Federal Circuit Clarifies "Prevailing Party" Status After Sanction-Based Dismissal
Future Link v. Realtek discusses post-dismissal attorney fees
In a recent precedential ruling regarding patent litigants, the U.S. Court of Appeals for the Federal Circuit has clarified that a defendant becomes a "prevailing party" eligible for attorney fees when a district court converts a plaintiff's voluntary dismissal into a dismissal with prejudice as a sanction. This decision confirms that a judicially imposed, permanent change to the parties' legal relationship—even one originating from a plaintiff's motion—is sufficient to trigger potential fee-shifting under 35 U.S.C. § 285. The ruling provides a critical pathway for defendants to seek fees when they successfully terminate a case through a binding, court-ordered final judgment.
The case is Future Link Systems, LLC v. Realtek Semiconductor Corporation, Nos. 2023-1056, 2023-1057 (Fed. Cir. Sept. 9, 2025). The panel consisted of Circuit Judges Reyna, Bryson, and Stoll. Judge Stoll authored the opinion.
Background
The litigation began when Future Link Systems, LLC ("Future Link") filed two patent infringement suits in the Western District of Texas against Realtek Semiconductor Corp. ("Realtek"). The asserted patents related to electronic circuitry and power-saving features in computing devices (Slip Op., p. 2).
The case's trajectory shifted upon the discovery of a 2019 licensing agreement between Future Link and MediaTek, Inc., a direct competitor of Realtek. A peculiar clause in that agreement stipulated that MediaTek would pay Future Link a lump sum amount "if Future Link filed a lawsuit against Realtek" (p. 3). This arrangement raised questions about the primary motivation behind the litigation.
Following the execution of a separate licensing agreement covering the accused products, Future Link voluntarily dismissed both cases without prejudice in April 2022 (p. 3). Realtek promptly moved for attorneys' fees and costs, contending the suits were baseless. The district court agreed to impose sanctions for Future Link's conduct, but not in the form of fees. Instead, exercising its inherent power, the court converted Future Link’s voluntary dismissals into dismissals with prejudice (p. 4).
Despite this legally significant alteration, the district court denied Realtek's motion for attorneys' fees under 35 U.S.C. § 285. The court reasoned that Realtek was not a "prevailing party" because the dismissal originated from Future Link's own voluntary action rather than a court adjudication on the merits. Realtek appealed.
The Court's Analysis: The "Material Alteration" is Key
The central legal question on appeal was whether a defendant achieves "prevailing party" status when a court converts a plaintiff's voluntary dismissal to one with prejudice as a sanction. The Federal Circuit answered affirmatively, vacating the district court's denial of fees and remanding for further proceedings.
The court began by reiterating the Supreme Court’s instruction that the "touchstone of the prevailing party inquiry must be the material alteration of the legal relationship of the parties" (p. 5, citing Tex. State Teachers Ass’n v. Garland Indep. Sch. Dist., 489 U.S. 782, 792–93 (1989)). Citing precedent, the Federal Circuit emphasized that "a favorable ruling on the merits is not a necessary predicate to find that a defendant has prevailed" (p. 5, CRST Van Expedited, Inc. v. EEOC, 578 U.S. 419, (2016)). The true test is whether the defendant has successfully "rebuffed" the plaintiff's challenge. Id.
The Federal Circuit held that the district court's order converting the dismissal to one "with prejudice" was the exact type of "judicially sanctioned change" necessary to confer prevailing party status (pp. 5-8). This order was not a mere procedural entry; it created a permanent legal bar that extinguished Future Link’s right to pursue its claims again.
The court's reasoning focused on the finality and legal consequence of the judgment:
Both of Future Link’s cases ended "with dismissal of its patent infringement claims with prejudice." Realtek thus "successfully rebuffed [Future Link’s] lawsuit[s] and ensured that [Future Link] can never again assert the same patents against [Realtek’s] same accused products." ... Perhaps the district court did not intend to make Realtek a prevailing party when it awarded sanctions and converted the voluntary dismissal to a dismissal with prejudice. But our case law is clear. Under the circumstances of this case, Realtek is a prevailing party. (p. 8).
This analysis establishes a bright-line rule: the legal effect of a dismissal with prejudice, not the procedural origin of the motion, determines prevailing party status.
Because Realtek secured a permanent preclusion against future litigation on the same claims, it achieved its primary objective and was entitled to seek fees.
The panel remanded the case for the district court to proceed to the second step of the § 285 inquiry: determining whether the case was "exceptional."
Key Takeaways and Practical Implications
This decision provides important strategic guideposts for patent litigants and their counsel.
A Sanction Can Pave the Way for Fee Recovery: The ruling directly connects a court's inherent sanctioning authority to the fee-shifting provision of § 285. Defendants now have a stronger basis to argue for prevailing party status when a case is dismissed with prejudice due to a plaintiff's litigation misconduct, even if the plaintiff initiated the dismissal. It seems obvious, but try to avoid sanctions
Elevated Risk for Plaintiffs: Patent owners must be more circumspect. Filing suits with questionable motivations or engaging in litigation conduct that warrants sanctions now carries a more pronounced financial risk. A seemingly procedural sanction—converting a dismissal to one with prejudice—can now serve as the predicate for a substantial award of attorneys' fees. Even if this is a discussion point ahead of settlement, the court could still issue sanctions sua sponte, regardless of what the settlement agreement says.
Limits on Rule 11 Sanctions Reaffirmed: While granting Realtek a path to § 285 fees, the Federal Circuit affirmed the district court's denial of Rule 11 sanctions against Future Link's counsel. The court found the pre-filing investigation sufficient, noting that "testing of an accused product is not necessarily a required part of an adequate pre-filing investigation" (p. 10). The court determined that Future Link had met its obligation by performing an "infringement analysis" that consisted of a "good faith, informed comparison of the claims of a patent against the accused subject matter" based on publicly available technical manuals and specifications (p. 11). This part of the opinion reinforces that an expensive, deep technical tear-down is not a prerequisite to filing suit, so long as a reasonable and documented infringement theory exists.
Prevailing Party Status is Only Step One: It is critical to remember that this ruling only resolves the first part of the § 285 analysis. On remand, Realtek still bears the burden of demonstrating that the case is "exceptional," which requires a showing that the litigation was substantively meritless or that Future Link litigated in an unreasonable manner.
Conclusion
The Federal Circuit’s opinion in Future Link v. Realtek brings valuable clarity to the "prevailing party" analysis in patent litigation. By concentrating on the substantive legal effect of a court's order, the decision ensures that the remedial purpose of § 285 is available to defendants who achieve a permanent and judicially-enforced victory.
This ruling sharpens the strategic calculus surrounding dismissals and sanctions, underscoring that procedural resolutions can carry significant financial consequences. It is a vital contribution to the body of law governing the responsible conduct of patent enforcement.
Disclaimer: This is provided for informational purposes only and does not constitute legal or financial advice. To the extent there are any opinions in this article, they are the author’s alone and do not represent the beliefs of his firm or clients. The strategies expressed are purely speculation based on publicly available information. The information expressed is subject to change at any time and should be checked for completeness, accuracy and current applicability. For advice, consult a suitably licensed attorney and/or patent professional.