Intellectual property rights and freedom of speech often intersect in the legal landscape. Copyright rights are subject to the doctrine of fair use. Trademarks rights are subject to a defense of parody (which the Supreme Court is set to weigh in on in the near future). And the speech of a patent holder was recently called into question in a decision from the Federal Circuit.

In Lite-Netics, LLC v. Nu Tsai Capital LLC (February 17, 2023), the Federal Circuit considered a preliminary injunction that stopped a patent holder from issuing statements regarding alleged infringement. Was this injunction valid? Was it fair to limit a patent holder’s speech?

This article explores how the Federal Circuit’s decision reinforces the protection precedent has afforded to patent-related speech, giving patent owners a fairly wide berth, without the fear of retaliation, when making good-faith assertions of patent infringement.

Lite-Netics v. Nu Tsai Capital

According to the Federal Circuit, statements made in enforcing patent rights, such as in cease-and-desist letters and notices of infringement, cannot give rise to liability for state law claims, such as defamation and tortious interference, so long as they were made in good faith.

In Lite-Netics, Plaintiff, an assignee of two patents for magnetic holiday string lights, sued a competitor, Nu Tsai Capital, LLC doing business as Holiday Bright Lights (HBL), for infringing its patent rights.  Prior thereto, in connection with the enforcement of its patent rights, Lite-Netics issued notices to HBL’s customers informing them of the alleged infringement and naming HBL as one the competitors infringing on the patents.

In response to the suit, HBL filed state law counterclaims for defamation and tortious interference based on the notices. In seeking some expedited relief, HBL sought and successfully obtained a preliminary injunction from the district court barring Lite-Netics from suggesting that HBL was a patent infringer, that HBL copied Lite-Netics’s lights, or that HBL customers might be sued.

On appeal, the Federal Circuit reversed and vacated the injunction, holding that the district court erred in finding that Lite-Netics’s infringement allegations were made in bad faith.  The Federal Circuit explained that “federal 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.”  Consequently, “state-law claims can survive federal preemption only to the extent that those claims are based on a showing of ‘bad faith’ action in asserting infringement.” 

As further explained by the court, the bad faith standard in this context has both objective and subjective elements and “cannot be satisfied in the absence of a showing that the claims asserted were objectively baseless.”

Put another way, the Federal Circuit held that patent-related speech is not subject to state law claims unless it can be shown that the claims asserted were objectively baseless. A patent infringement allegation is objectively baseless only if “no reasonable litigant could realistically expect success on the merits” of the claimed infringement.  And only then does a district court need to move on to assess whether there was subjective bad faith.  With this framework in mind, the court vacated the district court’s preliminary injunction because Lite-Netic’s allegations of infringement were not objectively baseless. 

Conclusion

Lite-Netics is not breaking new ground.  On multiple occasions the Federal Circuit has previously held good-faith assertions of infringement are immune from state law tort claims.  See Myco Indus., Inc. v. BlephEx, LLC, 955 F.3d 1, 15 (Fed. Cir. 2020); Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524 F.3d 1254, 1260 (Fed. Cir. 2008).  Nevertheless, Lite-Netics, reinforces the Federal Circuit’s view that “[s]peech is not to be enjoined lightly,” and not without a finding of bad faith. Myco Indus., Inc., 955 F.3d at 15.

Following Lite-Netics, patent owners should feel more comfortable that their good-faith assertions of patent infringement won’t later lead to liability.