The Federal Circuit in Future Link Sys., LLC v. Realtek Semiconductor Corp., Appeal Nos. 2023-1056, -1057, ---F.4th---, 2025 WL 2599581 (Fed. Cir. Sept. 9, 2025), addresses, among other things, the prevailing party determination for purposes of 35 U.S.C. § 285 and Rule 54(d)(1) of the Federal Rules of Civil Procedure.  Both § 285 and Rule 54(d)(1) have a “prevailing party” requirement. 2025 WL 2599581 at *2.  The term “prevailing party” is interpreted consistently between each. Id.

Future Link entered into a patent license agreement with non-party MediaTek in 2019. Id. at *1.  MediaTek agreed therein to pay Future Link a lump sum if Future Link sued Realtek. Id.  In 2021 Future Link filed two patent infringement actions against Realtek in the Western District of Texas federal court (the operative complaints were filed in July and December). Id.  It produced the 2019 license to Realtek in early 2022 and shortly thereafter entered into a separate license with another non-party that covered the accused Realtek products. Id.  Future Link voluntarily dismissed the Realtek actions without prejudice several days later. Id.  Realtek moved for attorneys’ fees and costs in both cases and contended they were objectively baseless. Id. at *1-2.  Specifically, Realtek moved in one case for attorneys’ fees under § 285 and as sanctions under Rule 11, and for costs under Rule 54(d)(1). Id. at *2.  Realtek moved in both cases for attorneys’ fees and costs under 28 U.S.C. § 1927 and for sanctions under the court’s inherent power. Id.  The district court denied the motions except for the Rule 54(d)(1) request for costs, which it did not address, and the motions for sanctions under the court’s inherent power, which it granted-in-part by converting Future Link’s voluntary dismissals into dismissals with prejudice. Id. (the district court reasoned public policy cut against the incentive clause in the MediaTek license and that such clauses should be discouraged, see Future Link v. Realtek, Case No. 6:21-cv-363 (W.D. Tex. Sept. 12, 2022), Dkt. 143, Omnibus Order at 16).

The § 285 and Rule 54(d)(1) motions were denied because the district court did not find Realtek to be a prevailing party. Id. at *2.  The Federal Circuit concluded the district court erred. Id.  Whether a litigant is a prevailing party under § 285 and Rule 54 is a matter of Federal Circuit law. Id.  The question of the effect of a dismissal with prejudice on § 285 is also a matter of Federal Circuit law. Id.  The Court noted in its discussion of applicable authority that the Supreme Court has said the “touchstone of the prevailing party inquiry must be the material alteration of the legal relationship of the parties. Id. (quoting Tex. State Teachers Ass'n v. Garland Indep. Sch. Dist., 489 U.S. 782, 792–93 (1989)).  The Supreme Court has also explained that “a favorable ruling on the merits is not a necessary predicate to find that a defendant has prevailed.” Id. (quoting CRST Van Expedited, Inc. v. EEOC, 578 U.S. 419, 421 (2016)).

Realtek argued it became the prevailing party in each case when the district court sanctioned Future Link by converting its voluntarily dismissal into dismissal with prejudice. Id. at *2.  Not so, said Future Link, because it dismissed the cases voluntarily, without prejudice, and what altered the parties’ legal relationship was the license agreement covering the accused Realtek products. Id.  Discussing cases deemed “highly instructive and applicable” to the prevailing party inquiry here, the Court concluded the two cases ended with dismissal of the patent infringement claims with prejudice. Id. at *3-4.  Accordingly, Realtek “successfully rebuffed Future Link’s lawsuits and ensured that Future Link can never again assert the same patents against Realtek’s same accused products.” Id. at *4 (cleaned up).  The Court explained that while the district court might not have intended to make Realtek a prevailing party when it awarded the sanction, “our case law is clear [and] [u]nder the circumstances of this case Realtek is a prevailing party.” Id.  The Court vacated the § 285 decision and remanded for consideration of whether the case was exceptional and fees appropriate. Id.  The Court also held the failure to address costs under Rule 54 was an abuse of discretion. Id.  Because Realtek is a prevailing party, the Court remanded for the district court to address Rule 54 costs and explain its decision. Id. (noting it reviews a district court’s actual decision on Rule 54(d)(1) costs under regional circuit law and that there is a strong presumption in the Fifth Circuit that a prevailing party will be awarded costs and a district court will provide an explanation for any decision denying costs).