The issue on appeal in Raylon v. Complus Data was whether the district court abused its discretion in denying defendants' Rule 11 motions.

Raylon, LLC (Raylon) brought three suits in the US District Court for the Eastern District of Texas against Complus Data Innovations, Inc., Casio America, Inc. and Casio Computer Co., Ltd. and Symbol Technologies, Inc. (Defendants) alleging that the Defendants infringe claims 1-17 of US Patent No. 6,655,589 ('589 patent). The district court consolidated the three suits.

The district court granted Defendants' summary judgment on claim construction.

However, in a later order, the district court denied the Defendants' motions for Rule 11 sanctions against Raylon. The district court found that the patentee's claim construction stretched the "bounds of reasonableness," but did not cross the line of the objective standard required under Rule 11. The court continued by analyzing the patentee's motivations and its settlement and damages model. It concluded that the suit was not driven by a desire to recover "nuisance value settlements" rather than stand on the merits of the patent in suit.

In a later order, the district court also denied the Defendants' motions for attorneys' fees and costs. To be awarded attorneys' fees and costs, a defendant must show that a case must be exceptional under Section 285 of the Patent Act, because either:

Having found no inappropriate conduct, the district court relied exclusively on its Rule 11 order to find that the litigation was not objectively baseless.

The Defendants appealed the district court's denial of Rule 11 sanctions and attorneys' fees and costs to the US Court of Appeals for the Federal Circuit.

In its December 7, 2012 opinion, the Federal Circuit held that the district court abused its discretion in denying the Defendants' motions for Rule 11 sanctions. Since the district court relied on its Rule 11 analysis to deny the Defendants' motions for attorneys' fees and costs, the Federal Circuit also vacated and remanded the district court's denial of Defendants' motions for attorneys' fees and costs..

The Federal Circuit held that the district court abused its discretion in denying the Defendant's motions for Rule 11 sanctions. While the district court identified the correct standard of objective reasonableness for Rule 11 sanctions in the Fifth Circuit, the Federal Circuit found that the district court effectively applied a subjective standard in evaluating Raylon's conduct. In particular:

Applying the objectively reasonable standard, the Federal Circuit found the patentee's claim constructions frivolous. It also found that the district court erred by failing to consider the Defendants' arguments that several of the patentee's other claim constructions were frivolous. The Federal Circuit agreed with the Defendants on these additional claim constructions.

The Federal Circuit remanded the case to the district court to impose the appropriate Rule 11 sanctions.

Since the Federal Circuit reversed the district court's holding on its Rule 11 analysis, the Federal Circuit also remanded the attorneys' fees and costs decision to the district court to reconsider in light of this opinion.

The Federal Circuit's decision demonstrates the role that Rule 11 sanctions can play in patent infringement cases and highlights the Federal Circuit's view of the district court's role in scrutinizing questionable claim constructions.

Patentees should assess the merits of their claims before filing infringement actions to ensure that they demonstrate a reasonable chance of proving infringement. Defendants should be mindful that where the patentee's claims are objectively unreasonable, regardless of the suit's motives, Rule 11 sanctions may provide a means of rebuffing such claims.