Friday, December 07, 2012

From the Raylon case: claim construction “is kind of [an] arcane subject that gets ordinary lawyers like me in trouble a lot of times.”

The outcome of the Raylon case:

Raylon, LLC (“Raylon”) brought three suits against, inter alia, Complus Data Innovations, Inc. (“Complus”), Casio America, Inc. and Casio Computer Co., Ltd., (collec- tively “Casio”), and Symbol Technologies, Inc. (“Symbol”) (collectively, “defendants”) in the Eastern District of Texas. Raylon alleged that all defendants infringe claims 1-17 of U.S. Patent No. 6,655,589 (“’589 patent”). The district court consolidated the three suits. After a com- bined hearing, the court adopted defendants’ claim con- struction, granted summary judgment in their favor, and denied their motions for Rule 11 sanctions. The district court also denied defendants’ motions for attorneys’ fees and costs under 35 U.S.C. § 285, citing its Rule 11 deci- sion. Defendants appeal the denial of sanctions and attorneys’ fees. For the reasons set forth below, we affirm in part, vacate in part, and remand for further proceedings.

As to Rule 11 sanctions

We agree with defendants. In the Fifth Circuit, when determining whether there was a Rule 11 violation, “the standard under which an attorney is measured is an objective, not subjective standard of reasonableness under the circumstances.” Whitehead, 332 F.3d at 803. The district court abused its discretion by evaluating Raylon’s conduct under a subjective standard.3 See FDIC v. Maxxam, Inc., 523 F.3d 566, 580-81 (5th Cir. 2008); Cooter & Gell, 496 U.S. at 405. Specifically, the court evaluated Raylon’s damages model and early settlements to determine whether it brought its suits in good faith or merely to obtain nuisance value settlements. The court opined that “in some situations, a plaintiff asserting a large damages model while making very low offers in the case may indicate that the plaintiff realizes its case is very weak or even frivolous” and that the amount of damages “may be indicative of the good-faith nature with which the case is brought.” J.A. 4. It found Raylon’s damages model “not large for a patent case” such that “the earlier settlements were not so unreasonable as to indicate that Raylon believed its case was weak or frivo- lous.” Id. Based on these findings as to Raylon’s motives, the district court denied defendants’ motion. In its view, Rule 11 sanctions only apply “[w]here it is clear that a case lacks any credible infringement theory and has been brought only to coerce a nuisance value settlement.” J.A. 5 (emphasis added). But, this is not the proper standard. The 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.” Maxxam, 523 F.3d at 580; Jenkins v. Methodist Hosp. of Dallas, 478 F.3d 255, 264 (5th Circuit 2007). Thus, an evaluation of Raylon’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.

There can be Rule 11 sanctions for the presentation of unreasonable patent claim constructions:

Applying the objectively reasonable standard, we agree with defendants that Raylon’s claim construction (and thus infringement contentions) were frivolous. Claim construction is a matter of law, so that an attor- ney’s proposed claim construction is subject to Rule 11(b)(2)’s requirement that all legal arguments be non- frivolous. Antonious v. Spalding & Evenflo Cos., Inc., 275 F.3d 1066, 1071 (Fed. Cir. 2002). Reasonable minds can differ as to claim construction positions and losing con- structions can nevertheless be nonfrivolous. But, there is a threshold below which a claim construction is “so unreasonable that no reasonable litigant could believe it would succeed,” iLor, LLC v. Google, Inc., 631 F.3d 1372, 1378 (Fed. Cir. 2011), and thus warrants Rule 11 sanctions.

Raylon’s claim construction of “display pivotally mounted on said housing” is a prime example of a construction that falls below this threshold. Raylon, throughout the litigation, argued that this term should be construed as requiring a “display being capable of being moved or pivoted relative to the viewer’s perspective.” J.A. 1477 (emphasis added). Its construction encompasses any portable device with a display, regardless of how it is mounted to the housing.

A memorable quote:

Raylon’s attorney argued that claim construction “is kind of [an] arcane subject that gets ordinary lawyers like me in trouble a lot of times.” J.A. 14048. There is noth- ing arcane about the location of the printer assembly in the claimed invention. Raylon’s position that the printer could be in an entirely different housing from the rest of the components is objectively unreasonable and an inde- pendent violation of Rule 11 with respect to Symbol, whose products lack a printer entirely. On remand, the district court should weigh Raylon’s multiple frivolous arguments with respect to Symbol’s products when crafting an appropriate sanction.

The conclusion:

The district court abused its discretion in denying de- fendants’ Rule 11 motions. We reverse the district court’s holding that there was no Rule 11 violation and remand to the district court to determine, in the first instance, a proper sanction. Because the court’s evaluation of § 285 relied on its Rule 11 analysis, we vacate the district court’s denial of attorneys’ fees and costs, and remand for the court to reconsider defendants’ motions in light of our decision.


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