In Epic Tech, LLC v. Pen-Tech Associates, Inc., No. 2025-1624 (Fed. Cir. Sept. 30, 2026), Chief Judge Moore, writing for a panel with Judge Cunningham and Judge Arun S. Subramanian of the Southern District of New York, sitting by designation, vacated the denial of Pen-Tech's sanctions and fee motions and remanded. The appeal is from the Northern District of Georgia, No. 1:20-cv-02428-VMC (Judge Victoria M. Calvert). Costs were awarded to Pen-Tech.
The case the district court had already decided on eligibility
Epic Tech, LLC owns U.S. Patent 8,545,317 and sued Pen-Tech Associates, Inc. in June 2020 for infringement of claims 1, 2, 4, 5, 7, 8, 9, 10, and 18. Pen-Tech counterclaimed for a declaratory judgment that those claims are invalid under 35 U.S.C. 101. The district court granted Pen-Tech's motion for summary judgment, denied Epic Tech's cross-motion for summary judgment of infringement, and entered judgment declaring the asserted claims invalid under section 101. This appeal does not review that invalidity judgment. It reviews the later denial of sanctions and fees.
Before that summary judgment, Pen-Tech moved for Rule 11 sanctions against Epic Tech and its counsel, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, jointly and severally, and moved for fees and costs under 35 U.S.C. 285, 28 U.S.C. 1927, and the court's inherent power on the same facts. Pen-Tech's theory was that Epic Tech received notice of the asserted claims' potential invalidity before and after it filed its complaint: when the Supreme Court decided Alice, when the Patent Office rejected claims under section 101 in three related applications, and when a Southern District of Texas court held claims of related U.S. Patent 8,545,315 ineligible. In Pen-Tech's view, those notices should have prompted Epic Tech to investigate validity before filing suit. The district court said its invalidity judgment lent Pen-Tech's allegations of frivolity considerable credence, and it still denied both motions. It found that neither Epic Tech's nor Baker Donelson's conduct was so unreasonable as to be frivolous, that the case was not exceptional, and that Epic Tech had not unreasonably or vexatiously litigated.
What the opinion says was missing from the order
The court reviewed the Rule 11 denial under Eleventh Circuit law for abuse of discretion, noting that meaningful review requires an adequate explanation. It wrote that there were "a number of strong indicators prior to the filing of the suit at issue that the asserted claims were invalid under § 101." First, Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014), which was decided after the '317 patent issued and involved a software patent. Second, the Patent Office's post-Alice section 101 rejections in all three related applications, including two in which the Office had found claims patentably indistinct from independent claims of the '317 patent; Epic Tech abandoned all three applications without overcoming the rejections. Third, Epic Tech, LLC v. Fusion Skill, Inc., 534 F. Supp. 3d 741 (S.D. Tex. 2021), which held asserted claims of the related '315 patent ineligible and was later vacated as part of a settlement. The court wrote that these facts, taken together, "created a compelling concern over the validity of the claims before this litigation was brought," and that in such circumstances Epic Tech and its counsel could not "rely only on the presumption of validity when faced with multiple indicators that these claims were unpatentable under § 101." A footnote says neither the district court nor the Office appears to have determined that the '315 and '317 claims are substantively similar, and the court did not decide that question.
The court held only that the order did not permit meaningful review: the district court "failed to provide a sufficiently reasoned explanation for rejecting Pen-Tech's validity-based Rule 11 theory." It said the district court did not address whether Alice supplied notice of potential invalidity. It said reliance on Epic Tech's pre-suit infringement investigation, a claim chart, and a cease and desist letter may bear on infringement, but does not answer whether Epic Tech should have investigated validity. It said the district court treated the Office actions as if Pen-Tech were using later prosecution history to limit an earlier claim, which was not Pen-Tech's argument. And it said the only explanation aimed at Fusion Skill, that "the issues were not the exact same," was not enough, because the issues need not be identical to provide notice. In light of what it called "the unusually strong factors pointing to the invalidity of the patent-in-suit," the court wrote that the district court needed to address 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.
On fees, the opinion applies Federal Circuit law to section 285 and Eleventh Circuit law to section 1927 and the court's inherent power, and holds only that the same gap in explanation prevents meaningful review of those denials. A footnote says the inherent-power ruling contains no independent analysis. The court said it does not decide whether Pen-Tech is entitled to fees and costs, whether Epic Tech or Baker Donelson violated Rule 11, or "when notice of potential invalidity renders continued assertion of a presumptively valid patent unreasonable."
The patent and the asserted claims
U.S. Patent 8,545,317, titled Gaming system and method, issued October 1, 2013. The opinion describes it as 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. The district court declared each of the asserted claims invalid under section 101.
Claim 1 recites a computer-implemented method of allowing a user to play an electronic game on a terminal. It requires receiving a request from a player to play a game at a terminal; at least partially in response to receiving the request, facilitating play of the game at the terminal and establishing a bonus time period for the player; receiving an indication that play of a second game occurs at a particular point in time; determining if the bonus time period runs coincident with that point in time; determining, while the player is playing the first game, whether play of the second game results in a prize; and, if it does and the bonus time period runs coincident with that point in time, awarding at least a portion of the prize to the player. Once the second game is triggered to play, a server conducts all play of the second game without input from the player until that play is terminated.
Claim 2 adds, at least partially in response to receiving the request from the player, triggering play of the second game. Claim 4 adds notifying the player of the award. Claim 5 adds decrementing the bonus time period for the player. Claim 7 adds receiving requests from a plurality of players to play a game. Claim 8 adds, at least partially in response to receiving those requests, establishing a bonus time period for at least one or more of the plurality of players. Claim 9 adds determining if the bonus time periods associated with those players run coincident with the particular point in time. Claim 10 adds awarding at least a portion of the prize to each of those players who have a bonus time period that runs coincident with that point in time.
Claim 18 recites a computer system for playing games, with at least one processor and a plurality of terminals operatively coupled to it. The processor is configured to receive a request from at least one player to play a game on one of the terminals; at least partially in response to that request, facilitate play of the game on that terminal and establish a bonus time period for the at least one player; receive an indication that play of a secondary game has occurred at a particular point in time and results in a prize; determine whether play of the secondary game occurred during that player's bonus time period; and, at least partially in response to determining that it did, award at least a portion of the prize to the at least one player. The claim adds that a sum of all prizes awarded in the secondary game may total an amount less than a total amount of a prize pool associated with the secondary game.
What it means
The opinion does not hold that sanctions or fees are owed, and it does not hold that Epic Tech or Baker Donelson violated Rule 11. It holds only that, on the facts of this case, the order did not explain why Pen-Tech's validity-based notice theory failed. An explanation aimed at the pre-suit infringement investigation did not answer that theory.
What to watch next
Watch the district court's further order on the Rule 11 motion and the fee motion on remand. The Federal Circuit left both motions open and did not direct a particular result. The parties can also resolve the motions by agreement at any point.