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Bar News - June 17, 2015

Intellectual Property Law: Is Patent Litigation Coming to NH Superior Court?


Patent laws are enacted by Congress based on Article I, Section 8, of the United States Constitution, and are exclusively federal. Nevertheless, last year New Hampshire joined a growing number of states that have enacted legislation to combat abusive patent litigation, and the result is that our Superior Court judges may have to adjudicate patent law issues that many might assume are within the exclusive province of federal judges.

The legislation (and similar legislation in at least 17 other states) responds to the marked increase in patent infringement claims made by so-called patent “trolls” and other “non-practicing entities” that own patents but do not use the inventions except to threaten others with claims of infringement. This trend has been particularly disturbing in the area of business method patents, which often contain concepts regarding processes for doing business with little substance. Since the enactment of the America Invents Act in 2011, review of questionable business method patents may now be obtained more easily in the US Patent Office under a new set of rules, and this has helped curtail some abusive infringement claims, but many in the business community believe additional remedies are still needed.

The New Hampshire statute, Bad Faith Assertions of Patent Infringement, is codified at RSA Ch. 359-M (eff. July 11, 2014) and creates a cause of action for “bad faith” accusations of patent infringement, threats of infringement lawsuits, and actual infringement lawsuits. Remedies available state superior court include injunctive and other equitable relief, damages, costs, and reasonable attorneys’ fees.

The statute raises potential subject matter jurisdiction issues. It does not define “bad faith,” but provides a list of the “factors” that courts should consider in determining whether an accusation of infringement was made in bad faith. Among other things, the law says courts should consider whether the “assertion of infringement is meritless.” This means that courts will likely need to evaluate the validity of the patent, to construe the inventor’s claims in the patent, and to determine whether the alleged infringer is making, selling or using a product that infringes a protected invention. These inquiries are all governed by a well-developed body of federal law.

In the past, federal courts have consistently held that state law claims premised on allegedly false statements about patents necessarily raised substantial questions of federal patent law and thus fell within the exclusive province of federal courts. See, e.g., Additive Controls & Measurement Systems Inc. v. Flowdata Inc. (Fed. Cir. 1993) (business disparagement claim based on false accusation of patent infringement “arose under” patent law because “a business disparagement claim requires plaintiff to prove... the falsity of defendant’s allegedly disparaging statements;” thus, plaintiff would have to show that its product does not infringe the patent, and this is a patent law question.) See also, Hunter Douglas Inc. v. Harmonic Design, Inc., (Fed. Cir. 1998) (claim for “injurious falsehood,” which alleged the defendant falsely claimed to “hold exclusive rights to make or sell window shades covered by one or more” patents arose under federal law because the claim turned on issues of validity and enforceability, which presented “a substantial question of federal patent law.”)

These cases extend a line of reasoning tracing back many decades. See Sears, Roebuck & Co. v. Stiffel Co. (1964) and Compco Corp. v. Day-Brite Lighting Inc. (1964) (state unfair competition laws cannot be used to extend patent protection beyond what federal patent law provides). Under this line of cases, when a claim necessarily requires adjudication of the extent of patent protection, the claims are governed exclusively by federal law.

Nevertheless, there is another line of federal cases holding that even when resolution of patent law issues is likely to be required, federal jurisdiction will not always exist. See, e.g., ClearPlay Inc. v. Abecassis (Fed. Cir. 2010) (declining to exercise federal patent law jurisdiction because, “while it is possible that patent law issues could arise in the course of litigating any one of [plaintiff’s] claims, it is equally clear that none of those claims necessarily turns on an issue of patent law.”)

More importantly, under recent case law, the critical inquiry in federal question cases has become not whether resolution of a federal issue is “necessary,” but rather whether the federal issue is “substantial.” See Grable & Sons Metal Prods. Inc. v. Darue Eng’g & Mfg. (2005). Thus, in 2013, the US Supreme Court held in Gunn v. Minton, that even when state law claims “necessarily raise disputed questions of patent law,” those questions are not always “substantial in the relevant sense.”

Gunn was a malpractice case against a patent litigator who had allegedly failed to properly invoke the “first sale” doctrine. The Court emphasized that “[b]ecause of the backward-looking nature of a legal malpractice claim, the [patent law] question is posed in a merely hypothetical sense” and its resolution would not change the real-world result of the prior federal patent litigation. The malpractice claim thus created no real possibility of inconsistent judgments between state and federal courts, and in view of the “‘especially great’” state interest in regulating lawyers, the Court concluded that the patent law issues were not sufficiently “substantial” to create federal jurisdiction.

After Gunn, the Federal Circuit held that even if patent issues were necessarily raised by state claims that were based on allegedly false statements about patent rights, such patent issues were not “substantial,” reasoning that any collateral estoppel effect would be limited to the parties, and patents that were before the state court and that “[s]uch ‘fact-bound and situation-specific’ effects are not sufficient to establish federal arising under jurisdiction.” Forrester Env. Services Inc. v. Wheelabrator Technologies Inc. (Fed. Cir. 2013) (quoting Gunn, citations omitted).

This line of cases certainly suggests that statutes like RSA Ch. 359-M validly empower state courts to decide claims alleging “bad faith” assertions of infringement. Although controlling authority remains scarce, last year the federal court in Vermont held that claims brought under Vermont’s “bad faith” statute must be heard in state, rather than federal court, because such claims do not necessarily depend on resolution of a substantial question of federal patent law. Vermont v. MPHJ Tech. Investments (D. Vt. Apr. 15, 2014), petition for mandamus dismissed (Fed. Cir. 2014).

It is important to note that, even without specific legislation like RSA Ch. 359-M, remedies to curtail abusive patent infringement claims may be available in the state courts under common law unfair competition doctrines or under more general statutes aimed at curtailing unfair or deceptive business practices, like RSA Ch. 358-A. Regardless of the particular cause of action, in these cases state court judges will likely be called upon to construe the patent; to determine the validity and enforceability of the patent; and, to decide whether the accused infringer has, in fact, violated the patent holder’s rights.

Many questions remain unanswered. Among other things, will federal courts continue to allow such claims to proceed in the state courts? If state courts start issuing decisions that undermine the federal goal of a uniform body of patent law, will Congress step in and require that all cases involving patent law be heard in the federal courts? Nevertheless, at least for the time being, business owners and others who believe they have been accused of patent infringement in bad faith have potentially potent weapons under state law.

Steven E. Grill

Steve Grill is a shareholder of Devine Millimet and practices in the firm’s Manchester office where he focuses his practice on business, financial and intellectual property litigation. He can be reached by email.

Supreme Court Rule 42(9) requires all NH admitted attorneys to notify the Bar Association of any address change, home or office.

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