Dominant v. OSRAM (CAFC 2007-1456)

In September 2003, OSRAM patent counsel Richard Schachtner alleged infringement of nine patents by six of Dominant's LED products. The patents at issue: 6,613,247, 6,245,259, 6,592,780, 6,376,902, 6,469,321, 6,573,580, 6,459,130, 6,576,930, and 6,432,745.

OSRAM's outside patent counsel, Richard Schachtner of the German law firm Epping Hermann Fisher, wrote an opinion letter ("Schachtner Letter") on September 17, 2003, stating his opinion that several of Dominant's LED products were infringing OSRAM patents. In the letter, Schachtner stated:

It is our opinion that according to the present information all DOMINANT LED products except colored Spice LEDs make unauthorized use of at least one most of them of at least two or more of OSRAM's patent families directed to LED housings and white light emitting LEDs. All white light emitting LEDs of Dominant make use of at least three, most of them of even [sic] four respective OSRAM patent families. In our opinion it can be assumed, that with the help of the respective patents listed in the enclosed table in the most important countries the import, use and sale of most DOMINANT LED products can be stopped.

Finally we want to emphasize that we do not mean to imply by silence herein that there are not other OSRAM patents which are infringed by LED products manufactured and offered by DOMINANT.

Schachtner attached to his letter a two-page table in which he compared Dominant LED products to OSRAM patents directed to LED housing and white light emitting LEDs. The table listed six types of Dominant LED products; their "Product Characteristics according to Dominant's Catalogue Summary dated March 2003"; "Related OSRAM patent rights"; brief observations about the common features of the Dominant products and the OSRAM patents; and conclusions about infringement. According to the table, Schachtner believed that Dominant was infringing the following United States patents: three particle size patents (the '247, '259, and '780 patents), four lead frame patents, three of which he believed Dominant might infringe "at least under doctrine of equivalents" (the '902, '321, '580 and '130 patents), a conversion principle patent (the '930 patent), and a mini sidelooker patent (the '745 patent).

OSRAM Director of Distribution, Michael Wohs, forwarded the Schachtner letter via email to company "colleagues, sales and distribution partners".

Michael Wohs, OSRAM's Director of Distribution in Europe and Emerging Markets, attached the Schachtner Letter to an email ("Wohs Email") he sent on September 25, 2003 to the company's "Colleagues, Sales and Distribution Partners." Wohs stated in the email that he was sending the "official statement of the OSRAM's patent counsel concerning 'DOMINANT' products." He also suggested to the recipients of the email that they might wish to show the Schachtner Letter to their customers along with the following brief statement:

Dear Customer attached You'll find the official statement of the OSRAM's patent counsel concerning potential infringement of several OSRAM patents with "DOMINANT" products. We therefore have the possibility (if necessary with the rulings of legal authorities) to stop the import, sale and use of the related "DOMINANT" products in the most important countries. In consequencies [sic] the final endproduct [sic] of your customers must be withdrawn from the market.

OSRAM later filed a complaint against Dominant before the ITC alleging infringement of seven of the nine patents mentioned in the Schachtner letter. The complaint included two additional patents (6,066,861 and 6,277,301), and was subsequently amended to include one additional patent (6,716,673).

Dominant moved for summary judgment of non-infringement. Denied.

Post trial, the Administrative Law Judge (ALJ) issued an initial determination of infringement of 6,716,673, and non-infringement or invalidity of the other nine.

Following a trial, the ALJ issued an initial determination in May 2005. The ALJ found that Dominant's super-small LEDs infringed the '673 patent in violation of 35 U.S.C. § 271(a) and that there was a domestic industry with respect to that patent. In re Certain Light Emitting Diodes and Products Containing Same, Inv. No. 337-TA-512 (Int'l Trade Comm'n May 10, 2005). The ALJ did not, however, find infringement of OSRAM's nine other patents. He found the particle size patents invalid for indefiniteness under 35 U.S.C. § 112; that Dominant did not infringe, and OSRAM had not satisfied the domestic industry requirement with respect to, the '930 patent; and that Dominant's accused products did not infringe the lead frame patents.

The ITC disagreed with the ALJ, with regard to invalidity of several of the OSRAM patents. Remanded to the ALJ for infringement determination. Final determination by the ITC found infringement of a couple more of the OSRAM patents; CAFC decision to reverse ITC finding of non-infringement added several more to the list.

In short, Dominant was up infringement creek, without a paddle.

In retaliation, shortly after filing its answer to OSRAM's initial complaint before the ITC, Dominant filed suit alleging unfair competition, intentional interference with contractual relations, interference with prospective economic advantage, and trade libel, due to the Schachtner letter and Wohs email.

