MCOM IP, LLC v. CITY NATIONAL BANK OF FLORIDA
Authored by: Jeremy J. Gustrowsky
The Federal Circuit recently issued a decision addressing both the dismissal of a patent infringement suit and the propriety of attorneys’ fees awarded against the patent owner and its counsel. The case revolves around U.S. Patent No. 8,862,508, which claims a “unified electronic banking system” designed to connect various banking touch points like ATMs, kiosks, and online banking portals through a common multi-channel server. After most claims of the patent were cancelled in an inter partes review, the patent owner sued a Florida bank on the four surviving claims, only to see its complaint dismissed and substantial fees imposed.
The district court dismissed the amended complaint with prejudice, ruling that the surviving claims were invalid for obviousness on the same grounds that doomed the other claims at the Patent Trial and Appeal Board, and separately finding that infringement had not been adequately pleaded. On appeal, the patent owner challenged only one claim’s invalidity ruling, but argued primarily about patent eligibility under Section 101 rather than addressing the obviousness ground actually used by the district court. The Federal Circuit found this argument beside the point, noting that eligibility under Section 101 is not a substitute for nonobviousness under Section 103. With no meaningful challenge to the actual basis for invalidity, the dismissal was affirmed.
The more interesting portion of the decision concerns the fee awards. The district court had awarded approximately $87,000 in fees, splitting the burden between the patent owner under 35 U.S.C. Section 285 (exceptional case) and its counsel under 28 U.S.C. Section 1927 (vexatious multiplication of proceedings). The Federal Circuit reversed both awards, finding the supporting rationale legally and factually deficient.
On the exceptional case finding, the court emphasized that mere invalidity does not make a case exceptional. There must be unusual or extraordinary weakness in the patent owner’s position. Since the surviving claims enjoyed a statutory presumption of validity and were never challenged in the inter partes review, and since district court invalidity challenges face a higher burden than IPR proceedings, the patent owner could reasonably have believed its claims were defensible. The court also rejected reliance on an alleged license defense through a prior settlement with NCR, noting that the bank conceded no finding was ever made that it actually qualified as a covered customer. Allegations that the patent owner pursued nuisance-value settlements in other cases similarly lacked record support.
The Section 1927 sanction against counsel fared no better. Under Eleventh Circuit law, such sanctions require either pursuit of a frivolous claim or needless obstruction of litigation, conduct tantamount to bad faith. Because the district court never found the case frivolous, and because the patent owner’s legal positions on invalidity, infringement, and licensure were not wholly without merit, counsel’s decision to litigate through the motion to dismiss was not sanctionable. The court declined to remand for additional fee proceedings, observing that fee disputes should not become a second major litigation.
This decision serves as a useful reminder that losing on the merits, even decisively, does not automatically translate into exceptional case status or attorney sanctions. Courts must articulate specific reasons grounded in the record showing extraordinary weakness or genuine bad faith, not simply rely on the fact that a complaint was dismissed.