Warn Potential Patent Infringers: But Do Your Homework First

Part Two of a Two-Part Article

Part One of this article addressed 800 Adept, Inc. v. Murex Secs., Ltd. et al. and the required level of care that must be taken before issuing notice letters to potential infringers and the legal standard under which that care may later be judged. This second installment discusses Dominant Semiconductors Sdn. Bhd. v. OSRAM Gmbh.

The Dominant Semiconductors Case

Another Federal Circuit case addressed the issue of whether the standard of care that must be exercised prior to sending a notice letter is the same as the Rule 11 standard that attorneys must satisfy before bringing an infringement claim in court. In Dominant Semiconductors Sdn. Bhd. v. OSRAM Gmbh, 524 F.3d 1254 (Fed. Cir. 2008), an OSRAM employee sent an opinion letter from outside patent counsel by e-mail to the company's colleagues, sales, and distribution partners concerning potential infringement of several OSRAM patents by Dominant products. The cover e-mail suggested that the recipients show the opinion letter to their customers. OSRAM later filed suit against Dominant for patent infringement, with Dominant asserting counterclaims for unfair competition under the Lanham Act and for unfair competition, trade libel, and interference with contractual relations and prospective economic advantage under California statutory and common law. The district court granted summary judgment in favor of OSRAM, evaluating OSRAM's conduct according to the “objectively reasonable standard” and concluding 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. The court further concluded that because Dominant's state law claims also arose out of OSRAM's good faith assertion of its patent rights, those claims were pre-empted by federal patent law.

Dominant appealed to the Federal Circuit, arguing that the standard for determining whether or not communications alleging infringement are objectively baseless should be the same standard applied in the context of sanctions under F.R.C.P. Rule 11 for improper pleadings. The Federal Circuit has often held that F.R.C.P. Rule 11 requires that before filing a suit for patent infringement, a patentee must, at a minimum, perform “a reasonable pre-filing inquiry” in the form of “an infringement analysis.” See Q-Pharma v. Andrew Jergens, Co., 360 F.3d 1295, 1302 (Fed. Cir. 2004). “[A]n infringement analysis can simply consist of a good faith, informed comparison of the claims of a patent against the accused subject matter.” Id. Dominant contended that OSRAM's outside patent counsel failed to meet the Rule 11 standard, because it did not test Dominant's devices or construe the claims of OSRAM's patents before rendering his opinion. The Federal Circuit disagreed that the Rule 11 standard should be applied in the context of a notice letter. Although Dominant's contentions “might be probative of subjective baselessness,” a finding of “objective baselessness requires a determination based on the record ultimately made in the infringement proceedings and the record of the state tort action, and not on the basis of information available to the patentee at the time the allegations were made” as required for pleadings under Rule 11. The Federal Circuit concluded that OSRAM's success in the later filed infringement suit was sufficient to establish that its earlier communications alleging patent infringement were not objectively baseless.

Conclusion

As long as infringement allegations were not “objectively baseless” when they were made, federal patent laws will pre-empt state law claims based on those allegations, including claims for tortious interference with business relationships. To minimize the risks associated with providing notice, a patent owner should take reasonable steps to investigate the infringement and be prepared to respond to accusations of “bad faith” assertion of the patent.

Michael M. Murray is a partner and Michael D. Kurzer is an associate with Milbank, Tweed, Hadley & McCloy LLP. The focus of the authors' practice is intellectual property litigation. The views expressed herein are solely those of the authors and may not be attributed to Milbank Tweed or its clients.

Part Two of a Two-Part Article

Part One of this article addressed 800 Adept, Inc. v. Murex Secs., Ltd. et al. and the required level of care that must be taken before issuing notice letters to potential infringers and the legal standard under which that care may later be judged. This second installment discusses Dominant Semiconductors Sdn. Bhd. v. OSRAM Gmbh.

The Dominant Semiconductors Case

Another Federal Circuit case addressed the issue of whether the standard of care that must be exercised prior to sending a notice letter is the same as the Rule 11 standard that attorneys must satisfy before bringing an infringement claim in court. In Dominant Semiconductors Sdn. Bhd. v. OSRAM Gmbh , 524 F.3d 1254 (Fed. Cir. 2008), an OSRAM employee sent an opinion letter from outside patent counsel by e-mail to the company's colleagues, sales, and distribution partners concerning potential infringement of several OSRAM patents by Dominant products. The cover e-mail suggested that the recipients show the opinion letter to their customers. OSRAM later filed suit against Dominant for patent infringement, with Dominant asserting counterclaims for unfair competition under the Lanham Act and for unfair competition, trade libel, and interference with contractual relations and prospective economic advantage under California statutory and common law. The district court granted summary judgment in favor of OSRAM, evaluating OSRAM's conduct according to the “objectively reasonable standard” and concluding 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. The court further concluded that because Dominant's state law claims also arose out of OSRAM's good faith assertion of its patent rights, those claims were pre-empted by federal patent law.

Dominant appealed to the Federal Circuit, arguing that the standard for determining whether or not communications alleging infringement are objectively baseless should be the same standard applied in the context of sanctions under F.R.C.P. Rule 11 for improper pleadings. The Federal Circuit has often held that F.R.C.P. Rule 11 requires that before filing a suit for patent infringement, a patentee must, at a minimum, perform “a reasonable pre-filing inquiry” in the form of “an infringement analysis.” See Q-Pharma v. Andrew Jergens, Co. , 360 F.3d 1295, 1302 (Fed. Cir. 2004). “[A]n infringement analysis can simply consist of a good faith, informed comparison of the claims of a patent against the accused subject matter.” Id. Dominant contended that OSRAM's outside patent counsel failed to meet the Rule 11 standard, because it did not test Dominant's devices or construe the claims of OSRAM's patents before rendering his opinion. The Federal Circuit disagreed that the Rule 11 standard should be applied in the context of a notice letter. Although Dominant's contentions “might be probative of subjective baselessness,” a finding of “objective baselessness requires a determination based on the record ultimately made in the infringement proceedings and the record of the state tort action, and not on the basis of information available to the patentee at the time the allegations were made” as required for pleadings under Rule 11. The Federal Circuit concluded that OSRAM's success in the later filed infringement suit was sufficient to establish that its earlier communications alleging patent infringement were not objectively baseless.

Conclusion

As long as infringement allegations were not “objectively baseless” when they were made, federal patent laws will pre-empt state law claims based on those allegations, including claims for tortious interference with business relationships. To minimize the risks associated with providing notice, a patent owner should take reasonable steps to investigate the infringement and be prepared to respond to accusations of “bad faith” assertion of the patent.

Michael M. Murray is a partner and Michael D. Kurzer is an associate with Milbank, Tweed, Hadley & McCloy LLP. The focus of the authors' practice is intellectual property litigation. The views expressed herein are solely those of the authors and may not be attributed to Milbank Tweed or its clients.