Summer Infant (USA) v. Tomy Int'l

• Decision Date: 25 October 2019
• Docket Number: C.A. No. 17-549MSM
• Parties: SUMMER INFANT (USA), INC., Plaintiff/Counter Defendant, v. TOMY INTERNATIONAL, INC., Defendant/Counter Claimant.
• Court: U.S. District Court — District of Rhode Island

SUMMER INFANT (USA), INC., Plaintiff/Counter Defendant, v. TOMY INTERNATIONAL, INC., Defendant/Counter Claimant.

C.A. No. 17-549MSM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND

October 25, 2019

MEMORANDUM AND ORDER

PATRICIA A. SULLIVAN, United States Magistrate Judge.

Plaintiff Summer Infant (USA), Inc., ("Summer Infant") filed a post-fact-discovery motion for leave to amend its counterclaim against Defendant TOMY International, Inc. ("TOMY"). ECF No. 47. Summer Infant seeks to add Count II, a claim of bad faith patent infringement pursuant to a recently enacted state law that has yet to be construed by any state court, R.I. Gen. Laws § 6-41.1-1, et seq. TOMY argues that the motion should be denied because: (1) Summer Infant exhibited undue delay in bringing the motion; and (2) the amendment is futile (a) because R.I. Gen. Laws § 6-41.1-1, et seq., is aimed at deterring patent trolls¹ (which TOMY unambiguously is not) and the proposed Count II otherwise fails to state a claim, and (b) because whether there had been good or bad faith in communications asserting infringement is reserved by the United States Constitution to federal patent law so that Summer Infant's assertion of R.I. Gen. Laws § 6-41.1-3 is preempted.

Rule 15 of the Federal Rules of Civil Procedure governs amendments to pleadings and directs that courts "should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2);see Foman v. Davis, 371 U.S. 178, 182 (1962); Mirpuri v. ACT Mfg., Inc., 212 F.3d 624, 627 (1st Cir. 2000). A motion to amend should be granted unless it is "apparent" that it would reward undue delay, bad faith, or dilatory motive on the part of the movant. Tiernan v. Blyth, Eastman, Dillon & Co., 719 F.2d 1, 4 (1st Cir. 1983). A court should deny leave to amend if the proposed amendment would be futile. Resolution Tr. Corp. v. Gold, 30 F.3d 251, 253 (1st Cir. 1994). When leave to amend is sought prior to the completion of discovery and the filing of motions for summary judgment, the standard for futility is whether the complaint as amended would survive a motion to dismiss under Rule 12(b)(6). Ferreira v. City of Pawtucket, 365 F. Supp. 2d 215, 216 (D.R.I. 2004). "A district court pondering whether to grant or deny a motion for leave to amend . . . must consider the totality of the circumstances." Nikitine v. Wilmington Tr. Co., 715 F.3d 388, 390 (1st Cir. 2013).

With a brand-new state enactment, not yet interpreted by the state, the question of whether Summer Infant's proposed new Count would be futile requires the Court to focus on the language of the law, but otherwise to write on a clean slate.² R.I. Gen. Laws § 6-41.1-1, et seq., is self-described as a "narrowly focused act, . . . to facilitate the efficient and prompt resolution of patent-infringement claims." Id. § 6-41.1-1(h). Consistent with this interpretative approach, it contains a narrowly circumscribed and very specific set of "factors" that are indicia of "bad faith," id. § 6-41.1-3(b), and a different set of "factors" that evince a lack of bad faith. Id. § 6-41.1-3(c). The enactment reflects the General Assembly's concern with a select form of bad faith in the assertion of a claim of patent infringement.³

Mindful of this specificity, the Court has taken a common-sense look at the facts (assuming them to be true)⁴ that Summer Infant has assembled in its proposed amended counterclaim to support Count II, the new state-law bad faith claim. This review reveals that reliance on R.I. Gen. Laws § 6-41.1-3 is misplaced in this case. The only unambiguous fact tipping towards of a finding of "bad faith" under § 6-41.1-3(b) seems to be the extremely short time limit in TOMY's initial cease and desist letter (three days).⁵ See id. § 6-41.1-3(b)(4). Otherwise, Summer Infant's factual foundation for the "bad faith" factors does not hold up. For example, as conceded in the proposed pleading, TOMY's cease and desist letter does have a list of detailed factual allegations - a thirteen-page "claim chart" was appended, which sets out the fruits of TOMY's pre-cease and desist letter analysis and nullifies the existence of virtually all of the "bad faith" (as defined in § 6-41.1-3) on which Summer Infant relies. ECF No. 47-1 ¶ 21. Nor does Summer Infant's proposed pleading allege that there was a complete absence ofanalysis, as required in § 6-41.1-3(b)(2); rather, it alleges that TOMY's analysis was not "sufficient" or "adequate." ECF No. 47-1 ¶¶ 47, 52. Relatedly, the pleading alleges only that TOMY did not produce documents reflecting such an analysis. Id. ¶ 44. However, Summer Infant has attached the testimony of TOMY's Fed. R. Civ. P. 30(b)(6) witness, who did not say there was no pre-cease and desist letter analysis; to the contrary, she said the analysis was done by legal counsel but that no documents were found at TOMY reflecting the work. ECF No. 47-14; see also ECF No. 49-5 (TOMY witness explains pre-cease and desist letter investigation).

