Lite-Netics, LLC v. Nu Tsai Capital LLC

• Decision Date: 27 October 2022
• Docket Number: 8:22CV314
• Parties: LITE-NETICS, LLC, Plaintiff/Counter-Defendant, v. NU TSAI CAPITAL LLC, d/b/a HOLIDAY BRIGHT LIGHTS, Defendant/Counterclaimant.
• Court: U.S. District Court — District of Nebraska

LITE-NETICS, LLC, Plaintiff/Counter-Defendant, v. NU TSAI CAPITAL LLC, d/b/a HOLIDAY BRIGHT LIGHTS, Defendant/Counterclaimant.

No. 8:22CV314

United States District Court, D. Nebraska

October 27, 2022

MEMORANDUM AND ORDER REGARDING DEFENDANT/COUNTERCLAIMANT'S MOTION FOR PRELIMINARY INJUNCTION AND PRELIMINARY INJUNCTION

Brian C. Buescher, United States District Judge

In its October 7, 2022, Memorandum and Order Regarding Defendant/Counterclaimant's Motion for Temporary Restraining Order, Filing 26,^[1] this Court observed that the rough-and-tumble of competition is a hallmark of the American marketplace, but the American marketplace does not tolerate unfair competition based on false and baseless statements by one vendor about another vendor. The Court granted a temporary restraining order (TRO) in this case, because the Court concluded preliminarily that plaintiff and counter-defendant Lite-Netics had crossed that line. Now after further briefing and a preliminary injunction hearing the Court concludes that the TRO should be continued as a preliminary injunction during the pendency of this litigation or until dissolved by court order. Thus, for the reasons stated below, the Court grants the September 30, 2022, Motion for Preliminary Injunction, Filing 12, by defendant/counterclaimant Nu Tsai Capital LLC, d/b/a Holiday Bright Lights (HBL).^[2]

I. INTRODUCTION

A. Factual Background

This background is drawn from Lite-Netics's Complaint and HBL's Counterclaim. It has been augmented, where necessary, with information from the parties' submissions concerning the Motion for TRO and the Motion for Preliminary Injunction, including supplemental briefing, evidence submitted after the TRO was issued, Lite-Netics's First Amended Complaint filed October 16, 2022, and arguments presented at the preliminary injunction hearing.

1. The Parties, Patents, and Claims

Lite-Netics alleges that it is a Texas limited liability company with a place of business in Lubbock, Texas. Filing 1 at 2 (¶ 4); Filing 31 at 2 (¶ 4).^[3] Lite-Netics alleges that it sells patented magnetic light strands used to illuminate homes and businesses during the holidays. Filing 1 at 1 (¶ 2); Filing 31 at 1 (¶ 2). It identifies the patents at issue here as U.S. Patent No. 7,549,779 (the ‘779 Patent) and U.S. Patent No. 8,128,264 (the ‘264 Patent) (collectively, the Asserted Patents), which the inventor and company founder, Shawn Genenbacher, has assigned to Lite-Netics. Filing 1 at 3 (¶ 10); Filing 31 at 3 (¶ 10). Both patents describe the invention as “a light fixture assembly.” Filing 1-1 at 2 (‘779 Patent, abstract); Filing 31-1 at 2 (same); Filing 1-2 at 2 (‘264 Patent, abstract); Filing 31-2 at 2 (same).^[4] The light fixture assembly has “[a] neodymium disc magnet” (‘779 Patent) or “[a] strong magnet” (‘264 Patent) “embedded in the base, thereby allowing the assembly to be mounted magnetically to metal surfaces.” Filing 1-1 at 2 (‘779 Patent, abstract); Filing 1-2 at 2 (‘264 Patent, abstract). Lite-Netics alleges that “[t]he patented products provide users with an easy, damage-free installation and effortless take-down.” Filing 1 at 1 (¶ 2); Filing 31 at 1 (¶ 2).

In its Complaint filed August 31, 2022, (and its First Amended Complaint filed October 16, 2022), Lite-Netics provides the following image as an example of one embodiment of a magnetic light fixture disclosed in the Asserted Patents and the following photograph of its actual product:

(Image Omitted)

Filing 1 at 4 (¶ 13), 5 (¶ 17); Filing 31 at 4 (¶ 13), 5 (¶ 17). Referring to Fig. 9A, Lite-Netics explains, “The magnetic light fixture includes a socket (8) configured to couple with a light bulb (7) at a first end and a base (3) at a second end. A magnet (1) is configured to be embedded in the base (3).” Filing 1 at 3 (¶ 13); Filing 31 at 3 (¶ 13). The Asserted Patents explain that the light fixture assembly also includes “[a] plastic protective coating ,” “two retaining clips ,” an optional “side clip ,” and “a copper conductor .” Filing 1-1 at 7 (‘779 Patent at 3:36-37, 3:46, 3:54); Filing 1-2 at 6 (‘264 Patent at 3:57-59, 3:62, 4:1).

