Source Vagabond Sys. Ltd. v. Hydrapak, Inc.

Addressing the reasonableness of a pre-filing claim construction analysis in the context of Rule 11 sanctions, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s award of Rule 11 sanctions against plaintiff’s counsel, finding that the patent holder based its infringement theory on an untenable claim construction and inadequate infringement investigation.  Source Vagabond Sys. Ltd. v. Hydrapak, Inc., Case Nos. 13-1270; -1387 (Fed. Cir., June 5, 2014) (Wallach, J.).

Source Vagabond Systems (Source) owns a patent directed to flexible water reservoirs, such as for storage in a backpack.  According to the patent, a hermetic seal is formed by folding the top of the flexible reservoir over a rod and positioning a long sealer clip sideways over the folded reservoir and rod.  The sealer clip has a slot big enough for the folded reservoir but not the rod.  The pertinent claim element requires the slot to be “narrower than the diameter of the rod” so that the sealer clip is only to be “slidingly mounted sideways over the rod.”

As was clear to the naked eye, the slot of the accused Hydrapak sealer clip was wider than the rod’s diameter.  Source’s infringement theory, therefore, hinged on claim construction.  Source proposed adding the underlined language to the term: “narrower than the diameter of the rod together with the container folded over it.”  Even under this construction, however, Hydrapak’s slot did not meet the narrowness requirement.

After Source filed its complaint, Hydrapak filed a Rule 11 sanctions motion.  Within Rule 11’s safe-harbor period, Source filed an amended complaint.  Hydrapak filed another Rule 11 motion and moved for summary judgment of non-infringement.  The district court granted both motions and sanctioned Source’s counsel.  Source appealed.

The Federal Circuit applied the U.S. Court of Appeals for the Second Circuit’s “objective reasonableness” standard for Rule 11 violations.  The Court upheld the finding that the pre-suit claim construction analysis did not measure up to the standard required by Rule 11.  Source’s proposed construction required adding limitations onto the narrowness requirement of the slot on the sealer clip.  However, Source failed to identify any intrinsic support for its proposed additional limitation.  Source argued that the proportions in the figures indicate that its construction was objectively reasonable.  Figures, however, do not define proportions of claim elements where the specification is silent as to size.  The Federal Circuit found that Source’s requisite pre-suit claim construction evaluation was unreasonable and contrary to the canons of claim construction.

The Federal Circuit also found that Source’s pre-suit investigation lacked an adequate evidentiary basis.  The Court found that, even in opposing the Rule 11 motion, Source did not provide any product measurements or calculations of the width of Hydrapak’s slot.  If challenged, a patent holder must be prepared to explain why it believed—before filing the lawsuit—that it had a reasonable chance to prove infringement.  Source failed to provide any such evidence.