Gfi, Inc. v. Bean Station Furniture

• Decision Date: 02 October 2003
• Docket Number: No. CIV. 197CV01185.,CIV. 197CV01185.
• Citation: 286 F.Supp.2d 663
• Court: U.S. District Court — Middle District of North Carolina
• Parties: GFI, INC., Plaintiff, v. BEAN STATION FURNITURE; and Futuristic, Inc., Defendants.

286 F.Supp.2d 663

GFI, INC., Plaintiff, v. BEAN STATION FURNITURE; and Futuristic, Inc., Defendants.

No. CIV. 197CV01185.

United States District Court, M.D. North Carolina.

October 2, 2003.

Peter G. Pappas, Adams Kleemeier Hagan Hannah & Fouts, Greensboro, NC Jems J. Foster, Douglas R. Wolf, Matthew B. Lowrie, Wolf Greenfield & Sacks, P.C., Boston, MA, for GFI, Inc.

George L. Little, Jr., John Steven Gardner, Kilpatrick Stockton, L.L.P., Winston-Salem, NC, for Bassett Furniture Industries, Inc.

David William Sar, James T. Williams, Jr., Robert James King, III, William C. Scott, Brooks Pierce McLendon Humphrey & Leonard, Greensboro, NC, for Benchraft, Inc.

Norwood Robinson, John N. Taylor, Jr., Robinson & Lawing, Winston-Salem, NC, for Dynasty Furniture Mfg. Ltd., Bean Station Furniture, Futuristic, Inc.

Clifton Ted Hunt, Charlotte, NC, Dion J. Shanley, Hickman Goza & Gore, Oxford, MS, for Walter E. Durling.

Mark S. Thomas, Maupin Taylor & Ellis, P.A., Raleigh, NC, for Comfortline, L.L.C.

James Lee Lester, Edward Wellington Rilee, Rhodes & Mason, P.L.L.C., Greensboro, NC, Gilbert J. Andia, Jr., Maccord Mason, P.L.L.C., Greensboro, NC, for C & R Custom Furniture, Excalibur Fine Furniture, Inc.

W. Thad Adams, III, Adams Evans, P.A., Charlotte, NC, William G. McElwain, David B. Bassett, Hale & Dorr, Washington, DC, for Palliser Furniture, Inc.

MEMORANDUM OPINION

BULLOCK, District Judge.

In November 1997, plaintiff GFI filed a patent infringement action against multiple defendants, including Bean Station Furniture and Futuristic, Inc. ("BS & F"). BS & F filed pendant state law counterclaims charging GFI with unfair trade practice and tortious interference with prospective economic advantage in violation of North Carolina common law. As a result of concurrent litigation in which another district court found GFI's patent invalid, GFI dismissed its claims against BS & F and the other North Carolina defendants. BS & F's state law counterclaims remain, and because they arise from the same transaction as the federal claims and can be adjudicated expeditiously, this court retains jurisdiction under 28 U.S.C. § 1367. Pursuant to Federal Rule of Civil Procedure 56, GFI has moved for summary judgment on the counterclaims. For the following reasons, the court will grant GFI's motion for summary judgment.

FACTS

GFI, formerly known as the Gentry Gallery, Inc., is a Mississippi-based furniture manufacturer and retailer. In January 1991, GFI filed an application in the United States Patent and Trademark Office ("PTO"), seeking to patent a one-armed sectional sofa with a console positioned between two reclining chairs (the "'244 patent"). GFI obtained a patent for this furniture design in November 1991.

Soon after the PTO issued the patent, GFI sued a competitor for infringement in the United States District Court for the District of Massachusetts ("the Massachusetts court"). After a full trial, the Massachusetts court determined that GFI's patent was valid. See Gentry Gallery, Inc. v. Berkline Corp., 939 F.Supp. 98, 106 (D.Mass.1996), aff'd in part, rev'd in part, 134 F.3d 1473 (Fed.Cir.1998) (reversing the judgment of validity only in regard to GFI's patent claims that did not limit the location of the recliner controls to the console). In its ruling, the Massachusetts court specifically addressed and dismissed allegations that GFI acted inequitably before the PTO. Id. at 101. Following the Massachusetts court ruling, GFI sent letters to other potential infringers, including BS & F and their customers, notifying them of the '244 patent and threatening suit to defend it. GFI also printed the names of the alleged infringers in a trade journal.

In February 1997, GFI brought an infringement action in the United States District Court for the Northern District of Mississippi ("the Mississippi court"). In November 1997, GFI filed another infringement suit in the United States District Court for the Middle District of North Carolina. Many defendants to the North Carolina suit filed counterclaims seeking a declaratory judgment that the '244 patent was invalid. BS & F also filed a counterclaim for unfair trade practice and tortious interference with prospective economic advantage. The North Carolina litigation was stayed pending decision by the Mississippi district court.

