In a rare decision reversing a lower court’s denial of sanctions, the U.S. Court of Appeals for the Federal Circuit concluded that the patentee’s proposed claim construction was objectively baseless as a matter of law, warranting Rule 11 sanctions and a potential fee award under 35 U.S.C. § 285.  Raylon, LLC v. Complus Data Innovations, Inc. et al., Case Nos. 11-1355 through 11-1359 (Fed. Cir., Dec. 7, 2012) (Prost, J.) (Reyna, J., concurring).

The patentee, Raylon, brought three separate suits in the district court alleging infringement of a patent directed to a hand-held ticket issuing system.  The patent claimed a “housing” with two relevant limitations: a “display being pivotally mounted on said housing” and a “printer assembly being mounted in said interior of said housing.”  The accused infringing devices had a fixed-mounted display and external printer connection capabilities.  Raylon argued that the fixed-mounted display met the first limitation because it could be pivoted “relative to the viewer’s or user’s angle of visual orientation.”  It contended that the second limitation requiring a printer in “said housing” encompassed a printer in any housing, including the housing of an externally connected printer.

At the conclusion of a consolidated hearing, the district court rejected Raylon’s claim construction and granted summary judgment of non-infringement in favor of the defendants.  The defendants moved for Rule 11 sanctions and attorneys’ fees and costs under § 285.  The district court weighed the reasonableness of Raylon’s settlement negotiations against its proffered damages model to conclude that Raylon subjectively brought suit in good faith.  Based on this subjective standard, the district court denied Rule 11 sanctions.  Relying on the same analysis, the district court also denied § 285 fees and costs.  The defendants appealed. 

In a rare reversal on this issue, the Federal Circuit held that the district court’s denial of Rule 11 sanctions was an abuse of discretion.  Under the correct, objective standard, Raylon’s claim construction was “a clear instance where no objectively reasonable litigant . . . would believe it […] could succeed.”  Moreover, the Federal Circuit found that the district court’s conclusion that “Raylon’s claim construction arguments and infringement theory do stretch the bounds of reasonableness . . . they do not cross the line” was not supported by any analysis or explanation.  The Court concluded that Raylon’s claim construction was frivolous, a Rule 11 violation and sanctionable.  The Court also vacated the district court’s § 285 holding, as it was based on the flawed Rule 11 analysis.  The case was remanded for determination of a proper Rule 11 sanction and full consideration of the defendants’ § 285 motion in light of the Rule 11 violation.

Concurring, Judge Reyna argued that a finding of a Rule 11 violation should compel the Court, if it is so moved by a party, to engage in a thorough § 285 analysis.  Judge Reyna would have declared the case exceptional under § 285 and limited the § 285 remand to a determination of appropriate sanctions.

Practice Note:  The Federal Circuit suggested that even though the district court’s denial of Rule 11 sanctions was predicated on a subjective standard, had the district court articulated reasoning as to why Raylon’s claim construction was also objectively reasonable, it may have left the denial undisturbed.  Nevertheless, the Court maintained that there is a threshold below which a claim construction is so objectively unreasonable that Rule 11 sanctions are warranted.