Sidense and Kilopass compete in “the emerging market for
‘1T’ one-time programmable embedded non-volatile memory (‘eNVM’),” which allows
permanent data storage inside integrated circuits by creating a breakdown in
the transistor. Kilopass separately sued
Sidense for patent infringement as well as some business torts.
Sidense alleged that Kilopass and individual defendant Cheng
embarked on a campaign of false claims in order to harm Sidense. Sidense alleged that these statements
variously constituted defamation, false advertising, intentional interference
with contractual relations/prospective economic advantage, and violations of
California’s UCL.
Defamation: Sidense first challenged a statement to a
Sidense potential customer that, based on Kilopass' own tests, Sidense's 1T
technology was not commercially viable. The court expressed uncertainty about
whether the statement referred to Sidense.
Sidense’s argument was that, though Kilopass claimed to have patents
covering 1T, it was trying to sell the recipient, Samsung, on its 2T
technology, and both Samsung and Kilopass knew that Kilopass was competing
against Sidense’s 1T technology. The
statement began with a statement that “reliability and manufacturability should
be compared with our competitors.” Indeed, Kilopass sent another message to
Samsung the next day about Sidense’s patent application. Kilopass, though, argued that it was talking
about its own 1T technology.
Kilopass also argued truth: its own testing of 1T cells
showed manufacturability and reliability issues. Sidense presented contrary evidence.
The court found that the statement wasn’t defamatory. It was evaluative, not a false statement of
fact: “The statement that a type of technology is not reliable or
manufacturable in high volume production, as drawn from a company's evaluation
of that technology, is too subjective and vague to be subject to a defamation
claim.” Plus, Sidense’s evidence of
truth was its success in the years after
the message was sent, which wasn’t available to Kilopass at the time.
The next claim involved the statement “Sidense continues to
offer for license even after May, '08, knowing substantial portion of its
patent claims have been rejected.
Sidense argued that, seven months before this claim was distributed, the
PTO affirmed all the claims in its patent and allowed new claims to be added during
inter partes reexamination initiated by Kilopass. Kilopass argued truth because
the original application had 29
claims, the majority of which were rejected. The court agreed that this was
subject to a defamatory meaning, since it was in the present tense: “The most
credible inference to be drawn from the statement is that Sidense continues to
market and license technology to which it holds no patent.” It wasn’t libel per se (an accusation of
fraud on customers), because the “innuendo” that Sidense continued to license
products based on rejected claims was “subject to the reader's interpretation,”
requiring Sidense to show special damages.
(It seems to me that the court is importing the explicit/implicit
distinction from false advertising law; this doesn’t seem consistent with the
business defamation cases I’ve read, though admittedly I haven't made a detailed study.)
Next, Kilopass threatened to sue Sidense’s customers and
potential customers as patent infringers or respondents before the ITC,
including threats to Fujitsu and Sony. Kilopass
argued truth: in reponse to the patent suit, Sidense disclaimed direct
infringement since all it does is license its technology. Thus, Kilopass reached out to alleged direct
infringers, and contended that it had made preparations to file potential
lawsuits against Sidense’s customers, including testing chips from
customers. The court agreed that these
statements weren’t subject to a defamatory meaning: whether Kilopass ultimately
sues likely depends on the outcome of its current suit against Sidense, and
Sidense didn’t raise a question of fact as to Kilopass’ intentions.
Matters were different with respect to the next set of
statements, from an email sent to several Sidense customers stating that Sidense
“has refused to take responsibility for its customers' chips that contain the
embedded Sidense OTP.” This email was sent after Kilopass subpoenaed 52 of
Sidense' customers in order to obtain evidence of direct infringement. It continued: “With Sidense indicating to the
court that it is its licensees who should be charged as direct infringers,
Kilopass had no choice but to send out the subpoena to all Sidense licensees.”
Kilopass argued that this was true, or at least opinion:
because Sidense hadn’t stipulated to direct infringement by its customers if
the products are found infringing, it was “refus[ing] to take responsibility,”
and “Sidense [is] indicating to the court that it is its licensees who should
be charged with direct infringement,” was a fair and reasonable interpretation
of Sidense's posture in the patent litigation.
The court wasn’t having it.
Arguing that one isn’t a direct infringer isn’t the same as refusing to
take responsibility for customers’ use of the licensed technology, and
certainly doesn’t suggest that licensees should be charged with direct
infringement. Even more so here, where
Sidense offers indemnification to customers (which Kilopass recognized
elsewhere, using it as evidence of Sidense’s financial troubles). The defamatory sting was that “Sidense
abandoned its customers in the face of a patent infringement suit.” But the court found that it wasn’t libelous
per se; an understanding of the defamatory nature of the statement,
specifically what “taking responsibility” means in this context, “requires at
least some understanding of extrinsic facts, including the nature of direct
versus indirect patent infringement lawsuits.”