Lite-Netics alleges that, by 2017, Genenbacher had noticed that competing lighting companies were offering certain clip-on magnetic light fixtures that he believed infringed the Asserted Patents when added to a light string. Filing 1 at 6 (¶ 20); Filing 31 at 6 (¶ 20). Genenbacher instructed his counsel to send over thirty cease-and-desist letters, and one recipient was HBL. Filing 1 at 6 (¶ 20); Filing 31 at 6 (¶ 20). The record does not indicate that there were any communications between Lite-Netics and HBL for the next five years. Subsequently, in spring 2022, Lite-Netics alleges that it learned that HBL is marketing a “Magnetic Cord” and a “Magnetic Clip” that Lite-Netics believes infringe the Asserted Patents. Filing 1 at 6 (¶ 21); Filing 31 at 6 (¶ 21). Lite-Netics filed its Complaint for Willful Patent Infringement against HBL initiating this action on August 31, 2022. Filing 1. Count I of its Complaint asserts direct infringement, inducing infringement, and contributing to infringement of one or more claims of the ‘779 Patent. Filing 1 at 7-9 (¶¶ 24-35). Count II of its Complaint asserts direct infringement, inducing infringement, and contributing to infringement of one or more claims of the ‘264 Patent. Filing 1 at 9-11 (¶¶ 35- 48).

After the Court issued a TRO, Lite-Netics filed its First Amended Complaint for Willful Patent Infringement on October 16, 2022. Filing 31. Count I of its First Amended Complaint again asserts direct infringement, inducing infringement, and contributing to infringement of one or more claims of the ‘779 Patent. Filing 31 at 8-10 (¶¶ 27-39). Count II of its First Amended Complaint again asserts direct infringement, inducing infringement, and contributing to infringement of one or more claims of the ‘264 Patent. Filing 31 at 10-12 (¶¶ 40-52). One of the principal differences between the original Complaint and the First Amended Complaint is that the latter expressly alleges that HBL's direct infringement was “under literal infringement, the doctrine of equivalents, or both.” Filing 31 at 8 (¶ 29); Filing 31 at 10 (¶ 42).

In its Counterclaim filed September 30, 2022, HBL alleges that it is an Illinois limited liability company with a principal place of business in Omaha, Nebraska. Filing 11 at 1 (unnumbered first paragraph and ¶ 2).^[5] HBL denies that its products infringe either of the Asserted Patents. It alleges that, among other differences, the Magnetic Cord has two embedded magnets per fixture protruding from the base, rather than one magnet flush with the base, and that the magnets it uses do not have the “pull strength” claimed in the Asserted Patents. Filing 11 at 2 (¶ 8). HBL alleges that it owns its own patent, U.S. Patent No. 11,333,309 (the ‘309 Patent), for its Magnetic Cord design. Filing 11 at 4 (¶ 14). HBL also contends that its Magnetic Clip is a separate “slip on” device that is not a light fixture assembly. Filing 11 at 2-3 (¶ 8).

HBL acknowledges that Lite-Netics's Complaint includes the following photograph of HBL's Magnetic Clip with a light fixture, and Lite-Netics includes with the Second Declaration of Shawn Genenbacher the following photograph of unmounted HBL Magnetic Clips:

(Image Omitted)

Filing 1 at 7 (¶ 21) (image of mounted clip); Filing 31 at 7 (¶ 21) (image); Filing 13 at 10 (acknowledging that Lite-Netics includes photographs of the accused products in its Complaint); Filing 33-1 at 11 (¶ 19) (colored arrows inserted by Mr. Genenbacher omitted).

HBL includes the ‘309 Patent as Exhibit H to its Counterclaims. Filing 11-8. One image of the patented product from the ‘309 Patent and a photo of the actual Magnetic Cord^[6] from Lite-Netics's Complaint are shown below:

(Image Omitted)

Filing 11 at 2 (‘309 Patent, cover page image); Filing 1 at 6 (¶ 21) (photograph of device); Filing 31 at 6 (¶ 21) (same). The ‘309 Patent explains that “two magnets 20 and 50 [with 50 not shown in the image above] protrude from the base of a socket ,” with “a pocket 30 shaped to receive a magnet 50” and “drain holes 40 for the socket .” Filing 11-8 at 7 (‘309 Patent, 2:17-18, 2:24-25, 2:65). The ‘309 Patent explains further that “a channel between magnets 20 and 50 further helps the circulation of air when socket is magnetically fixed to a surface.” Filing 11-8 at 7 (‘309 Patent, 2:59-61).

In its Counterclaim against Lite-Netics, HBL asserts six causes of action. Count I asserts a federal claim for unfair competition and false advertising under 15 U.S.C. § 1125(a). Filing 11 at 7-9 (¶¶ 28-36). Count II asserts a claim of unfair competition under the Nebraska Consumer Protection Act, Neb. Rev. Stat. § 59-1602. Filing 11 at 9-10 (¶¶ 37-43). Count III asserts a claim for deceptive trade practices in violation of the Nebraska Deceptive Trade Practices Act, Neb. Rev. Stat. §§ 87-302 and 87-303. Filing 11 at 10-11 (¶¶ 44-49). Count IV asserts tortious interference with business relations and prospective business relations. Filing 11 at 11-12 (¶¶ 50-58). Count V asserts defamation. Filing 11 as 12-13 (¶¶ 59-65). Count VI asserts a claim of bad faith patent infringement communications under Colorado law, Colo. Rev. Stat. § 6-12-102 (2018). Filing 11 at 13-14 (¶¶ 66-69).^[7]

2. The Parties' Communications about Infringement

The focus for purposes of the Motion now before the Court is Lite-Netics's recent conduct in the marketplace accusing HBL of misconduct. HBL alleges that it has been marketing and selling its Magnetic Clip product since before 2017. Filing 11 at 3 (¶ 9). It acknowledges that in 2017, it received a cease-and-desist letter from Lite-Netics and/or Mr Genenbacher, through counsel. Filing 11 at 3 (¶ 9)....