Because it determined the that District Court had improperly granted summary judgment sua sponte for the defendant, the Federal Circuit reversed on the merits in Eon-Net, LP v. Flagstar Bancorp, 2007 U.S. App. LEXIS 22832 (Fed. Cir. Sept. 27, 2007). That left the Court of Appeals with the Rule 11 sanctions that the District Court had imposed on the plaintiff. The District Judge had imposed sanctions, among other reasons, on the theory that the plaintiff’s lawsuit smacked of extortion because the plaintiff had brought many similar lawsuits and offered to settle this one relatively cheaply. The Federal Circuit acknowledged that ‛[i]t may be true that ultimately Eon-Net's suit was for an improper purpose and that Eon-Net's pattern of filing nearly identical complaints against a wide variety of companies and then offering to settle those complaints for a relatively small amount of money is one indicia of that improper purpose.“ It stressed, however, that the District Court’s failure to allow the plaintiff the opportunity to fully address the merits precluded such a conclusion.

Without full analysis of the merits of [plaintiff] Eon-Net's claim construction arguments, however, the mere fact Eon-Net filed identical infringement suits against a variety of companies does not by itself establish an improper purpose; a company may hold a patent on a widely-used device or process that many different types of companies use, as might be the case here if it is true that Eon-Net holds a valid patent on a process related to online web applications. It is also clear that the district court's finding of an improper purpose hinged on its conclusion that the '697 patent did not cover online applications, such that it believed that any suits Eon-Net was filing on this basis could be for no other purpose than to extort settlement amounts from other parties without ultimately having to prove what the district court considered to be baseless claims.

This case highlights the linkage between the merits and improper-purpose prongs of Rule 11. Although courts are empowered to impose sanctions for pursuing meritorious positions for improper purposes, they are properly very reluctant to do so. Parties in litigation rarely harbor cordial feelings for one another, and suing for money is hardly inherently improper.