Napco, Inc. v. Landmark Tech. A, LLC

Citation555 F.Supp.3d 189
Decision Date19 August 2021
Docket Number1:21-CV-00025
Parties NAPCO, INC., Plaintiff, v. LANDMARK TECHNOLOGY A, LLC, Defendant.
CourtU.S. District Court — Middle District of North Carolina

Kelly Alfred Cameron, Natalia L. Talbot, Waldrep Wall Babcock & Bailey PLLC, Winston-Salem, NC, Richard T. Matthews, Robert Van Arnam, Williams Mullen, Raleigh, NC, for Plaintiff.

Christina D. Trimmer, Samuel A. Long, Jr., Shumaker, Loop & Kendrick, LLP, Charlotte, NC, for Defendant.


Thomas D. Schroeder, Chief District Judge

This is a patent case in which Plaintiff NAPCO, Inc. ("NAPCO") seeks a declaration that a patent of Defendant Landmark Technology A, LLC ("Landmark") is invalid as well as recovery for alleged abusive patent practices. Before the court is the motion of Landmark to dismiss Count III of NAPCO's first amended complaint, which alleges a violation of the North Carolina Abusive Patent Assertions Act ("the Act" or "the APAA"), N.C. Gen. Stat. § 75-140 et seq., a statute that has not been construed by any court. (Doc. 17.) Landmark argues that NAPCO has failed to plead the essential elements of the offense, that the Act is preempted by federal law, and that the Act violates the First and Fourteenth Amendments to the U.S. Constitution as well as the Commerce Clause. (Doc. 18.) NAPCO has responded in opposition (Doc. 39), and the Attorney General of North Carolina submitted an amicus brief to defend the validity of the Act (Doc. 49). A separate amicus brief was submitted by various companies and retail and technology groups also in defense of the Act. (Doc. 50.) NAPCO further moves for expedited, limited discovery. (Doc. 37.) For the reasons set forth below, both motions will be denied.

A. Factual Background

NAPCO's first amended complaint makes the following factual allegations, which the court accepts as true for the purposes of the motion to dismiss:

NAPCO is a North Carolina corporation and owner of ("the website"). (Doc. 15 ¶ 3.) Vulcan, NAPCO's wholly-owned subsidiary, operates the website. (Id. )

Landmark is a limited liability company organized under the laws of North Carolina and with its principal place of business in Durham. (Id. ¶ 5.) Its annual reports with the North Carolina Secretary of State indicate that its business is "Patent Licensing." (Id. ¶ 6.) Landmark owns the rights to U.S. Patent No. 7,010,508 C1 ("the ‘508 patent") (Doc. 15-1 at 2), which it has sought to enforce against potential infringers through the issuance of demand letters (Doc. 15 ¶¶ 18-19).1 These demand letters are allegedly identical and include the same offer to license the patent for a fee of $65,000. (Id. ¶¶ 31-32.)

In October 2020, NAPCO received a demand letter from Landmark that accused NAPCO and the website of infringing on the ‘508 patent and that offered a non-exclusive license to the ‘508 patent for $65,000. (Id. ¶¶ 12, 36; Doc. 15-1.) The demand letter indicated that the $65,000 license fee represents "a substantial discount to the historic licensing price of Landmark's portfolio, and w[ould] not be available in the event of litigation." (Doc. 15 ¶ 43; Doc. 15-1 at 3.) The demand letter did not include the name or address of the patentholder, nor did it include an element-by-element claim analysis or description of services that allegedly infringed the ‘508 patent. (Doc. 15 ¶¶ 36, 38.) Landmark requested that NAPCO respond to the demand letter within 15 days. (Id. ¶ 43.)

NAPCO contends that the website does not infringe on the ‘508 patent and that Landmark knew or should have known that fact, and that Landmark willfully disregarded the falsity of its assertion in sending NAPCO the demand letter. (Id. ¶¶ 105-08.) Based on these allegations, NAPCO's amended complaint seeks a declaration of noninfringement on the ‘508 patent (Count I) and a declaration of invalidity of the ‘508 patent (Count II). (Id. ¶¶ 110-21.) NAPCO also brings a claim against Landmark for asserting patent infringement in bad faith in violation of the APAA (Count III). (Id. ¶¶ 122-32.) Landmark now moves to dismiss Count III of the amended complaint, arguing (1) NAPCO has failed to plead the essential elements of a claim under the APAA; (2) the APAA is preempted by federal law, both facially and as applied to this case; and (3) the APAA is unconstitutional because it violates the First and Fourteenth Amendments to the U.S. Constitution as well as the dormant Commerce Clause. (Doc. 18.) The motion is now fully briefed and ready for resolution. (See Docs. 39, 49, 50, 53, 54.)

