Addressing fee shifting under 35 U.S.C. § 285 and sanctions under 28 U.S.C. § 1927, the US Court of Appeals for the Federal Circuit affirmed in part and reversed in part a judgment dismissing a patent infringement complaint and awarding attorneys’ fees and costs, finding that the weakness of the plaintiff’s position, without more, did not justify a finding of exceptionality, and that counsel’s lack of diligence did not rise to the bad-faith conduct required for sanctions. mCom IP, LLC v. City National Bank of Florida, Case No. 24-2089 (Fed. Cir. May 15, 2026) (Dyk, Mayer, Taranto, JJ.)
mCom IP sued City National Bank of Florida in September 2023, asserting a patent directed to systems and methods for integrating financial institutions’ “e-banking touch points,” such as ATMs and online banking portals. Earlier that year, an inter partes review (IPR) initiated by Unified Patents resulted in all but four claims being found unpatentable as obvious under 35 U.S.C. § 103. mCom’s district court complaint asserted those four surviving claims.
The district court struck mCom’s initial complaint as a “shotgun pleading” and dismissed the amended complaint with prejudice for failure to state a claim. It also concluded that the asserted claims were invalid on the same obviousness grounds addressed in the IPR and awarded attorneys’ fees under § 285, finding the case exceptional, and imposed sanctions under § 1927 based on counsel’s litigation conduct. mCom appealed.
The Federal Circuit affirmed the dismissal but reversed the fee award and sanctions. The Court addressed two issues: whether the case was “exceptional” under § 285 and whether counsel had unreasonably and vexatiously multiplied the proceedings under § 1927.
Under § 285, a case is exceptional if it “stands out” based on the substantive strength of a party’s position or the unreasonable manner of litigation. The Federal Circuit rejected each basis relied on by the district court.
First, although the asserted claims were ultimately found invalid, the Federal Circuit emphasized that invalidity alone does not render a case exceptional. Rather, awarding fees requires a showing that the claims were “unusually or extraordinarily weak.” That standard was not met here where the asserted claims survived IPR and carried a presumption of validity, and where the burden of proof for invalidity in district court remains higher than in IPR.
Second, the Federal Circuit found that pleading deficiencies did not support exceptionality. The initial complaint’s defects were “purely formal,” and the amended complaint’s failure to state a claim, without more, did not render the overall litigation conduct unreasonable.
Third, the Federal Circuit rejected reliance on City National’s purported license defense, noting that no license had been established on the record.
Finally, the Federal Circuit found insufficient support for the contention that mCom pursued nuisance-value settlements, explaining that City National failed to provide evidence regarding settlement amounts or to tie prior litigation to the patent at issue.
The Federal Circuit also reversed the sanctions imposed under § 1927. Applying Eleventh Circuit law, the Federal Circuit explained that sanctions require conduct “tantamount to bad faith,” such as knowingly or recklessly pursuing frivolous claims or needlessly obstructing litigation. The district court faulted counsel for being “insufficiently diligent” in failing to recognize that the suit should have been abandoned, but the Federal Circuit explained that such lack of diligence, in the context of a nonfrivolous claim, does not constitute the type of bad-faith conduct required for liability under § 1927.
