Opinion
Civil Action No. CCB-03-0555
December 2, 2003
MEMORANDUM
John A. Galbreath ("Galbreath") initiated this suit for patent infringement against Burlington Coat Factory Warehouse of Arundel, Inc. ("BCF"). Indiana Mills and Manufacturing, Inc. ("IMMI") joined as a counterclaim plaintiff, filing a claim for tortious interference with business relationships against Galbreath and his solely-owned company, The Bright Ideas Company, Inc. ("Bright Ideas"). Now pending before this court is a motion by Galbreath and Bright Ideas to dismiss EVIMI's counterclaim. For the reasons stated below, the counterclaim defendants' motion to dismiss will be granted.
BACKGROUND
Counterclaim defendant Galbreath owns U.S. Patent No. 6,494,535 ("the '535 patent") for a "Lower Anchors and Tethers for Children" ("LATCH") car seat buckle, which connects a car seat to an anchor bar in an automobile. Counterclaim defendant Bright Ideas is the exclusive licensee of Galbreath's patent. Counterclaim plaintiff IMMI also manufactures and sells a LATCH buckle for car seats, and is the assignee of U.S. Patent No. 6,425,632 ("the '632 patent"), which covers its LATCH buckle. Among the companies that IMMI sells its LATCH buckles to are Britax Child Safety, Inc. ("Britax") and Car Seat Specialty, Inc. ("Car Seat Specialty"). Britax and Car Seat Specialty manufacture car seats that include IMMI's LATCH buckle, and sell these seats to BCF and other retailers. Galbreath's patent was issued on December 17, 2002, based on an application filed on September 11, 2001. IMMI's patent was issued on July 30, 2002, based on applications filed on August 18, 1998 and December 27, 1999. On January 9, 2003, Galbreath sent a letter on Bright Ideas' letterhead to the president of Britax, stating that Britax was selling car seats in the United States that infringe on the '535 patent. (Defs.' Mem. at Ex. 1, Letter from Galbreath to Baloga of 1/9/03.) Galbreath offered to negotiate a licensing agreement with Britax, so that Britax could continue to provide the LATCH buckle on its car seats and avoid litigation. (Id.) Galbreath sent a similar letter on Bright Ideas' letterhead to the president of Car Seat Specialty on January 15, stating that Car Seat Specialty was selling car seats in the United States that infringe on the '535 patent, and offering to negotiate a licensing agreement to avoid litigation. (Id. at Ex. 2, Letter from Galbreath to Tal of 1/15/03.) On February 14, counsel for IMMI sent a letter to Galbreath informing him that IMMI manufactures the LATCH buckle used in the car seats manufactured by Britax and Car Seat Specialty, and that IMMI holds the prior-filed '632 patent. (Id. at Ex. 4, Letter from Sweeney to Galbreath of 2/14/03.) On February 17, the following Monday, Galbreath sent a second letter to the president of Car Seat Specialty, stating that if Bright Ideas continued to receive no response to its letters, then the company would "initiate legal action to protect our patent rights." (Id. at Ex. 3, Letter from Galbreath to Tal of 2/17/03.)
In the February 14 letter, counsel for IMMI requested that any further correspondence regarding IMMI's LATCH buckle be directed to their attention. (Id. at Ex. 4, Letter from Sweeney to Galbreath of 2/14/03.) On March 7, counsel for IMMI sent a second letter to Galbreath, reiterating that any further correspondence regarding EVIMI's LATCH buckle should be directed to counsel. (Id. at Ex. 5, Letter from Sweeney to Galbreath of 3/7/03.) The letter also noted: "We have assumed that the intervening weekend delayed your receipt of our letter of February 14, 2003, such that you did not receive it before posting your letter of February 17, 2003." (Id.) IMMI claims that Galbreath subsequently called counsel for IMMI and left a voicemail message that stated: "Until IMMI is joined as a party in a lawsuit, we can send any correspondence to anybody we want." (Am. Countercl. at ¶ 38.)
