Court Issues Rule 11 Sanctions Against Plaintiff’s Counsel Based on Unreasonable Claim Construction Arguments

May 6, 2015

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On remand, defendants abandoned their § 285 claims against Raylon because Raylon was insolvent. Instead, defendants argued for sanctions against Raylon’s counsel for attorney fees of $1.4 million or at the very least that Raylon’s counsel be disgorged of the settlement proceeds of approximately $300,000 they received from other defendants who settled early and who Raylon accused under the same frivolous infringement theories. The Court agreed with defendant’s secondary argument for disgorgement and added an additional 50% penalty for bringing the frivolous claims, noting that:

Mere disgorgement of Raylon’s counsel’s profits is not sufficient to carry out either the rule’s primary purpose of  deterrence  or  its  other  objectives  of  punishment  and  compensation.  A  sanction  that  returns  offending counsel  to  their  original  financial  position,  discounting  the  typical  expenses  associated  with  litigation,  has little deterrent value. If the worst result that one could expect when filing a frivolous lawsuit is that one might not  profit  from  the  venture,  then  one  is  not  deterred  from  attempting  the  pursuit.  A  disgorgement  sanction

alone  has  no  greater  deterrent  effect  than  the  risk  that  any  plaintiff’s  attorney  takes  when  embarking  on  a non­frivolous  case  under  a  pure  contingency  fee  arrangement.  Even  meritorious  cases  can  be  lost,  but frivolously unmeritorious cases should never be brought.

Plaintiff’s counsel argued that the “the Federal Circuit’s Raylon decision has had, and continues to have, ‘a devastating negative impact on the professional careers of all of Raylon’s counsel’ and that this is a sufficient sanction.” The court, however, determined that “[a] nonmonetary sanction would only show others similarly situated that they can file frivolous cases, from which they may ultimately profit by exacting cost­of­defense settlements, with the only consequence being harsh words from a court.”

In conclusion, the district court warned that counsel who put their name on a pleading bear the responsibility for not only the potential benefits of that pleading, but also the consequences when the pleading falls below the standards imposed by Rule 11. It advised that counsel ask hard questions about the quality of the claims that they bring, and if they cannot find good answers to those questions, withdraw from the case rather than pursue the claims to the significant detriment of opposing party and court resources.

Raylon, LLC v. Complus Data Innovations, Co. et al, No. 6­09­cv­00355 (E.D. Tex. May 4, 2015) (Davis, J.).

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