A Patentee’s Communications with Another’s Customers Were Not Objectively Baseless Where the Patentee Was Successful in Infringement Litigation
April 23, 2008
Last Month at the Federal Circuit - May 2008
Judges: Michel, Dyk, Kennelly (author, District Judge sitting by designation)
[Appealed from: N.D. Cal., Judge Fogel]
In Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, No. 07-1456 (Fed. Cir. Apr. 23, 2008), the Federal Circuit affirmed the district court’s grant of SJ in favor of OSRAM GmbH (“OSRAM”) on Dominant Semiconductors Sdn. Bhd.’s (“Dominant”) claims for unfair competition, intentional interference with contractual relations, interference with prospective economic advantage, and trade libel arising from OSRAM’s communications to its customers that Dominant infringed several of its patents. The Court held that the district court correctly determined that OSRAM’s communications were not objectively baseless. OSRAM and Dominant are manufacturers of light-emitting diodes (“LEDs”). OSRAM’s outside patent counsel wrote an opinion letter stating that several of Dominant’s LED products infringed nine OSRAM patents, including three particle size patents and four lead frame patents. OSRAM e-mailed the opinion letter to the company’s “Colleagues, Sales and Distribution Partners” informing them that it was sending the “official statement of the OSRAM’s patent counsel concerning ‘DOMINANT’ products” and suggesting that the recipients might wish to show the letter to their customers. The e-mail also stated that OSRAM had “the possibility . . . to stop the import, sale and use of the related ‘DOMINANT’ products . . . .”
Later, OSRAM sued Dominant in the ITC alleging that Dominant’s LED products infringed ten OSRAM patents, seven of which had been listed in the opinion letter. After the filing, OSRAM issued two press releases, which announced that it had filed the complaint and was seeking injunctive relief, and that one of its American distributors had promised that it would not import or market any LEDs that infringe OSRAM’s patent rights. Following a trial, the ALJ assigned to the ITC action issued an initial determination finding that some of Dominant’s LEDs infringed one of OSRAM’s patents that had not been included in the opinion letter. Further, the ALJ found, among other things, that the asserted patents, including the particle size patents and the lead frame patents, listed in the opinion letter were either invalid or not infringed. After reviewing the ALJ’s findings, the ITC held that the particle size patents were not invalid and remanded the case to the ALJ to determine whether those patents were infringed. On remand, the ALJ found no violation with respect to the particle size patents. The ITC made its final determination by ruling that Dominant’s accused products infringed the lead frame patents, which had been listed in the opinion letter, but not the particle size patents. However, on appeal, the Federal Circuit reversed the ITC’s ruling regarding the particle size patents and concluded that Dominant had infringed OSRAM’s particle size patents as well.
Prior to these decisions, but after filing an answer to OSRAM’s complaint at the ITC, Dominant sued OSRAM alleging unfair competition, trade libel, and interference with contractual relations and prospective economic advantage under California statutory and common law. Underlying Dominant’s claim was its contention that in the opinion letter, e-mail, and press releases, OSRAM made false and misleading infringement allegations about Dominant’s products and asserted its patent rights in bad faith. OSRAM moved for SJ, arguing that there was no evidence that its prelitigation communications had been made in bad faith. The district court agreed and granted SJ. Dominant appealed.
On appeal, the Federal Circuit observed that federal patent law bars the imposition of liability for publicizing a patent in the marketplace unless the plaintiff can show that the patent holder acted in bad faith. Dominant asserted that OSRAM’s statements were made in bad faith because, without having conducted a proper infringement analysis, OSRAM made the statements without regard to whether they were true. The Federal Circuit disagreed, explaining that bad faith includes separate objective and subjective components, and to be objectively baseless, the infringement allegations must be such that no reasonable litigant could reasonably expect success on the merits. The Court reasoned that “when an underlying infringement suit was not unsuccessful, there is no basis to determine that the plaintiff in that suit lacked probable cause or, as it applies to the present situation, had no objective basis to claim infringement before filing suit.” Id. at 12. Here, noted the Court, by the time the district court granted SJ, OSRAM had successfully defeated Dominant’s motion for SJ of noninfringement in the ITC, and the ALJ hadfound infringement of one of OSRAM’s asserted patents.
Dominant also asserted that the Court should apply a new standard for objective baselessness: the same standard that is applied in the context of requests for sanctions under Fed. R. Civ. P. 11. It asserted that Rule 11 allows for sanctions when a patentee sued for infringement prior to testing the accused product and that the Court should apply this standard here, a standard that OSRAM would not be able to meet because the attorney who wrote the opinion letter did not test the accused devices before rendering the opinion. The Federal Circuit disagreed, noting that it had never stated that the Rule 11 standard was the same as the standard applied in bad-faith cases and that, even if the standards were the same, Dominant had not identified any case in which, when a party had not lost the underlying litigation, a court awarded Rule 11 sanctions against that party for failing to conduct a sufficient infringement analysis prior to filing suit.
Dominant further asserted that the ITC proceedings were irrelevant to the issue of bad faith during the 2001-2003 period in which the challenged communications were made, because OSRAM did not commence its ITC suit until 2004. Dominant based this argument on its belief that OSRAM had the burden of proof that it did not “bootstrap” an objective basis for making the earlier statements. The Federal Circuit disagreed with this argument as well, explaining that Dominant had failed to provide enough evidence suggesting that OSRAM’s conduct was objectively baseless. The Court explained that even though OSRAM did not allow Dominant suitable discovery before it moved for SJ, Dominant had the option to file a Rule 56(f) motion to delay consideration of SJ until discovery was completed and failed to do so. Further, the Court reasoned that OSRAM had satisfied its burden of production by producing evidence showing that its claims were not objectively baseless when it showed that it was successful in the underlying litigation.
Finally, the Court noted that Dominant’s argument that the attorney who wrote the opinion letter had not performed a sufficient analysis, though arguably relevant on the issue of subjective intent, had nothing to do with the issue of objective baselessness. Accordingly, the Federal Circuit concluded that because Dominant failed to identify a genuine fact regarding whether OSRAM’s communications were objectively baseless, the district court’s entry of SJ for OSRAM was appropriate.