IMMI's counterclaim for tortious interference with business relationships relies on Galbreath's letters of January 9, January 15, and February 17. (Am. Countercl. at ¶ 32-33, 36.) IMMI alleges that Galbreath and Bright Ideas "have disregarded the objective invalidity of the '535 patent in pursuing their infringement allegations against IMMI's customers," and that Galbreath and Bright Ideas have "acted in bad faith." (Am. Countercl. at ¶ 39-40.) IMMI further alleges that Galbreath and Bright Ideas' actions, "including accusing of or filing suit against various IMMI customers for patent infringement," have damaged IMMI and were intended to cause damage to IMMI. (Id. at ¶ 41-42.) Finally, IMMI alleges that its customers have complained to IMMI about the communications from Galbreath. (Id. at ¶ 34.) IMMI seeks compensatory damages for this claim.
In resolving the counterclaim defendants' motion to dismiss, the court may consider the full text of these letters even though they were not attached to the counterclaim, because they are referenced in and relied upon as a basis for the counterclaim. See Fare Deals. Ltd, v. World Choice Travel.Com. Inc., 180 F. Supp.2d 678, 683 (D. Md. 2001).
ANALYSIS I.
IMMI first asserts that the counterclaim defendants' motion must be dismissed as untimely under Fed.R.Civ.P. 12(g), because it was not filed with the counterclaim defendants' prior motions under Fed.R.Civ.P. 12(b)(1). IMMI filed its counterclaim jointly with BCF on April 22, 2003. On May 20, Galbreath and Bright Ideas separately filed motions under Fed.R.Civ.P. 12(b)(1) to dismiss count three of the counterclaim, the claim by IMMI alleging tortious interference with business relationships, for lack of subject matter jurisdiction. On May 22, Galbreath filed an answer to counts one and two of the counterclaim. On June 6, BCF and IMMI filed a motion to amend their counterclaim. The court granted the motion to amend on June 10, and denied Galbreath's and Bright Ideas' motions to dismiss for lack of subject matter jurisdiction. On July 3, Galbreath and Bright Ideas jointly filed the instant motion to dismiss count three of the counterclaim pursuant to Fed.R.Civ.P. 12(b)(6), and also jointly filed an answer to count three.
The first count under the counterclaim was filed jointly by BCF and IMMI against Galbreath, seeking a declaratory judgment that Galbreath's patent is invalid and that no BCF or IMMI product infringes on that patent. (Am. Countercl. at Tf 12-15.) The second count was filed by IMMI only against Galbreath, seeking a declaratory judgment that the '535 patent and the '632 patent are interfering patents, and that the '632 patent has priority. (Id. at ¶ 16-29.) The third count was filed by IMMI only against both Galbreath and Bright Ideas, and alleges tortious interference with business relationships by Galbreath and Bright Ideas. (Id. at Tf 30-42.)
The amended counterclaim made one small change to count three as to the basis for subject matter jurisdiction. (Compare Countercl. at Tf 31, with Am. Countercl. at ¶ 31.)
Under Fed.R.Civ.P. 12(b), a defendant may raise seven enumerated defenses either in the responsive pleading or by a separate motion, including lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(g) provides that if a party makes a motion under Rule 12, but omits from it any defense then available to the party that may be made by a separate motion, then the party waives that defense. However, Fed.R.Civ.P. 12(h)(2) provides an exception for the defense of failure to state a claim upon which relief can be granted, which "may be made in any pleading permitted or ordered under Rule 7(a)." Pleadings permitted under Fed.R.Civ.P. 7(a) include an answer to a counterclaim.
