Quality of investigation irrelevant to whether claims objectively baselessApril 25, 2008

In a Wednesday decision, the Federal Circuit affirmed a district court decision that a patent holder's communications with a competitor's customers that the competitor's products were infringing were not objectively baseless, and therefore could not support state law tort claims of unfair competition, intentional interference with contractual relations, interference with prospective economic advantage, and trade libel. The court noted that the patent holder had successfully defeated a motion for summary judgment of non-infringement before the ITC and an ALJ had found infringement of one of the patentee's patents. Thus, it could not logically follow that the patentee's pre-litigation communications alleging patent infringement were objectively baseless.The court also reaffirmed that in order for such communications to support state tort claims such as those asserted in this case, the assertions of infringement must be both objectively and subjectively baseless. Here, the plaintiff attacked that patentee's opinion of counsel that infringement was occurring as incompetent, but the court noted that this was only relevant to whether the claims were subjectively baseless. Because the claims were not such that "no reasonable litigant could reasonably expect success on the merits," the plaintiff could not show objective baselessness, and the court therefore did not even consider whether the claims were subjectively baseless. All in all, the case confirms that it is extremely difficult for plaintiffs to prevail on these types of claims.More concerning Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH after the jump,OSRAM and Dominant are both manufacturers of small semiconductor devices known as light-emitting diodes ("LEDs"). OSRAM is a subsidiary of Siemens and holds a number of patents relating to LED technology. Dominant is a Malaysian company and was founded in 2000. Dominant is managed by one of OSRAM's former production directors, Tay Kheng Chiong.On September 17, 2003, OSRAM's outside patent counsel prepared an opinion letter stating that several of Dominant's LED products infringed OSRAM patents. According to the letter, Dominant was infringing nine patents forming three groups: three particle size patents, four lead frame patents, a conversion principle patent, and a mini sidelooker patent.The opinion letter also included a two-page table in which Dominant LED products were compared to OSRAM patents concerning LED housing and white light emitting diodes. The table listed six types of Dominant LED products, and included "Product Characteristics according to Dominant's Catalogue," "Related OSRAM Patent Rights," brief observations about the common features of the Dominant products and the OSRAM patents, and conclusions about infringement.On September 25, 2003, an OSRAM director attached the opinion letter to an email that was sent to the company's "Colleagues, Sales and Distribution Partners." The OSRAM director referred to the opinion letter as the "official statement of the OSRAM's patent counsel concerning 'DOMINANT' products." The following spring, OSRAM filed a complaint against Dominant before the International Trade Commission alleging patent infringement of ten patents. OSRAM then issued two press releases shortly after filing its ITC complaint describing the allegations of infringement and announcing that one of its American distributors would not import or market any LEDs that infringe OSRAM patents, particularly those made by Dominant.Shortly after filing its answer to OSRAM's complaint at the ITC, Dominant filed this lawsuit asserting claims for unfair competition under the Lanham Act and unfair competition, intentional interference with contractual relations, interference with prospective economic advantage, and trade libel under California statutory and common law. Dominant claimed the OSRAM letters and press releases were false and misleading infringement allegations about Dominant's products and OSRAM had asserted its patent rights in bad faith.Prior to the ITC trial, Dominant moved for summary judgment of non-infringement, but the ALJ denied this motion. Following trial, the ALJ issued an initial determination in which he found that Dominant's super-small LEDs infringed one OSRAM patent. However, the ALJ found no infringement of the remaining patents. The ITC issued notice of its final determination on January 11, 2006 that Dominant's accused products did not infringe the particle size patents but did infringe the lead frame patents. On appeal, the Federal Circuit reversed the ITC ruling that Dominant's products did not infringe the particle size patents (this decision was described in this post).Back at district court, OSRAM moved for summary judgment arguing that there was no evidence that its pre-litigation communications were made in bad faith because the claims of infringement were not objectively baseless. In opposing summary judgment, Dominant focused on the unreliability of the letter from OSRAM's patent counsel and the email from its director. Dominant contended that since OSRAM had failed to provide evidence substantiating the opinion letter there was a genuine issue of material fact as to the reliability of the analysis. The district court found that the allegations in the director's email and press releases were "not objectively baseless and thus were not made in bad faith." The court concluded that it was objectively reasonable for OSRAM to rely on an opinion by patent counsel when there was no evidence that the analysis was unreasonable on its face or contained unsupportable conclusions. As a result the district court granted OSRAM's motion for summary judgment, and Dominant appealed.The Federal Circuit first observed that when the assertion of patent rights is used as the basis for state law unfair competition or similar claims, it must be shown that the assertions were made in bad faith. In order to show bad faith, the claims must be both objectively and subjectively baseless. A claim is not objectively baseless if a "reasonable litigant could reasonably expect success on the merits." Applying this standard to the case, the Federal Circuit noted that OSRAM had defeated Dominant's motion for summary judgment of non-infringement and the ALJ had found infringement of one of OSRAM's asserted patents. Thus, the successful outcome of the underlying litigation refuted a conclusion that the litigation was objectively baseless at the outset and Dominant could not prove OSRAM acted in bad faith in making its pre-litigation communications. Dominant's assertions that the underlying investigation that led to the assertions made by OSRAM were only relevant to the issue of subjective baselessness, and therefore could not generate a genuine issue of material fact regarding objective baselessness.Dominant also argued that the correct standard for objective baselessness should be the same as that applied in the context of Rule 11. Not surprisingly, the court found two problems with this argument. First, the court had never stated that the Rule 11 standard is the same as the standard applied to pre-litigation infringement allegations, as pre-litigation allegations are not filed in a court. Second, it was unclear to the court how such a standard would help when OSRAM was successful in defeating Dominant's motion for summary judgment of non-infringement. Because Dominant "produced no evidence of objective baselessness at all," the court affirmed the district court's entry of summary judgment in favor of OSRAM.To read the full decision in Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, click here.

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