Dominant commenced this lawsuit on August 13, 2004, shortly after filing its answer to OSRAM's complaint before the ITC. Dominant asserted claims 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. Underlying Dominant's claims was its contention that in the Property Rights Letter in 2001, the Schachtner Letter and Wohs Email in 2003, and the 2004 Press Releases, OSRAM made false and misleading infringement allegations about Dominant's products and asserted its patent rights in bad faith.

OSRAM moved for summary judgment arguing that that Schachtner letter was obviously well founded as evidenced by the ITC rulings. Summary judgment granted, finding that the allegations in the Schachtner letter and Wohs email were "not objectively baseless and thus were not made in bad faith".

OSRAM moved for summary judgment, arguing that there was no evidence that its pre-litigation communications had been made in bad faith because it relied on the advice of attorney Schachtner and because the rulings in the ITC case established that Schachtner's opinion was well-founded. In opposing summary judgment, Dominant focused on the reliability-or, as Dominant asserted, the unreliability-of the findings in the Schachtner Letter and the Wohs Email. First, Dominant contended that OSRAM's failure to provide evidence substantiating the Schachtner Letter's infringement analysis gave rise to a genuine issue of material fact as to the reliability of the analysis. Second, Dominant argued that the assertions in the Schachtner Letter revealed their own unreliability and could not have been supported by information available to Schachtner at the time. Finally, Dominant argued that the Schachtner Letter and the Wohs Email created a false impression that all of Dominant's products infringed OSRAM's patents.

The district court granted OSRAM's motion for summary judgment on June 21, 2005. Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, No. C04-3319 JF (N.D. Cal. June 21, 2005). It found that the infringement allegations in the Wohs Email and the Press Releases were "not objectively baseless and thus were not made in bad faith." Id., slip op. at 7. The court concluded 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 district court did not consider the Property Rights Letter because Dominant had asserted no basis to attribute Infineon's actions to OSRAM. With no evidence of objective unreasonableness, the court determined, OSRAM could not be held liable on Dominant's claims for unfair competition. 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 preempted by federal patent law.

The CAFC busted out the case law regarding acting in "bad faith", and further addressed the "objective baselessness" standard.

We have stated that "federal patent law bars the imposition of liability for publicizing a patent in the marketplace unless the plaintiff can show that the patent holder acted in bad faith." Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1336 (Fed. Cir. 1998). Federal patent law likewise preempts state-law tort liability when a patentee in good faith communicates allegations of infringement of its patent. See, e.g., Zenith Elecs. Corp. v. Exzec, Inc., 182 F.3d 1340, 1355 (Fed. Cir. 1999). As a result, "bad faith must be alleged and ultimately proven, even if bad faith is not otherwise an element of the tort claim."

Bad faith includes separate objective and subjective components. Mikohn Gaming Corp v. Acres Gaming, Inc., 165 F.3d 891, 897 (Fed. Cir. 1998). We have held that the bad faith standard of Zenith cannot be satisfied "in the absence of a showing that the claims asserted were objectively baseless." Globetrotter, 362 F.3d at 1375. To be objectively baseless, the infringement allegations must be such that "no reasonable litigant could reasonably expect success on the merits." GP Indus., Inc. v. Eran Indus., Inc., 500 F.3d 1369, 1374 (Fed. Cir. 2007) (citing Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993)).

The objective baselessness standard that we applied in Globetrotter to communications alleging patent infringement originated in Professional Real Estate, where the Supreme Court held that "an objectively reasonable effort to litigate cannot be sham regardless of subjective intent." Prof'l Real Estate, 508 U.S. at 57. In elaborating on what is required to satisfy the objective standard, the Court stated that "[a] winning lawsuit is by definition a reasonable effort at petitioning for redress and therefore not a sham."

Dominant argued that final outcome should have no bearing on whether initial allegations were made in bad faith, citing case law designed to protect parties that lose in litigation. Unfortunately for Dominant, OSRAM won in front of the ITC, and no amount of misinterpretation of case law would change that.

At oral argument in the present case, Dominant contended that the remainder of footnote 5 in Professional Real Estate supports its assertion that the ultimate outcome of the litigation has no bearing on whether the allegations were objectively baseless at the outset. In the referenced passage, however, the Court said only that when a defendant has lost the underlying litigation, "a court must 'resist the understandable temptation to engage in post hoc reasoning by concluding' that an ultimately unsuccessful 'action must have been unreasonable or without foundation.'" Id. (citing Christiansburg Garment Co. v. Equal Employment Opportunity Comm'n, 434 U.S. 412, 421-22 (1978)). Here, however, by the time the district court granted the motion for summary judgment at issue in this appeal, OSRAM had successfully defeated Dominant's motion for summary judgment of non-infringement in the underlying litigation, and the ALJ had found infringement of one of OSRAM's asserted patents.

