No Clear and Convincing Evidence of Bad Faith in Infringement Allegations

In 800 Adept, Inc. v. Murex Securities, Ltd., the Federal Circuit concluded that there was not clear and convincing evidence on which a reasonable jury could find that Targus acted in bad faith by asserting objectively baseless patent infringement allegations.

According to the decision written by Senior Circuit Judge Plager,

State tort claims against a patent holder, including tortious interference claims, based on enforcing a patent in the marketplace, are “preempted” by federal patent laws, unless the claimant can show that the patent holder acted in “bad faith” in the publication or enforcement of its patent. Id. at 1355; Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1336-37 (Fed. Cir. 1998). As the Supreme Court said long ago, “Patents would be of little value if infringers of them could not be notified of the consequences of infringement, or proceeded against in the courts. Such action, considered by itself, cannot be said to be illegal.” Virtue v. Creamery Package Mfg. Co., 227 U.S. 8, 37-38 (1913).

The issue in this case is whether Adept presented to the jury sufficient facts, if believed, that a reasonable jury could find for Adept on the issue of Targus’s bad faith. This “bad faith” standard has objective and subjective components. Dominant Semiconductors Sdn. Bhd. v. Osram GmbH, 524 F.3d 1254, 1260 (Fed. Cir. 2008). The objective component requires a showing that the infringement allegations are “objectively baseless.” Globetrotter Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367, 1375 (Fed. Cir. 2004). The subjective component relates to a showing that the patentee in enforcing the patent demonstrated subjective bad faith. See id. Absent a showing that the infringement allegations are objectively baseless, it is unnecessary to reach the question of the patentee’s intent. See id.

Infringement allegations are objectively baseless if “no reasonable litigant could realistically expect success on the merits.” Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993); see also GP Indus., Inc. v. Eran Indus., Inc., 500 F.3d 1369, 1374 (Fed. Cir. 2007); Globetrotter, 362 F.3d at 1375-76. To prove at trial that Targus’s actions were objectively baseless, Adept was required to offer clear and convincing evidence that Targus had no reasonable basis to believe that its patent claims were valid or that they were infringed by Adept’s customers. See Golan v. Pingel Enter., Inc., 310 F.3d 1360, 1371 (Fed. Cir. 2002). Because of the value placed on property rights, which issued patents share, see 35 U.S.C. § 261 (“[P]atents shall have the attributes of personal property.”); Consol. Fruit-Jar Co. v. Wright, 94 U.S. 92, 96 (1876) (“A patent for an invention is as much property as a patent for land.”); Kearns v. Gen. Motors Corp., 94 F.3d 1553, 1555 (Fed. Cir. 1996) (“By statutory and common law, each patent establishes an independent and distinct property right.”), and in light of the underlying jurisprudential basis for the bad faith standard, rooted as it is in Supreme Court cases and Constitutional principles, see Globetrotter, 362 F.3d at 1375-77, a party attempting to prove bad faith on the part of a patentee enforcing its patent rights has a heavy burden to carry.

The jury verdict was that Adept had proved its case. Targus appeals the trial court’s denial of its motion for judgment as a matter of law, arguing that there was no clear and convincing evidence on which a reasonable jury could conclude its actions were objectively baseless. On the record before us, for the reasons we shall explain, we believe Targus is correct that Adept has not successfully carried its burden.

We first address the question of whether Targus could have had a reasonable belief that its patents were valid, beginning with the ’897 patent. The main dispute regarding the validity of the ’897 patent was whether Neville discloses a two-table embodiment, which would anticipate the claims of the ’897 patent. While the preferred embodiment in Neville uses a single-table TNTTN database, one sentence in the written description states that “the correlational database may be relational or hierarchical,” which implies that the database could have more than one table. ’111 patent col.9 ll.50-51. The issue before us is not the validity vel non of the ’897 patent, but whether the evidence was such that Targus could not have had a reasonable basis for believing that the patent was valid when it asserted the patent against Adept’s customers.

Adept alleges that Targus knew the disclosure in the Neville patents anticipated the claims of the ’897 patent, and that Targus misrepresented the scope of Neville to the PTO so that the ’897 patent claims would survive the reexamination requested by Adept in 1999. Adept’s argument sounds more like an allegation of subjective bad faith on Targus’s part, a question that is not at issue absent the predicate showing that the claims asserted by Targus were objectively baseless. Furthermore, none of the evidence cited in Adept’s brief supports its theory that Targus acted deceptively. The evidence introduced at trial shows that many people, including the examiner who conducted the reexamination and even Adept’s own patent attorney, understood Neville to disclose only a one-table system. Notably, Targus did not file suit against any of Adept’s customers until after reexamination of the ’897 patent had been completed. On this record, a reasonable jury could not have found by clear and convincing evidence that Targus lacked a reasonable basis to believe that the claims of the ’897 patent were not anticipated by Neville.