IMMI is correct that, under the plain language of Fed.R.Civ.P. 12(g), Galbreath and Bright Ideas were required to consolidate their Rule 12 motions to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. (Pl.'s Mem. at 5.) However, Galbreath and Bright Ideas also are correct that the instant motion to dismiss for failure to state a claim falls under the exception in Fed.R.Civ.P. 12(h)(2). (Defs.' Reply at 3.) The counterclaim defendants did not file an answer to count three of the counterclaim until July 3, 2003. Under Fed.R.Civ.P. 12(h)(2) the counterclaim defendants were entitled to assert a defense of failure to state a claim upon which relief can be granted in this answer. Although the counterclaim defendants filed the instant motion to dismiss as a separate document, rather than in the answer as Fed.R.Civ.P. 12(h)(2) suggests, it was filed on the same day and thus will not be dismissed as untimely.
The defense for failure to state a claim upon which relief can be granted was "then available" when the counterclaim defendants filed their initial motion to dismiss for lack of subject matter jurisdiction. The counterclaim plaintiffs subsequent amendment to count three was minor, and thus does not change the analysis.
II.
"A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint; importantly, it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses."Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). When ruling on a 12(b)(6) motion, the court must view the complaint in the light most favorable to the plaintiff and accept the plaintiffs factual allegations, as well as all reasonable inferences therefrom, as true. See Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993);Martin, 980 F.2d at 952; Westray v. Porthole. Inc., 586 F. Supp. 834, 836 (D. Md. 1984). Consequently, a motion to dismiss under Rule 12(b)(6) may be granted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957): see also Rogers v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324, 325 (4th Cir. 1989). In addition, because the court is testing the legal sufficiency of the claims, the court is not bound by the plaintiffs legal conclusions. Randall v. United States, 30 F.3d 518, 522 (4th Cir. 1994); Labram v. Havel, 43 F.3d 918, 921 (4th Cir. 1995) (affirming Rule 12(b)(6) dismissal with prejudice because plaintiffs alleged facts failed to support her conclusion that the defendant owed her a fiduciary duty at common law); Faulkner Adver., Inc. v. Nissan Motor Corp., 945 F.2d 694, 695 (4th Cir. 1991) (per curiam) ("self-serving, inaccurate legal conclusions cannot rescue a factually deficient complaint").
Under Maryland law, the elements of tortious interference with business relationships are: "(1) intentional and wilful acts; (2) calculated to cause damage to the plaintiffs in their lawful business; (3) done with the unlawful purpose to cause such damage and loss, without right or justifiable cause on the part of the defendants (which constitutes malice); and (4) actual damage and loss resulting." Alexander Alexander Inc. v. B. Dixon Evander Assoc., Inc., 650 A.2d 260, 269 (Md. 1994) (quoting Willner v. Silverman, 71 A. 962, 964 (Md. 1909)); see also Fare Deals. Ltd, v. World Choice Travel.Com. Inc., 180 F. Supp.2d 678, 691 (D. Md. 2001) (stating that the plaintiff "must plead facts-rather than bare legal conclusions" establishing these elements). To satisfy the third element, the defendants' conduct must be "independently wrongful or unlawful, quite apart from its effect on the plaintiffs business relationships." Alexander, 650 A.2d at 271. This includes "common law torts, and violence or intimidation, defamation, injurious falsehood or other fraud, violation of criminal law, and the institution or threat of groundless civil suits or criminal prosecutions in bad faith." Id. (internal quotation omitted).
The forum state's conflict of law rules determine what substantive law to apply to state law claims in federal court, see Day Zimmerman. Inc. v. Challoner, 423 U.S. 3, 4 (1975) (per curiam), and Maryland courts apply the substantive law of the place where the tort occurred, see Chambco. Div. of Chamberlin Waterproofing Roofing. Inc. v. Urban Masonry Corp., 659 A.2d 297, 299 (Md. 1995). All of the alleged conduct by the counterclaim defendants occurred in Maryland, and Maryland tort law thus applies.
A.
