Federal Appeals Court Voids $85,000 in Sanctions in E-Banking Patent Case

WASHINGTON — In a significant ruling for companies involved in intellectual property disputes, a federal appeals court on May 15 reversed nearly $85,000 in attorney’s fees and sanctions in a patent case involving electronic banking technology. The U.S. Court of Appeals for the Federal Circuit (CAFC), in a precedential decision, found that while the patent asserted by mCom IP, LLC against City National Bank of Florida was rightly invalidated, the company’s lawsuit did not meet the high bar of being an “exceptional case” that would warrant financial penalties. This decision underscores the often-unpredictable costs of patent litigation, where even a successful defense can lead to further expensive legal battles over fees. It highlights the necessity for businesses to integrate potential legal expenditures into their broader financial planning. The ruling brings a new chapter to a close in a multi-year legal battle. MCom IP had filed infringement lawsuits against several financial institutions, including City National Bank and HSBC, based on its e-banking patent. However, this legal campaign began after most of the patent’s claims had already been invalidated in a separate proceeding before the Patent Trial and Appeal Board (PTAB), a tribunal within the U.S. Patent and Trademark Office. The PTAB review had been initiated by Unified Patents, an organization that works to deter patent assertions from non-practicing entities. Given the prior invalidation, the U.S. District Court for the Southern District of Florida dismissed mCom’s suit against City National Bank. In March 2025, a magistrate judge found that mCom had pursued the lawsuit despite the PTAB’s adverse ruling. Consequently, the district court ordered mCom to pay nearly $34,000 of the bank’s attorney fees and imposed a sanction of almost $51,000 directly against mCom’s Florida-based counsel, Victoria Brieant, for unreasonably prolonging the litigation. The CAFC’s May 15 decision affirmed the core finding of the lower court: the dismissal of mCom’s lawsuit was correct because the asserted patent claims were invalid for being obvious. This part of the ruling effectively ends mCom’s infringement claims against City National Bank and, through a related nonprecedential ruling, against HSBC as well. However, the three-judge panel unanimously reversed the financial penalties. The court’s opinion delved into the legal standards for awarding fees under 35 U.S.C. § 285 and for sanctioning attorneys under 28 U.S.C. § 1927. To award fees, a case must be “exceptional,” meaning the losing party’s litigation position was “objectively unreasonable” or was brought in subjective bad faith. The court concluded that mCom’s arguments for its patent’s validity, while ultimately unsuccessful, were not so baseless as to be considered exceptionally weak. The opinion noted that patents enjoy a “statutory presumption of validity” and that City National Bank’s own arguments for why the case was exceptional were presented in “conclusory terms.” In our experience, this is a classic example of how legal victories can feel like financial losses without proper planning. The costs of defending against even weak patent claims can be substantial, and the fight over recovering those costs can become a “second major litigation,” as the court itself noted. This uncertainty is precisely why we advise clients on comprehensive financial risk management. Proactively assessing and mitigating these contingent liabilities is critical for maintaining a healthy balance sheet and ensuring that a legal dispute doesn't derail core business operations. For businesses navigating such complex challenges, the team at C&S Finance Group LLC at csfinancegroup.com can provide crucial guidance. The court’s refusal to label the case as exceptional sends a clear message about the high threshold required for fee-shifting in patent law. The judges determined that simply losing a patent case, even one where the patent was previously weakened in a PTAB review, is not sufficient grounds for forcing the losing party to pay the winner’s legal bills. The panel also explicitly declined to remand the case back to the district court to give City National Bank another opportunity to argue for fees, stating a desire to avoid “additional costly proceedings” and bring the dispute to a final close. This ruling has broader implications for small and mid-sized companies, particularly those in the technology and financial services sectors that are frequent targets of patent litigation. While the decision affirms that weak patents can be successfully challenged, it also reinforces the difficulty defendants face in recovering the often-significant costs of that defense. The standard for what constitutes an “exceptional” case remains high, meaning that defendants must typically bear their own legal expenses even when they prevail on the merits. For small and mid-sized businesses, the takeaway is that the legal system does not always provide a swift or inexpensive remedy against meritless claims. Budgeting for potential legal challenges and understanding the high threshold for recovering costs should be a core component of any company's operational strategy, especially in technology-heavy sectors where intellectual property disputes are common. Looking ahead, legal observers will watch how district courts interpret and apply this precedential guidance in future motions for attorney’s fees. The decision may subtly alter the strategic calculations for both patent holders and accused infringers when deciding whether to litigate or settle. With a Supreme Court appeal considered highly unlikely, this ruling will stand as a key reference point in determining when a losing argument crosses the line from merely incorrect to objectively unreasonable.