CAFC Reverses Attorney’s Fees, Sanctions, While Affirming Obviousness in E-Banking Patent Case

On May 15, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a precedential ruling in mCom IP, LLC v. City National Bank of Florida affirming the Southern District of Florida’s dismissal of patent owner mCom IP’s complaint after finding the asserted patent claims obvious on the same grounds as related patent claims invalidated at the Patent Trial and Appeal Board (PTAB). However, the Federal Circuit found that the district court improperly concluded that the case was exceptional, leading the appellate court to reverse the attorney’s fee award and attorney sanctions after finding the plaintiff did not develop evidence of frivolous litigation conduct.

Section 101 Patent-Eligibility Is No Answer to Section 103 Obviousness Ruling

mCom sued City National in Southern Florida asserting claims from U.S. Patent No. 8862508, System and Method for Unifying E-Banking Touch Points and Providing Personalized Financial Services. Before that lawsuit was filed, several claims of the ‘508 patent, which claims multi-channel servers unifying touch points across an electronic banking system for customized customer experiences, were invalidated in inter partes review (IPR) proceedings brought by Unified Patents at the PTAB.

Finding both the asserted claims patentably indistinct from those invalidated in IPR proceedings under 35 U.S.C. § 103 obviousness, and that mCom did not adequately plead infringement, the district court granted City National’s motion to dismiss and denied mCom leave to amend its complaint a second time. City National moved for attorney’s fees under 35 U.S.C. § 285 and for attorney sanctions under 28 U.S.C. § 1927, which was granted by the district court after the U.S. magistrate judge recommended increasing the total award under both provisions to more than $87,000, with more than $50,000 assessed as sanctions against mCom’s counsel.

mCom appealed the Southern Florida district court’s obviousness findings only with respect to claim 17 of the ‘508 patent, which is directed to a unified electronic banking system providing financial institutions with a common point of functionality control across e-banking touch points like ATMs, websites or wireless devices. On appeal, mCom argued that the district court did not actually invalidate the claim, and that claim 17 is directed to patent-eligible subject matter under 35 U.S.C. § 101.

The Federal Circuit quickly dismissed mCom’s first argument, noting that the district court expressly stated in its ruling that claim 17 “does not add patentable substance” to the independent claim from which claim 17 depended. mCom’s second argument was “simply beside the point” as passing patentability muster under Section 101 does not answer obviousness under Section 103. Because mCom failed to show error in the district court’s invalidity ruling, the Federal Circuit found that it did not need to definitively decide if the district court committed reversible error in its alternative noninfringement finding, even though the appellate court noted pleading deficiencies that doomed mCom’s appeal of a related infringement case against HSBC decided by the CAFC the same day.

Even With IPR as Starting Point, No Express Finding That Litigation Was Frivolous

In concluding that the district court had erroneously found the case exceptional for awarding attorney’s fees under Section 285, however, the CAFC noted that mere invalidity was not legally sufficient for awarding fees. Even taking the unpatentability of the related claims in IPR proceedings as a starting point, the Federal Circuit held that City National never explained why the asserted claims in the district court case could not reasonably have been thought to have a materially different scope. This is especially true given the higher burden for proving obviousness in district court than in IPR proceedings at the PTAB.

Although mCom’s first complaint was dismissed as a “shotgun pleading” and its amended complaint was dismissed for containing bare assertions and an incomprehensible claim chart, the Federal Circuit held that issues with formalities and even lack of merit aren’t legally sufficient for an award under Section 285. The district court never found that City National was licensed to practice the ‘508 patent under the terms of mCom’s previous settlement with NCR Corporation, which City National argued it should be covered under as a customer of NCR. Further, although City National presented evidence of other patent infringement litigation filed by mCom and that such suits were filed to extract nuisance value settlements, it never presented evidence of the value of those settlements or even whether those cases involved the ‘508 patent.

Moving to the Section 1927 sanctions against mCom’s counsel, the Federal Circuit noted that an attorney must knowingly or recklessly pursue a frivolous claim to warrant sanctions under that statute. The district court made no express finding that mCom’s case was frivolous, and the Federal Circuit noted that mCom’s positions with regards to invalidity, infringement and licensure could not be considered wholly without merit. Because there was no adequate reason to conclude that mCom should have dropped its suit and the district court found no needless obstruction but rather lack of diligence on the part of mCom’s attorney, it was not unreasonable for mCom to litigate the case to the motion to dismiss stage.

Finding the remaining arguments unpersuasive, the Federal Circuit affirmed the dismissal of mCom’s complaint with prejudice and ordered each party to bear its own costs.