held that reasonableness under Rule 11 is an objective standard.  The Court disagreed with the district court's reliance on Raylon's damage model and early settlements to determine the reasonableness of Raylon's claim.  The Court held that the district court abused its discretion by applying a subjective, rather than objective, standard in determining reasonableness under Rule 11.

"[A]n evaluation of [the plaintiff's] litigation motives—whether it brought suit in good faith or to obtain nuisance value settlements—contradicts Fifth Circuit law and has no place in the Rule 11 analysis."  Slip op. at 12.

The Court explained that "[t]he Fifth Circuit 'has been emphatic' that the Rule 11 analysis is a strictly objective inquiry and 'expressly rejected any inquiries into the motivation behind a filing.'"  Slip op. at 12 (quoting FDIC v. Maxxam, Inc., 523 F.3d 566, 580 (5th Cir. 2008)).  The Court further explained that an evaluation of a plaintiff's "litigation motives—whether it brought suit in good faith or to obtain nuisance value settlements—contradicts Fifth Circuit law and has no place in the Rule 11 analysis."  Id.  The Court noted that while reasonable minds can differ as to claim construction positions, "there is a threshold below which a claim construction is 'so unreasonable that no reasonable litigant could believe it would succeed,'" and would therefore warrant Rule 11 sanctions.  Id. at 13 (quoting iLor, LLC v. Google, Inc., 631 F.3d 1372, 1378 (Fed. Cir. 2011)).

The Court held that Raylon's claim construction was below the threshold of reasonableness, because it is "contrary to all the intrinsic evidence and does not conform to the standard canons of claim construction."  Id. at 14.  Further, the Court held that no reasonable litigant would believe this claim construction would succeed.  Therefore, the Court held that Raylon's claim construction was frivolous and Rule 11 sanctions should be applied.  The Court thus remanded the case for the district court to determine an appropriate sanction under Rule 11.

The Defendants also alleged that the district court improperly denied attorneys' fees and costs, because these cases qualify as exceptional under 35 U.S.C. § 285.  The Court explained that a case is exceptional under § 285 when there is some inappropriate conduct relating to the matter in litigation.  Additionally, the Court explained that absent litigation misconduct, a case is exceptional if "(1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless."  Id. at 17 (quoting Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005)).  The Court further explained this analysis is similar to the analysis for Rule 11 sanctions, and remanded the case to the district court to determine litigation misconduct in light of the Court's decision on Rule 11 sanctions.

In a concurring opinion, Judge Reyna agreed with the majority that Rule 11 sanctions are warranted.  Judge Reyna then stated that when a court finds a Rule 11 sanction based on patent infringement claims found to be unreasonable, the Court is compelled to undertake a detailed and thorough 35 U.S.C. § 285 inquiry and analysis.  Judge Reyna recognized that § 285 was enacted to address a patent-specific policy rationale, and that the purpose of the statute "is distinguishable from Rule 11, which addresses conduct in general, because § 285 recognizes the particular strain that meritless patent litigation bears on judicial and party resources."  Reyna Concurrence at 5.  As such, Judge Reyna stated that "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."  Id. at 6.  Judge Reyna thus noted that the proper course of action would be to "reverse and declare this an exceptional case and limit the remand to determination of appropriate sanctions."  Id. at 15.

Judges:  Prost (author), Moore, Reyna (concurring)

[Appealed from E.D. Tex., Judge Davis]

This article first appeared in Last Month at the Federal Circuit, January 2013. To view the original article, please click here.

Copyright © 2013 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP | All rights reserved.

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