Galbreath and Bright Ideas argue that they could not have intended to cause damage to IMMI, the second element for tortious interference with business relationships, because they were not aware at the time of the alleged conduct that IMMI manufactured the LATCH buckle. (Defs.' Mem. at 6-7.) The counterclaim contains a general allegation that "Galbreath and Bright Ideas intended to cause damage to IMMI" (Am. Countercl. at ¶ 42), but this bare legal conclusion must be supported by specific facts. The counterclaim does not allege or even suggest that Galbreath and Bright Ideas were aware of IMMI's involvement at the time of Galbreath's January 9 and January 15 letters to Britax and Car Seat Specialty. However, IMMI alleges that Galbreath sent a second letter to Car Seat Specialty on February 17, after counsel for IMMI had sent a letter to Galbreath on February 14 informing him of IMMI's involvement. (Id. at ¶ 35-36.) If Galbreath had received the February 14 letter from IMMI's counsel and was aware of IMMI's involvement at the time that he sent the February 17 letter, this fact might support a finding that Galbreath and Bright Ideas intended to cause damage to IMMI.
The letter from IMMI's counsel apparently was sent via certified mail from Indianapolis, Indiana to Bright Ideas' address in Reisertown, Maryland. (Defs.' Mem. at Ex. 4, Letter from Sweeney to Galbreath of 2/14/03.) Galbreath's February 17 letter was sent on the next business day, following an intervening weekend. As IMMI acknowledged in a subsequent letter to Galbreath, the intervening weekend very well may have delayed Galbreath's receipt of the February 14 letter, such that Galbreath still was not aware of IMMI's involvement when he sent the February 17 letter to Car Seat Specialty. (Id. at Ex. 5, Letter from Sweeney to Galbreath of 3/7/03.) IMMI failed to argue this point in its opposition memorandum. Even taking the complaint in the light most favorable to the plaintiff, and accepting its factual allegations and all reasonable inferences therefrom as true, IMMI has failed to allege specific facts suggesting that Galbreath was aware of IMMI's involvement when he sent the three letters on January 9, January 15, and February 17. IMMI thus has failed to satisfy the second element of tortious interference with business relationships, that Galbreath and Bright Ideas intended to cause damage to IMMI.
The defendants' factual assertions in their memorandum that they were not aware of IMMI's existence until after February 17 cannot be considered on a motion to dismiss for failure to state a claim upon which relief can be granted. (Pl.'s Mem. at 7; Defs.' Mem. at 6-7.)
In its memorandum, IMMI advances a new argument in support of the second element, stating that their counterclaim is based in part on Galbreath's conduct in filing suit against BCF on March 3, 2003, after he had been informed that IMMI manufactures the LATCH buckle. (Pl.'s Mem. at 6-7.) The counterclaim itself contains no references to Galbreath's conduct in filing suit against BCF, however, and IMMI cannot now rely on this new factual allegation. IMMI points to its statement in the counterclaim that Galbreath and Bright Ideas caused damage to IMMI by "accusing of or filing suit against various IMMI customers for patent infringement." (Am. Countercl. at ¶ 41.) BCF is not a customer of IMMI, and this statement in the counterclaim, which in context refers to customers such as Britax and Car Seat Specialty, thus cannot be read to encompass Galbreath's lawsuit against BCF.
In its memorandum, IMMI does not rely on Galbreath's voicemail message to IMMI's counsel as grounds for the tortious interference claim, although this fact is alleged in the counterclaim. There are no facts in the record that this message mentioned EVIMI's customers or was directed or relayed to them, and thus no suggestion that this conduct by Galbreath was calculated to cause damage to IMMI. (Defs.' Mem. at 10-11.)
B.
