A Leap of Good Faith When Cries of They Copied Us Cannot Be Stopped

Written by: Robert W. Servilio & Jeremy Anapol

LINE-NETICS, LLC v. NU TSAI CAPITAL LLC

 Before Lourie, Taranto, and Stark.  Appeal from the U.S. District Court for the District of Nebraska.

 Summary: Courts cannot enjoin speech by patentholders to third parties alleging infringement where there is an objectively reasonable basis for the allegations.

 Line-Netics sued Nu Tsai Capital (d.b.a. Holiday Bright Lights, “HBL”) for patent infringement. Line-Netics also sent notices to HBL’s customers, alleging, among other things, that HBL was infringing two Line-Netics patents. HBL filed state-law counterclaims, including for tortious interference and defamation, and moved to enjoin Line-Netics from sending such notices.

 The district court granted a preliminary injunction forbidding Line-Netics from making statements suggesting HBL is a patent infringer. Because federal patent law and the First Amendment preempt “state-law liability for a patentholder’s good faith conduct in communications asserting infringement of its patent and warning about potential litigation,” bad faith was a prerequisite to this injunction. The district court found Line-Netics acted in bad faith because its allegations of infringement were “objectively baseless,” for a variety of reasons.

 The Federal Circuit rejected each of the district court’s reasons for finding that the infringement allegations were “objectively baseless,” by identifying arguments supporting that the allegations were “at least reasonable.” Therefore, the Federal Circuit found that the district court abused its discretion by issuing the injunction.

Editor: Paul Stewart