“Rule 11 sanctions are warranted when a party files a pleading that (1) has no reasonable factual basis; (2) is based on a legal theory that has no reasonable chance of success and that cannot be advanced as a reasonable argument to change existing law; and (3) is filed in bad faith for an improper purpose.” Baker v. Alderman, 158 F.3d 516, 524 (11th Cir. 1998). 

In Epic Tech, LLC v. Pen-Tech Associates, Inc., No. 2025-1624, __ F.4th __ (Fed. Cir. Sept. 30, 2026), the Federal Circuit held that, in opposing a Rule 11 motion alleging that the patentee should have investigated the asserted patent's validity before filing suit, the presumption of validity alone "does not suffice" where there are "multiple indicators" that the patent claims are unpatentable under Section 101. 

In Epic Tech, the patent-in-suit was U.S. Patent No. 8,545,317 which issued in October 2013. The `317 patent was directed to an electronic sweepstakes system and method for connecting electronic gaming terminals on a server network to facilitate an initial game with a secondary game operating in the background. 

Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 573 U.S. 208 (2014), which set forth the two-step test for assessing patent subject matter eligibility under 35 U.S.C. § 101, was decided by the U.S. Supreme Court six months after the `317 patent was issued. 

Following the Alice decision, but before Epic Tech filed suit against Pen-Tech in the Northern District of Georgia in June 2020, the USPTO rejected related claims under § 101 in a related application that previously had been rejected  for nonstatutory double patenting over claims of the `317 patent. Nonstatutory double patenting involves patentably indistinct variations of the same invention. In re Van Ornum, 686 F.2d 937, 944-48, 214 USPQ 761, 767-70 (CCPA 1982); In re Braat, 937 F.2d 589, 592-93, 19 USPQ2d 1289, 1292 (Fed. Cir. 1991); In re Longi, 759 F.2d 887, 892 n.4, 225 USPQ 645, 648 n.4 (Fed. Cir. 1985). Epic Tech eventually abandoned the related applications without overcoming the § 101 rejections. 

Separately, in October 2019, Epic Tech asserted a related patent, U.S. Patent No. 8,545,315, against a different party, Fusion Skill, in the U.S. District Court for the Southern District of Texas, which later held the asserted claims of the '315 patent ineligible under § 101. Epic Tech, LLC v. Fusion Skill, Inc., 534 F. Supp. 3d 741, 746–47 (S.D. Tex. 2021) (later vacated as part of the parties' settlement). 

Pen-Tech sought summary judgment of invalidity as to the asserted claims of the `317 patent because those claims were allegedly similar to the claims of the `315 patent invalidated in Fusion Skill--and the Northern District of Georgia granted summary judgment declaring the asserted claims of the `317 patent invalid under § 101. The district court found that "[a] bonus game within a game is not an inventive concept" and does not transform the `317 Patent's abstract claims to patentable claims. 

Pen-Tech also filed a Rule 11 motion, arguing that Epic Tech received notice of the asserted claims' potential invalidity before and after filing its complaint when (1) Alice issued in 2014, after the patent-in-suit issued but before the filing of suit; (2) the USPTO rejection of patentably indistinct claims under § 101 in three related applications, which were issued before the filing of suit against Pen-Tech; and (3) the similar claims of the '315 patent held to invalid under § 101 by the Southern District of Texas in Fusion Skill. 

The Federal Circuit found that "[t]here were a number of strong indicators prior to the filing of the suit at issue that the asserted claims were invalid under § 101." 

First, the Supreme Court decided Alice, which not only affected patent subject matter eligibility under § 101 after the '317 patent issued, but also involved a software patent. Second, the PTO determined claims in two of the three related applications were patentably indistinct from independent claims of the '317 patent, J.A. 342–46; J.A. 390–94, and rejected claims in all three related applications under § 101 post-Alice. J.A. 369–70; J.A. 398–401; J.A. 2226–35. Third, and again post-Alice, the court in Fusion Skill held claims of the related '315 patent ineligible under § 101. Fusion Skill, 534 F. Supp. 3d at 746–47. These facts, taken together, created a compelling concern over the validity of the claims before this litigation was brought. In such circumstances, it does not suffice for Epic Tech or its counsel to rely only on the presumption of validity when faced with multiple indicators that these claims were unpatentable under § 101.

The Federal Circuit also held that the existence of a "pre-suit infringement investigation . . . , does not explain why sanctions were unjustified under Pen-Tech's notice theory centered on validity." (emphasis in original). Patent validity was a "distinct question" in view of "the notice of potential invalidity Alice provided, whether alone or in conjunction with the Fusion Skill holding and the PTO's office actions." 

With respect to the USPTO office action rejecting claims in related applications under § 101, while not claim-limiting prosecution history, the Federal Circuit held that the district court "fail[ed] to explain why those office actions, whether considered individually or collectively, were insufficient to serve as notice of potential invalidity despite their substantive relevance to the asserted claims" which prevented meaningful review of the district court's decision. 

With respect to the vacated Fusion Skill decision that "invalidated claims in the related `315 patent under § 101," while “the issues were not the exact same,” they "need not be identical to provide notice of potential invalidity." 

In light of the unusually strong factors pointing to the invalidity of the patent-in-suit, the court needed to address—in some fashion—why Epic Tech's claim nevertheless had a “reasonable chance of success” or could “be advanced as a reasonable argument to change existing law,” and was not brought “in bad faith for an improper purpose.” See Baker, 158 F.3d at 524.

The Federal Circuit declined to decide "when notice of potential invalidity renders continued assertion of a presumptively valid patent unreasonable." 

The Rule 11 issue on remand likely will be, rather than whether there was sufficient notice of potential invalidity, assessing the reasonableness of Epic Tech's validity position after such alleged notice was received, and may come down to the underlying merits of Epic Tech's opposition against summary judgment of invalidity.