The Court's subsequent discussion in Professional Real Estate suggests that a successful outcome of the underlying litigation refutes a conclusion that the litigation was objectively baseless at the outset. In its discussion of what is required to prove objective baselessness, the Court stated that under the objective prong, "sham litigation must constitute the pursuit of claims so baseless that no reasonable litigant could realistically expect to secure favorable relief." Therefore, a plaintiff seeking to prove bad faith in an underlying lawsuit must "prove that the defendant lacked probable cause to institute an unsuccessful civil lawsuit and that the defendant pressed the action for an improper, malicious purpose." (emphasis added). This suggests that when an underlying infringement suit was not unsuccessful, there is no basis to determine that the plaintiff in that suit lacked probable cause or, as it applies to the present situation, had no objective basis to claim infringement before filing suit.

Dominant further argued for a new standard of objective baselessness, after losing under the old standard.

Despite the settled standard in this area, Dominant argues that we should apply a new standard for objective baselessness: the same one that we have applied in the context of requests for sanctions under Federal Rule of Civil Procedure 11. Dominant asserts that this Court has affirmed imposition of Rule 11 sanctions when a patentee sued for patent infringement before testing the accused product. See Q-Pharma, Inc. v. Andrews Jergens, Co., 360 F.2d 1295, 1300-01 (Fed. Cir. 2004) ("In the context of patent infringement actions, we have interpreted Rule 11 to require, at a minimum, that an attorney interpret the asserted patent claims and compare the accused device with those claims before filing a claim alleging infringement."). Dominant urges that to be consistent, this court should impose the same standard in lawsuits alleging unfair competition arising from assertion of patent rights, a standard that it contends OSRAM would not be able to meet, because (Dominant argues) Schachtner did not test the accused devices before rendering his opinion.

There are two problems with this argument. First, we have never stated that the Rule 11 standard is the same as the standard applied in the line of cases following Professional Real Estate and Globetrotter. Indeed, the purpose and impact of the Globetrotter standard, which applies to pre-litigation infringement allegations, is entirely distinct from that of Rule 11, which applies to pleadings filed in court.

Second, even if the standards were the same, it is unclear how that would help Dominant. Dominant has not identified a single case in which, when a party had not lost the underlying litigation, a court awarded Rule 11 sanctions against that party for failing to conduct a sufficient infringement analysis prior to filing suit. Dominant disputes that OSRAM's infringement allegations were vindicated in the ITC proceedings. But the ALJ had denied Dominant's motion for summary judgment of non-infringement as to each of OSRAM's asserted patents, thus essentially rejecting the argument that OSRAM's infringement allegations were baseless. And the ALJ, after trial, found infringement of one of OSRAM's patents.

The CAFC would not be bamboozled, maintaining that since Dominant was in fact found to infringe, OSRAM's allegations of infringement could never be considered objectively baseless.

[Dominant's] focus in the district court and on appeal is on its contention that the Schachtner Letter was based on inadequate research. Dominant argues that there is no indication that Schachtner tested Dominant's products, construed the claims of any of OSRAM's patents, or considered an earlier analysis of certain Dominant products suggesting that infringement was an open question. Dominant contends that as a result, OSRAM had no reasonable basis to rely on the Schachtner letter when it made its later communications to the marketplace.

Dominant's contentions might be probative of subjective baselessness, but they do not help to show that a jury reasonably could find that Dominant could meet its burden of proving by clear and convincing evidence that OSRAM's infringement allegations were objectively baseless. In GP Industries, we stated that "[s]ubjective considerations of bad faith are irrelevant if the [challenged] assertions are not objectively baseless." 500 F.3d at 1375 (citing Prof'l Real Estate, 508 U.S. at 60). We found in that case that the trial court's analysis of bad faith had "encompassed subjective considerations and unconvincing objective factors." Id. We stated, for example, that the fact that the accused party "did not show that any expert advice or opinions were sought before [it] made the allegations of infringement" was "not [a] convincing objective factor[ ]." Though the patents and products at issue in this case are undoubtedly more complex than the gutter covers at issue in GP Industries, the distinction between the objective and subjective elements of the bad faith standard remains viable.

In the face of OSRAM's evidence showing that the ALJ had held that a trial was necessary to determine whether Dominant infringed most of the patents referenced in the Schachtner Letter, and that the ALJ later found infringement as to one of those patents, Dominant produced no evidence of objective baselessness at all-in other words, it produced no evidence that Schachtner's claims of infringement were factually unsound. Dominant's focus on the contention that there was no indication that Schachtner had performed a sufficient analysis, though arguably relevant on the issue of subjective intent, had nothing to do with the issue of whether Schachtner's contentions were objectively baseless. In other words, 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. Because Dominant failed to identify a genuine issue of fact regarding whether OSRAM's communications were objectively baseless, entry of summary judgment was appropriate.

Affirmed.