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Federal Circuit Vacates Preliminary Injunction Barring Patent Owner From Notifying Customers Of Competitor’s Alleged Infringement
02/28/2023On February 17, 2023, the Court of Appeals for the Federal Circuit (CAFC) vacated a decision of the United States District Court for the District of Nebraska in Case No. 8:22-cv-00314-CRZ, where Judge Brian C. Buescher had granted a preliminary injunction against appellant plaintiff. Lite-Netics LLC v. Nu Tsai Capital LLC, __ F.3d __ (Fed. Cir. February 17, 2023). In its order, the CAFC held that the district court abused its discretion by barring plaintiff from suggesting to customers that appellee defendant is a patent infringer and that they might be sued.
In August 2022, plaintiff, a maker of holiday string lights, sued defendant, a competitor, for infringement of two related patents—the ’779 patent and the ’264 patent. Each patent claims light bulb fixture assemblies designed to be strung together, wherein each assembly has a magnetic base to facilitate hanging. Defendant’s accused holiday light product uses two half-disk magnets and includes drain holes between the two intended to drain moisture, rather than the single, full-disk magnet shown in the figures of the asserted patents. Plaintiff also accused defendant’s holiday light magnetic clip product of infringement, which clip product can be attached to a non-magnetic holiday light fixture and has a single magnet.
After filing its suit, plaintiff sent notices to its customers (in particular, stores that sell the lights), some of which were also defendant’s customers, informing them that defendant was an allegedly infringing competitor in the market and stating plaintiff’s intent to enforce its patent rights.
After these notices were sent, defendant filed counterclaims in district court, including for state-law tortious interference and defamation, and moved, based on these counterclaims, for a temporary restraining order and a preliminary injunction against certain infringement allegation speech by plaintiff. The district court granted the temporary restraining order, and shortly thereafter, issued a preliminary injunction barring plaintiff from suggesting that defendant is a patent infringer, that defendant has copied plaintiff’s lights, or that defendant’s customers might be sued.
The district court opinion recognized, correctly according to the CAFC, that state-law tort claims based on the communication of patent rights, such as those asserted by plaintiff, “are preempted by federal patent laws, unless the claimant can show that the patent holder acted in bad faith.” The district court, however, concluded that plaintiff’s infringement allegations were so clearly meritless that their assertion was in bad faith, and thus that state law applied. On that basis, the district court ruled that defendant would likely succeed on its tortious interference and defamation claims and that the preliminary injunction should issue. Plaintiff appealed.
The CAFC explained that the “requirement of a showing of bad faith as prerequisite to applying state tort law to speech about infringement rests partly on First Amendment principles.” The CAFC elaborated that, “[a]lthough bad faith in this context has both objective and subjective elements, the former is a threshold requirement.” The CAFC then explained that a patent-infringement allegation is objectively baseless only if “no reasonable litigant could realistically expect success on the merits.”
On appeal, plaintiff argued that its infringement allegations concerning at least its ’779 patent were not objectively baseless. The CAFC agreed.
Specifically, the CAFC found that the preliminary injunction was based on three legal conclusions improperly reached by the district court with respect to the ’779 patent: (i) that the claimed “magnet” is limited to a single magnet with a unitary structure; (ii) that plaintiff is estopped from asserting infringement under the doctrine of equivalents; and (iii) that the claim terms “attached” and “integrally attached” must be “something more than touching.” The CAFC concluded that plaintiff’s position on all three of those disputes had not been shown, at the current stage of the litigation (before, e.g., claim-construction proceedings or possible expert discovery), to be objectively baseless. This conclusion, according to the CAFC, “require[d] vacatur of the preliminary injunction, without finally resolving the underlying disputes about claim construction, prosecution history estoppel, or other issues.”
