On December 7, 2012, in Raylon, LLC v. Complus Data Innovations, Inc., No. 2011-1355, the Federal Circuit (Prost, Moore and Reyna) vacated a decision by the Eastern District of Texas that had denied Rule 11 sanctions based on a frivolous claim construction argument.  This case reflects a Federal Circuit response to concerns in the patent bar to deter frivolous suits and their attendant costs.

The case concerned claims for a display screen on a handheld identification and ticket issuing system having a “display for displaying data entered into said input assembly, said display being pivotally mounted on said housing.”  In order to capture devices with fixed screens, the patentee argued that this term should be construed to mean “an electronic device attached to a housing for the visual presentation of information, the display capable of being move or pivoted relative to the viewer’s perspective.”  The patentee argued that this covered the accused infringer’s devices that had fixed screens because the housing could be pivoted relative to the user when the user bends his elbow or wrist.

The district court found that the patentee’s construction stretched the bounds of reasonableness.  But the court did not award Rule 11 sanctions because the patentee’s damages model and settlement amounts did not suggest bad faith—e.g., that the case was brought merely to obtain nuisance value settlement.

The Federal Circuit ruled that the district court erred by using a subjective, rather than objective, standard in reviewing the patentee’s conduct under Rule 11.  The Court ruled that the patentee’s claim construction was objectively unreasonable because no reasonable litigant could believe that claim construction would succeed..