Thursday, June 13, 2013

What does it take to plead bad faith assertion of patent claims?

E.I. Du Pont de Nemours and Co. v. Heraeus Precious Metals North America Conshohocken LLC, 2013 WL 2468257 (D. Or.) (magistrate judge)

DuPoint sued defendants alleging patent infringement. Heraeus counterclaimed for violation of the Lanham Act based on a July 2012 press release. The court granted DuPont’s motion to dismiss for failure to allege that Du Pont acted in bad faith.  Heraeus amended its counterclaim, partially successfully. To start with, the court took judicial notice that Hereaus’s former head of R&D had been criminally indicted for stealing trade secrets.

The counterclaims alleged that DuPont misrepresented the legitimacy of Heraus’s products.  The press release was titled, “DuPont Addresses Patent Protection at Solarbuzz China Conference; Intellectual Property Theft Growing in Competitive Climate of Photovoltaics.”  It described “IP theft” in the industry, mentioned DuPont’s patent suit against Heraeus, and said that IP theft was bad.  Hereaus alleged that the intimation that Hereaus committed “IP theft” and patent infringement was false.  It further alleged that DuPont knew or should have known that its accusations were false, because “theft” requires intent and DuPont’s patent infringement suit didn’t allege theft or even intentional/willful infringement; DuPont allegedly knew that Heraeus couldn’t have intended to “steal” that which Heraeus did not know existed.

Hereaus also alleged that DuPont made knowingly false statements to certain of Heraeus’s Taiwan customers about the US patent lawsuit, including about DuPont’s confidence that it would prevail and about the customers’ potential liability if they bought from Heraeus.

In addition to the ordinary elements of a Lanham Act claim, a false advertising claim based on statements about patents has to be made in bad faith. DuPont argued that Heraeus failed to plead fraud with particularity (side note: since bad faith/intent is ordinarily not a part of a Lanham Act claim, it doesn’t ordinarily sound in fraud; but some courts have not noticed this).  Of course, even under Rule 9(b), state of mind may be generally averred.  The magistrate judge found that Heraeus identified the who, what, when, where, why, and how of its bad faith claim, including the reasons why DuPont knew or should have known of the invalidity of its asserted patent and of Heraeus’s noninfringement thereof.  DuPont’s arguments generally went more to the merits than to pleading standards.

DuPont argued that the indictment of the R&D head made its statements true, but the indictment didn’t indicate that the defendant took his actions on behalf of or to benefit Hereaus; rather, the indictment alleges actions in direct violation of Heraeus’s employment agreement, making Heraeus a possible victim rather than a beneficiary.

As to the statements to the Taiwan customers, DuPont argued that Heraeus failed to plead a substantial effect on commerce within the scope of Congress’s power to regulate. Hereaus responded that its allegations shouldn’t be taken in isolation—rather, they showed that DuPont engaged in widespread dissemination to the relevant marketplace. The court agreed.  The allegations sufficiently indicated that DuPont’s statements were an organized campaign of commercial advertising and promotion for the relevant market.

However, the allegations regarding communications with Taiwan customers failed to meet Rule 9(b)’s requirements because they weren’t specific enough (they didn’t identify the customers or the exact statements).  Heraeus said it was worried about “confidentiality.”  It could have filed a pleading in redacted for with an unredacted version under seal if its worries were legitimate.

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