Addressing a district court’s denial of motions for Rule 11 sanctions and attorneys’ fees and costs, the US Court of Appeals for the Federal Circuit vacated and remanded, finding that the district court had not adequately explained why a patentee’s pre-suit notice of potential invalidity under 35 U.S.C. § 101 did not render its infringement suit unreasonable. Epic Tech, LLC v. Pen-Tech Associates, Inc., Case No. 25-1624 (Fed. Cir. Sept. 30, 2026) (Moore, C.J.; Cunningham, J.; Subramanian, Distr. J., sitting by designation).
Epic Tech owns a patent directed to an electronic gaming system that connects gaming terminals to a server network so that an initial game can run while a secondary game operates in the background. After the patent issued in 2013, several related applications encountered validity problems during prosecution. One related application was rejected on nonstatutory double patenting grounds over claims of the issued patent. After the Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank International, the United States Patent and Trademark Office (USPTO) rejected claims in that application and two other related applications under § 101. Epic Tech ultimately abandoned all three applications.
Epic Tech later asserted another related patent in the US District Court for the Southern District of Texas. That district court found the asserted claims patent ineligible under § 101, although the decision was later vacated.
In 2020, Epic Tech sued Pen-Tech in the District Court for the Northern District of Georgia for infringement of the gaming system patent. On summary judgment, the district court found the asserted claims ineligible under § 101 under the two-step Alice framework. Pen-Tech then sought Rule 11 sanctions against Epic Tech and its counsel, as well as attorneys’ fees and costs under 35 U.S.C. § 285, 28 U.S.C. § 1927, and the court’s inherent authority.
Pen-Tech argued that several developments should have put Epic Tech and its counsel on notice that the asserted patent faced a serious § 101 problem before suit was filed, including the Supreme Court’s decision in Alice, the USPTO’s § 101 rejections in related applications, and the district court’s ineligibility decision involving another related patent. According to Pen-Tech, those circumstances required Epic Tech to conduct a meaningful pre-suit validity investigation.
The district court denied the motions, concluding that Epic Tech’s and its counsel’s positions were not frivolous, that the case was not exceptional, and that the litigation had not been pursued unreasonably or vexatiously. Pen-Tech appealed.
The Federal Circuit vacated, finding that the district court’s explanation was insufficient to permit meaningful appellate review. The Court emphasized that the combination of Alice, the USPTO’s post-Alice rejections of related claims, and the prior district court ineligibility ruling created a “compelling concern over the validity” of the asserted claims. Two of the related applications were particularly significant because the USPTO had previously found their claims patentably indistinct from the asserted patent.
The Federal Circuit found that the district court had not meaningfully addressed Pen-Tech’s notice theory. The district court relied in part on Epic Tech’s pre-suit infringement investigation, but the Federal Circuit explained that an infringement analysis did not answer the separate question of whether Epic Tech had adequately investigated validity of the asserted patent before filing suit.
The Federal Circuit also found the district court’s treatment of the prosecution history insufficient. The district court had reasoned that later prosecution history could not be used to limit the scope of earlier-issued claims. But Pen-Tech did not rely on the related applications’ office actions for claim construction. It relied on them as evidence that Epic Tech had notice of a potential validity problem. Similarly, the district court discounted the earlier ineligibility decision involving the related patent because the issues were not identical. The Court explained that notice of potential invalidity does not require identity of issues.
The Federal Circuit expressly declined to decide whether Epic Tech or its counsel violated Rule 11 or whether Pen-Tech was entitled to fees under § 285, § 1927, or the district court’s inherent authority. It determined only that, given the unusually strong indicators of potential invalidity, the district court was required on remand to explain why Epic Tech nevertheless had a reasonable basis to pursue its claims and why the suit was not brought in bad faith.
