interpreting state law narrowly, court denies bad faith patent assertion claim

Digital Ally, Inc. v. Utility Associates, Inc., 2017 WL
1197561, No. 14-2262-CM (D. Kan. Mar. 30, 2017)
The parties compete in the market for in-car video and
surveillance systems (which makes the court’s conclusion below that they’re not
competitors a bit odd—the court really seemed annoyed with the plaintiff’s
arguments, which may have led it to stampede its conclusions).  Digital Ally sued Utility for antitrust
violations, bad faith assertion of patent infringement, false advertising, tortious
interference, defamation, and trade secret misappropriation; the court granted
summary judgment in Utility’s favor.
Utility owns a patent “directed to a system for capturing,
transmitting, and storing potential evidentiary video and related information
in mobile environments which is transferred to a home base data repository for
archival, retrieval, and evidentiary use.” In 2013, Utility mailed letters to
potential customers who were at that time customers of competing suppliers
stating that it owned the patent, and that:
As your office considers the
purchase of mobile video surveillance systems for its public safety operations,
you should consider the consequences of purchasing such mobile video
surveillance systems from third parties that are not licensed under the Boykin
patent. If your office purchases mobile video systems that are covered by the
claims of the Boykin patent and that are not licensed under the Boykin patent,
[you are] liable for patent infringement as a result of [your] use of such
infringing mobile video surveillance systems. Infringement may subject [you] to
an injunction against further use of the infringing mobile video surveillance
systems and may result in an award of damages not less than a reasonable
royalty, treble damages, attorney fees, and prejudgment interest. Moreover,
Utility is entitled to collect damages directly from the user of the infringing
mobile video surveillance systems leaving [you] left with whatever value any
indemnity from the seller of the infringing mobile video surveillance systems
might be worth if the seller does not have substantial financial resources.
Therefore, in order to avoid the
adverse consequences that may result from the purchase of infringing and
unlicensed mobile surveillance systems, your office should consider purchasing
its mobile video surveillance system needs from Utility.
In June 2014, Utility issued a press release stating that it
was suing Digital for patent infringement, though it didn’t file the lawsuit
until 8 days later.  Utility’s CEO also
sent a message to Digital’s lender, Hudson Bay, stating that Utility had filed
a patent infringement suit against Digital and that he’d like to “walk over and
have a chat about what you plan to do with the Digital Ally assets if they
default on your loan. … Reasonable chance your workout team will contact me
sooner or later, so might as well start a dialogue now.” [Wow.] Hudson Bay didn’t
respond.  Digital filed a petition for
inter partes review of all claims of the patent, and the PTAB found claims 1–7,
9–10, 12–25 to be unpatentable, declining to review claim 8 and finding claim
11 not unpatentable.
The antitrust claims failed because they’re antitrust
Digital alleged that Utility sent “demand letters to Digital
customers threatening them with suit for patent infringement in bad faith and
in violation of [GA. CODE ANN. § 10-1-27A (2014) ] despite knowing that the
patent was potentially invalid and not knowing whether Digital’s products
violated the patent.” That statute prohibits any person from making a bad faith
assertion of patent infringement. It defines “demand letter” as “a letter,
e-mail, or other written communication asserting or claiming that the target
has engaged in patent infringement.” It defines “target” as any person “[w]ho
has received a demand letter or against whom an assertion or allegation of
patent infringement has been made…has been threatened with litigation or
against whom a lawsuit has been filed alleging patent infringement” or “whose
customers have received a demand letter asserting that use of such person’s
product, service, or technology infringes a patent.” If the letter does not
contain the patent number, contact information for the patent holder, and
factual allegations describing how the target is infringing the patent, the
court may consider those facts as evidence that bad faith assertion occurred. Courts
can also consider other factors, such as whether the assertion of patent infringement
is meritless, and whether the patent holder knew or should have known it was
The court found that the Georgia law wasn’t retroactive, and
Utility’s letters were sent before it became effective.  Also, the court found that the letters weren’t
“demand letters,” because they didn’t assert current liability for patent
infringement.  [That … seems like not the
reading of the letters that Utility intended when it sent them.]  “They do not claim that any entity is
currently liable for patent infringement. They merely suggest that recipients
consider investigating whether products they are purchasing fall under the
claims of the patent, and that if so, recipients investigate whether their
supplier is licensed or needs to be.” Digital didn’t provide testimony from any
recipients explaining their interpretation of the letters.
The court also found that subjective and objective bad faith
was required to avoid a conflict with federal patent law. Under federal law, “a
competitive commercial purpose is not of itself improper, and bad faith is not
supported when the information [in the notice] is objectively accurate.” “Sending
notices can prevent an entity from later asserting a defense of lack of
knowledge in a patent infringement case based, for example, on induced patent
infringement.”  Under the Georgia
statute, if the letters were demand letters, some factors would support a
finding of bad faith, including an absence of “factual allegations concerning
the specific areas in which the target’s products, services, and technology
infringe the patent or are covered by the claims in the patent.” However, “there
was no reason for defendant to do research about whether individual letter
recipients were purchasing products covered by the patent, because the purpose
of the letter was to inform recipients of defendant’s rights under the patent
and to try to win their business.”  Lack
of pre-mailing analysis of each recipient’s products to determine whether they
were covered by the patent could also indicate bad faith, but “this factor
would more appropriately fit with the scenario where a patent holder sent
demand letters to a competitor, not a potential customer,” or if the defendant
had suggested that recipients should take a license.
False advertising: Digital argued that Utility’s letters and
press releases falsely claimed that plaintiff’s products infringed on the patent,
falsely portrayed its financial position, and falsely stated that Utility had
sued Digital for patent infringement. 
Because of the intersection with patent law, the court applied bad faith
despite the lack of a general requirement for Lanham Act false
advertising.  Again, the court found no
bad faith. “Plaintiff cites no authority suggesting that patent holders are
required to investigate whether all prospective infringers of their patent in
fact infringe, before sending out notices that they own the applicable patent
and intend to enforce their rights under it.”
Also, Digital didn’t show that Utility’s claims were false.
The letters informed recipients of Utility’s patent ownership, “include[ed]
some puffery regarding the commercial success of the patent, and warn[ed] the
recipient that they should ‘consider the consequences of purchasing [products]
from third parties that are not licensed under the Boykin patent.’” Nothing
there was false.  Nor was the press
release.  Among Digital’s objections were
the statement that Utility was “concerned that collecting a judgment resulting
from a potential successful counter-suit might be in question.”   Digital didn’t show that this expression of
concern was a false statement about Digital’s financial position.  And stating that Utility had sued, even when
that wasn’t yet true, wasn’t shown to be harmful, especially since Utility sued
shortly thereafter. 
Tortious interference claims also failed for want of malice.  And defamation claims failed because of lack
of falsity.  Trade secret claims failed
because of failure to show damages.

from Blogger

This entry was posted in Uncategorized and tagged , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s