A Farewell to Patents: NAPCO, Inc. v. Landmark Technology, A, LLC

A federal district court recently evaluated the North Carolina state anti-patent statute[1] and found it perfectly satisfactory for its intended purpose.[2] An anti-patent statute provides civil liability for distribution of bad faith patent infringement assertion correspondence, i.e., patent infringement cease and desist letters.[3] In this case, NAPCO brought a declaratory judgment action after receiving Landmark’s cease and desist letter. NAPCO included a claim under the state’s anti-patent statute; i.e., Landmark’s purported attempt to exhort money with a frivolous cease and desist letter.[4] Landmark moved to dismiss this claim on numerous grounds, including constitutional and federal pre-emption. However, the court accepted NAPCO’s allegations that Landmark’s cease and desist letter was brought in both objective bad faith and subjective bad faith.[5] The court also stated that (i) federal patent law does not supersede state unfair competition laws, and (ii) the statute’s criteria for imposing liability were not mandatory and therefore did not conflict with federal patent law on this basis.[6]

Also, according to the court, the objective bad faith required by federal law is satisfied if the alleged infringer contends that the patent owner did not conduct a reasonable infringement investigation.[7]  Furthermore, an injury providing standing under the statute includes an alleged infringer’s reallocation of financial assets to resolve a cease-and-desist infringement letter.[8] In the end, the court denied Landmark’s motion to dismiss liability under this anti-patent statute. [9] If the case is not appealed[10] at its completion, or by an intermediate appeal in the near future, then for now this holding is limited to one federal district court jurisdiction. However, if it is appealed to the United States Court of Appeals for the Federal Circuit and the district court is affirmed, then the entire United States must enforce anti-patent statutes.

[1]  North Carolina Abusive Patent Assertions Act at N.C.  Gen. Stat. sections 75-140 et. seq. Under a state anti-patent statute whenever a patentee sends a cease-and-desist letter the alleged infringer may immediately file a lawsuit alleging the patentee’s bad faith. This is possible even if the patentee, who is presumably the victim, has not yet filed its own patent infringement lawsuit.

[2] Napco Inc. v. Landmark Technology A, LLC, 2021 U.S. Dist. Lexis 156605 (M.D.N.C. August 19, 2021) (Slip opinion).

[3] For a discussion of the Federal Trademark Commission’s evaluation of the effect of cease-and-desist letters, please refer to the author’s two previous articles at adriennebnaumann@wordpress.com.

[4] Slip opinion at 2.

[5] Id. at 11. The court also concluded that all patent holding companies were undercapitalized and therefore experienced an unfair financial advantage in litigation because they had no assets to seize post-judgment. Slip opinion at 6. However, that some companies purportedly have a financial advantage when they pursue infringement is a business issue that is irrelevant to legally enforcing patents in which a patent holding company legitimately invested. Although North Carolina may have concluded that these companies are undercapitalized, according to the 2016 Federal Trade Commission Report many of them own thousands of patents.  In any event, such a purported advantage does not comprise a strong policy argument in favor of many alleged infringers: Many of these alleged infringers typically access huge financial resources for litigation when compared to persons who have no option but to transfer their patent ownership to patent holding companies which specialize in enforcement.

[6] Slip opinion at 10. This court did not find a conflict of the state anti- patent statute with the Equal Protection Clause of the Fourteenth Amendment, the “dormant” Commerce Clause or the First Amendment.

[7] According to the 2016 Federal Trade Commission study on patent holding companies these assertion letters are not the cause of fraudulent licensing fees from targeted entities allegedly forced to settle. Furthermore, to date most cases brought under anti-patent these statutes begin with a cease-and-desist letter directed at a single target best characterized as a business competitor.

[8] Slip opinion at 6-7.

[9] Slip opinion at 20. 

[10] This decision occurred during the process known as the pleading stage of the case.   After the parties investigate it may be concluded later in the litigation that these allegations are not true later. However, at the is very early stage by law the court may take allegations in NAPCO’s appropriate written documents as true.


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