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Showing of Bad Faith Must Be Objective

March 23, 2004

Decision icon Decision

Last Month at the Federal Circuit - April 2004

Judges: Dyk (author), Lynn, and Archer

In Globetrotter Software, Inc. v. Elan Computer Group, Inc., No. 03-1179 (Fed. Cir. Mar. 23, 2004), the Federal Circuit affirmed the district court’s SJ that Ken Greer’s state-law claims of tortious interference and unfair competition are preempted by federal patent law. The Federal Circuit vacated, however, the district court’s grant of SJ that Elan Computer Group, Inc. (“Elan”) does not infringe U.S. Patent No. 5,390,297 (“the ’297 patent”) assigned to Globetrotter Software, Inc. (“Globetrotter”), given errors in the district court’s claim construction and issues of material fact concerning infringement.

In addition to the ’297 patent, the suit involves U.S. Patent Nos. 5,386,369 (“the ’369 patent”) and 5,671,412 (“the ’412 patent”), both also assigned to Globetrotter. The ’297, ’369, and ’412 patents are directed toward a license-management system that permits a purchaser of software to use a particular application on more than one computer in a network, while preventing copyright infringement by not allowing the purchaser to use more copies of the software than it licensed. Globetrotter only alleges infringement of the ’297 patent by Elan.

In response to the allegations of infringement, Greer filed state-law claims against Globetrotter alleging tortious interference and unfair competition. Greer alleges that while Rainbow Technologies, Inc. (“Rainbow”) was negotiating the purchase of all of the outstanding shares of Elan stock, Globetrotter sent an e-mail and a letter to Rainbow suggesting that Elan infringed the ’297, ’369, and ’412 patents. Greer alleges that Globetrotter notified Rainbow of the alleged patent infringement in bad faith solely to cause Rainbow to abandon the planned purchase of Elan. In fact, Rainbow did abandon the purchase at the time, but later acquired Elan on terms more favorable to Rainbow.

The Federal Circuit first turned to established law concerning federal preemption and ruled that Greer’s state-law claims can survive federal preemption only to the extent that the claims are based on a showing of bad faith. The Federal Circuit based its holding on federal preemption and first amendment considerations. During trial, however, Greer only showed Globetrotter’s subjective bad faith, such as through the timing of the e-mail suggesting infringement, but did not show objective bad faith by Globetrotter.

The Court concluded that Globetrotter’s claim of infringement of the ’297 patent was not objectively baseless, as shown by its reversal of the SJ of noninfringement. Thus, because of the lack of evidence of objective bad faith, the Federal Circuit upheld the district court’s SJ dismissing the statelaw claims.

The Court then resolved the infringement issues surrounding the ’297 patent. Each of the asserted claims includes a limitation requiring a “license management means” to send “a message preventing” an external program from running when there are no available licenses for the requesting program. The dictionary defines “prevent” as “to keep from occurring; avert; hinder” or “to hinder or stop from doing something.” The Federal Circuit determined, however, that the dictionary was unclear as to whether the message itself must actively stop the requesting program from running or whether the message can merely be a signal that keeps the requesting program from running when received.

To resolve the ambiguity, the Federal Circuit looked to the patent specification, which states that the system returns a status to the requesting program if no license is available. Reasoning that a claim interpretation that excludes a preferred embodiment from the scope of the claim “is rarely, if ever, correct,” the Court concluded that the claim did not require actively preventing a program from running. Because Elan conceded that the accused product returns such a status message, the Federal Circuit vacated the district court’s grant of SJ of noninfringement.