Galbreath and Bright Ideas also argue that the conduct alleged by IMMI in the counterclaim was not independently wrongful or unlawful, as required under the third element for tortious interference with business relationships. Even assuming that Galbreath was aware of IMMI's involvement when he sent the February 17 letter to Car Seat Specialty, and that this is sufficient to satisfy the second element, the counterclaim plaintiffs have failed to meet the third element.IMMI's counterclaim relies on three letters sent by Galbreath and Bright Ideas notifying other parties of their patent rights and their intent to enforce them through litigation, if necessary. The propriety of such a notice of patent rights is a matter of federal patent law, even when the issue is raised in a state law claim for intentional interference with business relationships. See Mikohn Gaming Corp. v. Acres Gaming. Inc., 165 F.3d 891, 897 (Fed. Cir. 1998). "Federal precedent is that communication to possible infringers concerning patent rights is not improper if the patent holder has a good faith belief in the accuracy of the communication." Id. A patent holder may assert his patent rights "even though he may misconceive what those rights are," as long as he acts in good faith. Id. (internal quotation omitted). Bad faith generally requires "a threshold showing of incorrectness or falsity, or disregard for either" and "is not supported when the information is objectively accurate." Id.
Specifically, it is not improper under federal law for a patent holder "to advise possible infringers of its belief that a particular product may infringe the patent." Mikohn, 165 F.3d at 897. Provisions in the federal patent statutes anticipate such notice.See 35 U.S.C. § 287; see also Mikohn, 165 F.3d at 897.
IMMI has failed to allege specific facts to establish that the notices sent by Galbreath were sent in bad faith, and therefore were not legally justified under federal patent law. IMMI alleges that Galbreath and Bright Ideas acted in bad faith and have disregarded the objective invalidity of the '535 patent (Am. Countercl. at ¶ 39-40), but the specific facts alleged do not support these claims. IMMI alleges that counsel for IMMI had informed Galbreath that the '632 patent was filed prior to the '535 patent. (Id. at ¶ 19-26.) I will assume for purposes of this argument that Galbreath was aware of this information when he sent his February 17 letter to Car Seat Specialty. Nonetheless, these facts alone are insufficient to suggest bad faith or disregard for the objective invalidity of the '535 patent, because they do not undermine the apparent validity of the '535 patent. In the case of interfering patents the patent with the later filing date is not invalid on that basis, as long as the holder of that patent can establish prior invention and reasonable diligence in reducing that invention to practice. See Keizer v. Bradley, 270 F.2d 396 (C.C.P.A. 1959);see also 35 U.S.C. § 102(g)(1). The fact that Galbreath was aware of a potential defense to his patent claim is insufficient to suggest that Galbreath did not hold a good faith belief in the validity of his patent, and there has been no other allegation of specific facts to support the requisite finding of bad faith.
IMMI does not dispute that Galbreath and Bright Ideas, as the exclusive licensee of Galbreath's patent, have standing to bring a patent infringement suit against a downstream manufacturer that incorporates an infringing product, such as Britax or Car Seat Specialty. See, 35 U.S.C. § 271(a); 35 U.S.C. § 281; Duplan Corp. v. Peering Milliken Research Corp., 522 F.2d 809, 814-16 (4th Cir. 1975).
Even if IMMI was not required to allege bad faith, IMMI also has not otherwise established that the alleged conduct by Galbreath and Bright Ideas was independently wrongful or unlawful. As stated, this element requires the plaintiff to allege acts that rise to the level of "common law torts, and violence or intimidation, defamation, injurious falsehood or other fraud, violation of criminal law, and the institution or threat of groundless civil suits or criminal prosecutions in bad faith."Alexander, 650 A.2d at 271. IMMI's counterclaim cannot be based on the institution of a groundless civil suit, because Galbreath's action in filing suit against BCF is not alleged in the counterclaim. To the extent that Galbreath threatened to institute litigation in his letters, IMMI has failed to allege that such a suit would have been groundless. Instead, the facts alleged suggest that there is a genuine dispute over the competing priorities of Galbreath and IMMI's patents. There is no other basis for finding that the alleged conduct by Galbreath and Bright Ideas is independently wrongful or unlawful.
A separate Order follows.
ORDER
For the reasons stated in the accompanying Memorandum, it is hereby Ordered that:
1. Counterclaim Defendants' Motion to Dismiss IMMI's Tortious Interference Counterclaim (Docket No. 30) is GRANTED; and
2. copies of this Order and the accompanying Memorandum shall be sent to counsel of record and John A. Galbreath.