MCOM IP v. City National Bank — Federal Circuit Affirms Patent Invalidity But Reverses Attorney Fee Award

Background

MCOM IP, LLC owns U.S. Patent No. 8,862,508, which claims a “unified electronic banking system” designed to link various e-banking touch points — such as ATMs, online portals, and mobile devices — through a common multi-channel server. In 2023, the Patent Trial and Appeal Board (PTAB) held most of the patent’s claims unpatentable for obviousness in an inter partes review (IPR). Four claims (2, 8, 14, and 17) survived only because the IPR petitioner had not challenged them.

After the IPR, MCOM sued City National Bank of Florida in the Southern District of Florida, alleging infringement of the four surviving claims. City National moved to dismiss, arguing that the surviving claims were also obvious and that MCOM had failed to adequately plead infringement. The district court granted the motion and dismissed the case with prejudice. It then declared the case “exceptional” under 35 U.S.C. § 285, awarding City National roughly $87,000 in attorney fees, and separately sanctioned MCOM’s counsel, Victoria Brieant, under 28 U.S.C. § 1927 for vexatiously multiplying proceedings.

In a companion case decided the same day, MCOM IP, LLC v. HSBC Bank USA, N.A. (No. 24-1828), the same panel affirmed dismissal of a parallel infringement action involving the same patent on preclusive-effect grounds.

The Court’s Holding

Invalidity affirmed. The Federal Circuit affirmed the district court’s dismissal. Judge Taranto, writing for the panel, held that claim 17 — the only claim MCOM challenged on appeal — “does not add patentable substance” to claim 13, which had already been found unpatentable in the IPR. MCOM’s only arguments on appeal were that the district court had not actually invalidated claim 17 (“plainly incorrect,” the court said) and that claim 17 was eligible subject matter under § 101. The court rejected the latter as irrelevant: passing the § 101 eligibility test does not establish nonobviousness under § 103.

Fee award reversed. The court reversed the § 285 exceptional-case determination, holding that the district court abused its discretion. The panel emphasized three principles:

• Invalidity alone is not enough. For a case to “stand out” under Octane Fitness, the patentee’s validity position must be unusually or extraordinarily weak — not merely incorrect. The asserted claims here enjoyed a statutory presumption of validity and had not even been challenged in the IPR, giving MCOM a reasonable basis to believe they could survive a higher-burden district court challenge.
• Alleged license defense was unadjudicated. City National argued that a 2021 settlement agreement between MCOM and NCR gave it a license as an NCR customer. But no court ever found that a license actually existed, and City National conceded at oral argument that the question remained “unadjudicated.” Without that finding, the license theory could not support a fee award.
• Litigation history was conclusory. City National had argued that MCOM’s pattern of filing patent suits that settled before summary judgment indicated nuisance-value-seeking behavior. But City National never furnished evidence of settlement amounts or identified which prior cases involved the same patent, falling short of the evidentiary threshold required.

Section 1927 sanction reversed. The court also reversed the sanction against MCOM’s attorney Brieant. Because the case was not frivolous, Brieant’s decision to litigate through the Rule 12(b)(6) motion did not constitute the “egregious” and “objectively reckless” conduct required under Eleventh Circuit law for § 1927 liability.

Key Takeaways

• Surviving IPR claims are not invincible, but enforcing them is not per se exceptional. Just because certain patent claims survived an IPR only by not being challenged does not mean asserting them is unreasonable — the statutory presumption of validity still applies, and the higher burden of proof in district court provides a reasonable basis for enforcement.
• Winning a dismissal does not automatically entitle a defendant to fees. Courts must identify specific evidence of exceptional weakness or unreasonable litigation conduct. Conclusory arguments about a patent’s weakness — especially when based on outcomes for different claims — are insufficient under Octane Fitness.
• Unadjudicated affirmative defenses cannot support fee awards. If a defendant claims the patentee should have known about a license defense, the defendant must first establish that the defense actually exists. A hypothetical license based on an ambiguous agreement is not enough.
• Attorney sanctions require more than unsuccessful litigation. Under § 1927, a lawyer who takes a non-frivolous case through a motion to dismiss is not acting recklessly, even if the case ultimately fails.

Why It Matters

This precedential opinion sends a clear message to patent defendants: winning on the merits does not entitle you to attorney fees as a matter of course. After the Supreme Court’s 2014 Octane Fitness decision lowered the bar for exceptional-case findings, some courts have been aggressive in awarding fees whenever a patent suit fails. This ruling pushes back, requiring defendants to make a particularized, evidence-backed showing of exceptional weakness or bad faith — and it provides a roadmap for patentees to argue that their enforcement actions were reasonable even when they ultimately lose.

For patent practitioners, the opinion also clarifies the relationship between IPR outcomes and subsequent district court litigation. A patent owner who sues on claims that survived an IPR is not acting unreasonably, even if those claims survived only because they were not petitioned. The court acknowledged that the higher burden of proof in district court (clear and convincing evidence) compared to IPR (preponderance) gives patentees a legitimate basis for believing their claims can withstand challenge.