On the other side of the ledger, the pleading establishes the existence of key facts evidencing lack of bad faith, as listed in § 6-41.1-3(c). For example, TOMY is clearly invested in and has commercialized its patent, and it is the original assignee of the inventor, id. § 6-41.1-3(c)(4-5). ECF No. 47-1 ¶ 2. When these factors are placed on the scale, the balance overwhelmingly reveals a lack of bad faith, as the concept is defined by § 6-41.1-1, et seq. In short, except (arguably) for the requirement of a response in an unreasonably short amount of time, Summer Infant's pleading fails to allege facts establishing any of the factors evidencing bad faith, all while conceding the existence of key facts foundational to an absence of bad faith. This analysis compels the conclusion that Summer Infant's proposed pleading is futile because it fails to state a plausible claim under R.I. Gen. Laws § 6-41.1-3.

The proposed claim has a second potential futility problem - preemption.⁶ "[F]ederal patent law preempts state-law tort liability for a patentholder's good faith conduct in communications asserting infringement of its patent and warning about potential litigation."Globetrotter Software, Inc. v. Elan Computer Grp., Inc., 362 F.3d 1367, 1374 (Fed. Cir. 2004); see Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1930 (2016) (federal patent law - 35 U.S.C. § 284 - provides for "punitive or 'increased' damages . . . in a case of willful or bad-faith infringement."); Golan v. Pingel Enter., Inc., 310 F.3d 1360, 1370 (Fed. Cir. 2002) ("[F]ederal 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 patent holder acted in bad faith," as defined under federal law). Such state-law claims survive federal preemption only to the extent that they are based on a showing of "bad faith" as defined by federal patent law. Globetrotter Software, Inc., 362 F.3d at 1374. Without preemption, states would be able to undo the careful calibration that Congress and the federal courts have baked into federal patent law, which is protective of patent holders and encouraging of their right to assert infringement, subject to adverse consequences for bad faith assertion as defined in federal law. See generally Paul R. Gugliuzza, Patent Trolls and Preemption, 101 Va. L. Rev. 1579, 1605-09 (2015).

In other states that have adopted statutes substantially similar to R.I. Gen. Laws § 6-41.1-1, et seq., courts have consistently found that claims based on the state-law bad faith standard are preempted, unless the claimant presents sufficient evidence to allow a fact-finder to determine that the assertion of patent infringement was both objectively baseless and made in subjective bad faith, which are the elements needed to prove a federal bad faith claim. See, e.g., Landmark Tech., LLC v. Azure Farms, Inc., 3:18-CV-1568-JR, 2019 WL 3763762, at *6 (D. Or. June 26, 2019) ("Therefore, to avoid preemption in the case at bar, defendant must allege bad faith including that the infringement claim is 'objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits.'"); Puritan Med. Prod. Co. LLC v. Copan Italia S.p.A., 188 A.3d 853, 859, 862-63 (Me. 2018) (federal patent law preempts bad faithunless claimant alleges that assertion of patent infringement was both objectively baseless and made in subjective bad faith); Shoflo, LLC v. TSE Servs., LLC, Case No. 6:16-cv-1955-Orl-40TBS, 2017 WL 10080141, at *7 (M.D. Fla. July 12, 2017), adopted, 2017 WL 10080150 (M.D. Fla. Aug. 1, 2017) (federal bad faith standard preempts state from passing any law that conflicts with federal patent law); see also Triple7Vaping.com, LLC v. Shipping & Transit LLC, CASE NO: 16-cv-80855-MIDDLEBROOKS, 2017 WL 5239874, at *7 (S.D. Fla. Feb. 6, 2017) (because plaintiffs plausibly alleged that patent owner knew, or willfully disregarded, the falsity of its assertions, and therefore acted with subjective bad faith, state-law bad faith not preempted). Commentators analyzing Vermont's anti-patent troll law, which was the first of the state enactments and is very similar to Rhode Island's statute, agree with this proposition. Thoman, 83 U. Cin. L. Rev. at 992, 1005 ("While Vermont's statute is ultimately preempted by federal law due to the Supremacy Clause as well as the preemption doctrine, it makes an important statement to patent trolls. . . . [I]t is unlikely that Vermont's law will withstand implied preemption scrutiny."); see Gugliuzza, 101 Va. L. Rev. at 1584 n.30 (noting "commentary raising the possibility that the pathmarking Vermont statute is preempted"). Thus, it also seems clear that, consistent with the analysis in Landmark Tech., 2019 WL 3763762, at *6-7, and Puritan Med. Prod. Co., 188 A.3d at 862-63, Summer Infant's proposed new claim would fail as a matter of law because the proposed amended counterclaim lacks plausible...