IP Law Daily Standard of proof for claims under Oregon bad-faith patent enforcement law preempted by Patent Act
Thursday, March 26, 2020

Standard of proof for claims under Oregon bad-faith patent enforcement law preempted by Patent Act

By Brian Craig, J.D.

An organic-products seller accused of patent infringement failed to allege facts demonstrating the objective baselessness of the plaintiff’s claim, ascertainable loss, and reliance.

The federal district court in Portland has held that the preponderance of the evidence standard for asserting a claim of bad faith patent enforcement under Oregon’s Unlawful Trade Practices Act (UTPA) is preempted by the "objectively baseless" standard for establishing bad faith under the Patent Act. However, because the standard of proof threshold is severable from the rest of the Oregon’s bad-faith patent enforcement statute, the remainder of the law remained in effect. Under the "objectively baseless" standard, a retailer of organic products failed to adequately allege bad-faith patent enforcement under the UTPA as a counterclaim in an infringement suit relating to a patent for e-commerce (Landmark Technology, LLC v. Azure Farms, Inc., March 24, 2020, Immergut, K.).

Patent dispute. Landmark Technology, LLC, owned U.S. Patent No. 6,289,319 ("the ’319 Patent") which specified "an automated data processing system for processing business and financial transactions between entities from remote sites." Landmark brought an action against Azure Farms, an Oregon-based retailer of organic products, alleging infringement of the ’319 Patent as a result of transactions on the website for Azure Farms.

Counterclaim. The retailer of organic products filed a counterclaim alleging violation of Oregon’s Unlawful Trade Practices Act (UTPA), which provided a cause of action as a remedy for bad-faith patent enforcement. The cause of action for bad-faith patent enforcement was created in 2014 as an amendment to the UTPA in an attempt to prevent patent trolls from filing spurious suits to extort settlements from companies. Azure Farms also asserted various affirmative defenses. Landmark filed a motion to dismiss the counterclaim under the Oregon bad faith assertion statute. The U.S. Magistrate recommended that the court grant the motion to dismiss the counterclaim. The Oregon Attorney General’s Office also filed an amicus curiae brief in support of the Oregon law, arguing that the statute was not preempted as a whole.

Preemption. The court analyzed whether Oregon’s bad-faith patent enforcement statute was preempted by federal law. Federal patent law neither explicitly preempted nor occupied the field pertaining to state unfair competition law. While federal law governed patents, the U.S. Court of Appeals for the Federal Circuit had underscored that unfair competition law was primarily the domain of the states. In determining whether state unfair competition law conflicted with federal patent law, a presumption against preemption existed. Nevertheless, state laws that imposed liability on a party asserting patent infringement were preempted unless the claim of infringement was "objectively baseless" and subjectively brought in bad faith.

Actions under the Oregon law must be proved by a preponderance of the evidence, whereas bad faith under federal law required clear and convincing evidence. The court held that because the preponderance-of-the-evidence standard under the Oregon state law was lower than the clear-and-convincing threshold needed to prove bad faith under federal patent law, the standard of proof was preempted by the Supremacy Clause. The court concluded, however, that the standard of proof requirement was severable from the rest of the Oregon statute and concluded that the state law was not preempted in its entirety by federal law. The Federal Circuit had specifically held that the objective and subjective elements of bad faith did not need to be written into a state statute to avoid preemption.

Failure to plead claim. Although the Oregon law was not preempted in its entirety, the court concluded that the counterclaim was preempted as pleaded because the seller of organic products failed to allege facts demonstrating the objective baselessness of the plaintiff’s claim, ascertainable loss, and reliance. Therefore, the court dismissed the counterclaim without prejudice and with leave to amend. The court also declined to award attorney fees to the plaintiff.

This case is No. 3:18-cv-1568-JR.

Attorneys: Jennifer L. Ishimoto (Banie & Ishimoto LLP) for Landmark Technology, LLC. Rachael D. Lamkin (Lamkin IP Defense) for Azure Farms, Inc.

Companies: Azure Farms, Inc.

MainStory: TopStory Patent GCNNews OregonNews

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