On March 2, 2000, the Mississippi court found GFI's patent invalid on grounds of inequitable conduct. GFI, Inc. v. Franklin Corp., 88 F.Supp.2d 619, 621 (N.D.Miss.2000). Specifically, the court found that GFI withheld five references of prior art that were highly material to the '244 patent prosecution. See id. at 632. Accordingly, the court entered judgment for defendants after concluding that GFI's failure to disclose these references "manifested a culpable state of mind evidencing an intent to deceive the PTO" and that "[n]o evidence exists tending to show that [GFI] had a good faith reason for withholding the references." Id. GFI appealed this ruling, and the Federal Circuit affirmed the Mississippi court's judgment. GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1275 (Fed.Cir.2001).

Defendants in the Mississippi case subsequently moved for attorneys' fees pursuant to 35 U.S.C. § 285, arguing that GFI was "attempting to enforce a patent it knew to be unenforceable." GFI v. Franklin Corp., 227 F.Supp.2d 602, 606 (N.D.Miss.2002). The Mississippi court specifically found that "the filing of this lawsuit was neither frivolous nor undertaken in bad faith." Consequently, the court declined to grant defendants' motion for attorneys' fees. Id. at 607.

As a result of the Mississippi case and appeal, GFI dismissed its infringement claims pending in North Carolina. When GFI dismissed its claims, the defendants dismissed their counterclaims for declaratory judgment. However, BS & F's state law claims for unfair trade practice and tortious interference with prospective economic advantage remain. These claims arise from GFI's 1996-97 communications to potential infringers and customers.

DISCUSSION

I. Standard of Review

Summary judgment must be granted if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). The moving party bears the burden of persuasion on the relevant issues. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The non-moving party may survive a motion for summary judgment by producing "evidence from which a [fact finder] might return a verdict in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When the motion is supported by affidavits, the non-moving party must set forth specific facts showing that there is a genuine issue for trial. See Fed.R.Civ.P. 56(e); see also Cray Communications, Inc. v. Novatel Computer Sys., Inc., 33 F.3d 390, 393-94 (4th Cir.1994) (moving party on summary judgment motion can simply argue the absence of evidence by which the non-movant can prove her case). In considering the evidence, all reasonable inferences are to be drawn in favor of the non-moving party. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. However, "[t]he mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the [fact finder] could reasonably find for the plaintiff." Id. at 252, 106 S.Ct. 2505.

II. Unfair Trade Practice and Tortious Interference Claims¹

BS & F alleges that GFI's notification of intent to enforce its patent constitutes unfair trade practice and tortious interference. As a general rule, patentholders are permitted to enforce their patent rights by threatening potential infringers with suit. See Virtue v. Creamery Package Mfg. Co., 227 U.S. 8, 37-38, 33 S.Ct. 202, 57 L.Ed. 393 (1913); Mikohn Gaming Corp. v. Acres Gaming, Inc., 165 F.3d 891, 897 (Fed.Cir.1998). Further, "federal patent law bars the imposition of liability [under federal or state law] for publicizing a patent in the marketplace unless the plaintiff can show that the patentholder acted in bad faith." Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1336 (Fed.Cir.1998), overruled on other grounds by Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1359 (Fed.Cir.1999). Accordingly, to state a claim for unfair trade practice and tortious interference, "bad faith is a prerequisite ... without it, the claim is preempted by patent law." Id. at 1355.

To make the requisite showing of bad faith, BS & F must demonstrate that GFI publicized its '244 patent inaccurately or deceptively. See Mikohn, 165 F.3d at 897 (reasoning that "a threshold showing of incorrectness or falsity, or disregard for either, is required in order to find bad faith in the communication of information about the existence ... of patent rights"). To survive summary judgment, BS & F must make this showing by clear and convincing evidence. See Golan v. Pingel Enter., Inc., 310 F.3d 1360, 1371 (Fed.Cir. 2002) (stating in regard to state unfair competition and tort claims that "the party challenging such statements must present affirmative evidence sufficient for a reasonable jury to conclude that the patentee acted in bad faith, in light of the burden of clear and convincing evidence that will adhere at trial"); Dow Chem. Co. v. Exxon Corp., 139 F.3d 1470, 1476 n. 6 (Fed.Cir. 1998) (noting that the non-movant on a motion for summary judgment on a state law unfair competition claim must produce evidence, and not mere allegations, of the patentholder's knowledge of his patent's unenforceability).

Courts evaluate claims of bad faith on a case-by-case basis. Zenith Elecs. Corp. v. Exzec. Inc., 182 F.3d 1340, 1354 (Fed.Cir. 1999). The party asserting bad faith must overcome the presumption of good faith enjoyed by a patentholder who asserts his duly granted patent. See C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1369 (Fed. Cir.1998). BS &...