The next set of statements charged that Sidense was not
financially stable, that it would soon be bankrupt, etc. For example, in an email to a potential customer,
Kilopass stated that “Sidense has also alleged that its licensees are the
direct infringers (if/when proven). When coupled with its possible bankruptcy
filing, it has motivated us to seek direct resolution with licensees now ...”
Kilopass argued truth, with evidence that Sidense has
operated at a loss every year since 2006, bolstered by Sidense’s unlimited
indemnification against claims of infringement for use of its technology, which
allegedly “create[s] a high-risk profile for any business.” (It’s true because I made it true, your
honor!) In the alternative, Kilopass
argued that this was just opinion.
The court disagreed.
Kilopass had no personal knowledge of Sidense’s finances, and the fact
that a startup operates at a loss doesn’t mean it’s facing bankruptcy. And, while generalized statements about a
competitor's future financial conditions are not actionable, statements
insinuating imminent financial collapse are.
Sidense alleged false advertising under the Lanham Act with
respect to two statements: first, the white paper allegedly depicting Sidense’s
product as if it were Kilopass’. The
paper stated, “Kilopass was the first to pioneer [technobabble]. Kilopass holds
patents for several flavors of the cells, including the 1T and 2T,” followed by
two illustrations labeled “Antifuse Bit Cell–2T” and “Antifuse Bit Cell–1T.”
Sidense alleged that, though this statement implied that the bit cells were
both Kilopass' patents, the 1T illustration actually depicted Sidense's 1T bit
cell. Thus, people familiar with the Sidense product allegedly would have
thought that Sidense's bit cell was merely a copy of the Kilopass bit cell and
was an infringer.
Kilopass argued that the illustration was, in fact, one of
its own bit cells. The court found that
Sidense raised a question of fact as to what product was shown. But there was no evidence that this actually
deceived or had the tendency to deceive a substantial segment of the audience
or that it was likely to influence a purchasing decision, and thus no evidence
of injury. It was not reasonable, absent
other evidence, to infer that people looking to select a vendor would (1) read
the white paper off of Kilopass’ website, (2) think that Sidense’s bit cell was
covered by Kilopass patents, and (3) therefore hesitate to choose Sidense. Without evidence, the court wasn’t willing to
infer that customers would recognize Sidense’s technology from the image, think
that Kilopass had a patent that covered Sidense’s technology, and decline to
license Sidense’s technology based on that belief.
Sidense also argued that the “Sidense continues to offer
licensing despite rejected claims” statement was false advertising. Kilopass argued that the PowerPoint in which
the statement appeared wasn’t commercial advertising, but instead an internal
education document used to “educate Kilopass' internal sales and marketing team
and inform a few select customers on the status of the litigation so that they
could be better equipped to handle questions from their customers.” It also argued that the statement hadn’t been
shown to be deceptive or material. The
court rejected these arguments: the relevant market is small enough that
statements to a few are enough to constitute commercial advertisement. Also, Sidense created a fact issue on
deceptiveness and materiality. It
provided an email who saw the presentation and was concerned
that Sidense is “still selling their IP ever [sic] after
knowing substantial portion of its patent claims have been rejected.” The email asked “Would you please confirm
whether there is still on-going or close to be done issue with Sidense? If they
are going out of business, we all need to be careful.” While the statement wasn’t libelous per se,
it had a “tendency to deceive and lessen goodwill, as it may suggest that
Sidense is licensing technology it does not have ownership in.”
Some of the same allegations—the “still licensing despite
rejected claims,” “going out of business/facing bankruptcy,” and “not taking
responsibility/told the court that its customers should be sued” ones—also
formed the basis of Sidense’s claim for intentional interference with
contractual relations.
The Kilopass email to Sidense’s customers about Sidense’s
financial viability also discussed “converting” the licensees to Kilopass
customers. The email asked for an
official letter stating that the recipient wasn’t using its Sidense license,
because “unfortunately we are likely to initiate litigation against Sidense
licensees, and we like to get this clarification so we can close the matter
with you.” Further, it said, “Sidense is
attempting to name its licensees as ‘direct infringers' as it only licenses the
GDS database.… Recently, due to concerns over Sidense viability, we have no
choice to [sic] turn our attention to the licensees. It's been a difficult
process and I am looking forward to finishing the conversion of licensees.
Fortunately, we've done three and several others in discussion. It's a long
road though.” This was enough to create
a question of fact precluding summary judgment.
Sidense also submitted evidence that three customers renegotiated their
contracts to require limitless indemnification; this also created a question of
whether Kilopass actually disrupted the licensing agreements.
However, statements made to Samsung while the parties
competed for Samsung’s business didn’t constitute intentional interference with
prospective economic advantage—these were the statements discussed above that
the 1T tech wasn’t reliable or suitable for high-volume manufacturing, and
since they weren’t defamatory they also couldn’t support an intentional
interference claim.
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