NAPCO has also moved for expedited, limited discovery as to "matters relating to the corporate structure, status, liquidity, and historical assertions of patent infringement by ... Landmark ... to support a possible motion for bond under N.C. Gen. Stat. § 75-144." (Doc. 38 at 1; see Doc. 37.) This motion is also fully briefed and ready resolution. (See Docs. 38, 51.)

B. Background of the Abusive Patent Assertions Act

At issue in this case is the North Carolina Abusive Patent Assertions Act, enacted by the North Carolina General Assembly in 2014. See N.C. Gen. Stat. 75-140 et seq. In promulgating the Act, North Carolina joined a growing number of states that have passed similar laws in an attempt to address the problems presented by non-practicing entities, known colloquially as "patent trolls,"2 that make bad faith assertions of patent infringement. See Jason D. Gardner & Stephen J.E. Dew, North Carolina Abusive Patent Assertions Act: A Powerful Gun, but Will It Hold Up in a Gunfight?, 17 N.C. J. L. & Tech. 391, 410-15 (2016).

The Act prohibits a person from making "a bad faith assertion of patent infringement." N.C. Gen. Stat. § 75-143. The statute does not define "bad faith assertion" but lists factors a court may consider to determine whether a defendant has made a bad faith assertion, including certain deficiencies in the demand letter; a demand for payment of a fee within an unreasonably short period of time; actual or constructive knowledge by the patentholder that the assertion of patent infringement was meritless; the deceptive nature of the assertion; and whether the person has sent the same demand to multiple recipients and against a wide variety of products without demand letters reflecting differences between recipients. Id. § 75-143(a). The statute also lists factors a court may consider as evidence that the assertion was not made in bad faith, including that the demand letter was not deficient; the defendant made a good faith effort to establish that the plaintiff infringed the patent; the defendant made a substantial investment in the use of the patent or in the production or sale of a product or item covered by the patent; and the defendant demonstrated good faith business practices in previous efforts to enforce the patent or a substantially similar patent. Id. § 75-143(b).

With this understanding of the Act, the court now turns to the motions before it.

A. Motion to Dismiss
1. Legal Standard

While the Federal Circuit has exclusive jurisdiction over appeals involving patent issues, application of Federal Rule of Civil Procedure 12(b)(6) in patent cases is a procedural question governed by the law of the regional circuit. W.L. Gore & Assocs. v. Medtronic, Inc., 850 F. Supp. 2d 630, 632 (E.D. Va. 2012) (citing McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1355–56 (Fed. Cir. 2007) ). Therefore, this court applies the rule of the Fourth Circuit. See Polymer Indus. Prods. Co v. Bridgestone/Firestone, Inc., 347 F.3d 935, 937 (Fed. Cir. 2003) ; see also McZeal, 501 F.3d at 1356.

Federal Rule of Civil Procedure 8(a)(2) provides that a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. (8)(a)(2). Under Rule 12(b)(6), "a complaint must contain sufficient factual matter ... to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. In considering a Rule 12(b)(6) motion, a court "must accept as true all of the factual allegations contained in the complaint," Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (per curiam), and all reasonable inferences must be drawn in the plaintiff's favor. Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). " Rule 12(b)(6) protects against meritless litigation by requiring sufficient factual allegation ‘to raise a right to relief above the speculative level’ so as to ‘nudge[ ] the[ ] claims across the line from conceivable to plausible.’ " Sauers v. Winston-Salem/Forsyth Cnty. Bd. of Educ., 179 F. Supp. 3d 544, 550 (M.D.N.C. 2016) (alteration in original) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ). "[T]he complaint must ‘state[ ] a plausible claim for relief’ that permit[s] the court to infer more than the mere possibility of misconduct based upon ‘its judicial experience and common sense.’ " Coleman v. Md. Ct. App., 626 F.3d 187, 190 (4th Cir. 2010) (alterations in original) (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 ). Thus, mere legal conclusions are not accepted as true, and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

In ruling on a motion to dismiss, courts may consider documents attached to either the complaint or the motion to dismiss without converting the motion into one for summary judgment so long as the documents are "integral to the complaint and authentic." Philips v. Pitt Cnty. Mem. Hosp., 572 F.3d 176, 180 (4th Cir. 2009).

2. Pleading the Essential Elements of a Violation

Landmark first argues...

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