Adept also asserts that Targus knew that Neville anticipated Targus’s one-table claims—claim 1 of the ’608 patent and claim 4 of the ’982 patent. Targus argues that it reasonably believed Neville did not disclose the automated table-build process required by the Targus claims. This was a reasonable view, as evidenced by the opinion of Targus’s expert at trial that Neville does not teach a fully automated system. The contrasting opinion of Adept’s expert does not render Targus’s position unreasonable. As with the ’897 patent, we conclude that no reasonable jury could have found that Adept met its burden to show that there was no reasonable basis on which Targus could believe in the validity of its one-table claims.

Regarding the ’131 patent, Adept argues that Targus knew it was subject to an on-sale bar based on work that Targus did for Federal Express, and that Targus actively concealed that information from the PTO. The record indicates, however, that Targus reasonably believed that that work was experimental, even if ultimately the jury in this case may have found otherwise. Furthermore, during prosecution of the application that led to the ’131 patent, Targus submitted a declaration to the PTO detailing the development and testing of the FedEx system. Under these circumstances, no reasonable jury could find that Adept proved by clear and convincing evidence that Targus lacked a reasonable basis for believing that the claims of the ’131 patent were not subject to the on-sale bar.

With respect to Targus’s other patents, Adept alleges that the examiner was led astray so that he failed to consider Neville in combination with Riskin or other references, even though Neville and Riskin and multiple other references were before him. Yet Adept cites no evidence demonstrating that Targus knew its claims were invalid for obviousness or showing that Targus somehow caused the examiner not to combine prior art references. On this record, no reasonable jury could have found that a belief by Targus that its patents were valid had no reasonable basis.

We must also consider whether there was a basis for Targus to reasonably believe that Adept’s customers infringed the Targus patents. Adept essentially argues that Targus could not have had a reasonable basis for asserting its patents against Adept’s customers because Targus did not succeed at trial on its infringement claims against Adept. Courts, however, “must ‘resist the temptation to engage in post hoc reasoning by concluding’ that an ultimately unsuccessful ‘action must have been unreasonable or without foundation.’” Prof’l Real Estate, 508 U.S. at 60 n.5 (quoting Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421-22 (1978)); see also Dominant, 524 F.3d at 1261 & n.6 (citing Prof’l Real Estate, 508 U.S. at 60 n.5). Thus the result of Targus’s infringement claims in this case is not dispositive of whether Targus’s claims against Adept’s customers were reasonable.

Targus presented evidence that it reasonably believed Adept’s customers were infringing the Targus patents. For instance, Adept admitted that the database it provided to two of its customers was in the same format as the database used in the Targus system. Also, Targus did not assert its claims against another Adept customer until after Targus’s in-house counsel had prepared claim charts explaining Targus’s infringement theories. Adept has not cited any contradictory evidence that was introduced at trial. On this record, no reasonable jury could find by clear and convincing evidence that Targus had no reasonable basis for believing that Adept’s customers were infringing its patents.

Adept’s tortious interference claim with respect to its customer Allstate Motor Club (“AMC”) was based on Targus’s infringement claim against its own customer, Vail Systems. In providing routing services to AMC, Vail used data received from AMC, which included a database that Allstate had received from Adept. After learning about this arrangement through discovery in this case, Targus believed that Vail infringed its patents and filed claims against Vail, which subsequently sought indemnification from AMC. While Adept alleges that Targus and Vail colluded to pressure AMC, Adept fails to cite evidence showing that Targus’s belief that Vail infringed its patents was unreasonable. As with Targus’s infringement allegations against Adept’s customers, no reasonable jury could find that Adept met its burden to show that Targus lacked a reasonable basis for believing that Vail infringed its patents.

In sum, we conclude that there is not clear and convincing evidence on which a reasonable jury could find that Targus acted in bad faith by asserting objectively baseless patent infringement allegations. Thus Adept’s state-law tortious interference claim is preempted by federal patent law. The trial judge erred in denying Targus’s motion for judgment as a matter of law on this claim, and we therefore reverse the trial court’s judgment.