State of Washington v. Landmark Technology A LLC

• Court: District Court, W.D. Washington
• Decided: October 28, 2022
• Docket: 2:21-cv-00728
• Status: Unknown

Opinion

3 UNITED STATES DISTRICT COURT 4 WESTERN DISTRICT OF WASHINGTON 5 AT SEATTLE

6 STATE OF WASHINGTON, Case No. C21-728RSM 7

8 Plaintiff, ORDER DENYING MOTION TO 9 v. DISMISS OR TO STRIKE

10 LANDMARK TECHNOLOGY A, LLC, 11 Defendant. 12

13 I. INTRODUCTION 14 This matter comes before the Court on Defendant Landmark Technology A, LLC 15 (“Landmark”)’s Motion to Dismiss under Rule 12(b)(6) or, in the alternative, to strike under 16 17 Rule 12(f). Dkt. #23. Plaintiff State of Washington opposes. Dkt. #26. The Court finds it can 18 rule on this Motion without needing oral argument. For the reasons stated below, the Court 19 DENIES Landmark’s Motion. 20 II. BACKGROUND 21 For purposes of this Motion, the Court will accept all facts in the Complaint, Dkt. #1-1, 22 23 as true. The Court will briefly summarize the relevant facts. 24 The Attorney General of the State of Washington brings this action in the name of the 25 State, or as parens patriae on behalf of persons residing in the State, to enforce the provisions 26 of the Washington Consumer Protection Act, RCW 19.86 (“CPA”) and the Patent Troll 27 28 Prevention Act, RCW 19.350 (“PTPA”). Defendant Landmark is a North Carolina patent-assertion entity (“PAE”). The sole 1 2 member of LTA is Raymond Mercado, a North Carolina resident. PAEs enforce patent rights, 3 rather than investing in development or commercialization. Abusive PAEs, i.e. “patent trolls,” 4 assert patents in bad faith, targeting smaller companies that cannot afford protracted litigation, 5 and demanding payment of licensing fees. The State of Washington claims Landmark is just 6 such an entity. 7 8 Although patent trolls rarely succeed on patent infringement claims in court, the vast 9 majority of disputes end in settlements because patent litigation is costly and disruptive and 10 because patent trolls offer to settle for amounts well below litigation costs. 11 The State argues that Landmark’s business model is bad faith patent assertion. Over a 12 13 recent 18-month period, Landmark issued 1,892 patent assertion demand letters to 1,176 14 different target companies in 48 states. In its demand letters, Landmark relies upon U.S. Patent 15 No. 7,010,508 (“the ‘508 patent”), issued in 2006 on the basis of a 1995 application to the 16 Patent and Trademark Office (“PTO”). In 2014, the PTO found, in a contested matter, that the 17 ‘508 patent “does not recite a technological feature that is novel and unobvious over the prior 18 19 art, and is therefore not a technological invention.” Ebay Enter., Inc. Petitioner v. Lawrence B. 20 Lockwood Patent Owner, 2014 WL 2150045 (Patent Tr. & App. Bd. May 20, 2014). 21 Landmark contests this characterization. 22 Landmark primarily targets customer log-in pages on company websites, but has also 23 demanded license fees for webpages containing privacy practices, shopping carts, products for 24 25 sale, and company home pages. 26 Landmark demand letters do not contain factual allegations relating to the specific 27 target company webpages. Rather, Landmark uses form letters with identical infringement 28 allegations. Examples of the form letters are included in the Complaint. Dkt. #1-1 at 6–9. The 1 2 Complaint details hundreds of letters sent to companies in various states, including 3 Washington. 4 Landmark periodically sues target companies that refuse to pay. Between January 2019 5 and the time of the Complaint, Landmark filed 16 patent infringement lawsuits, including five 6 against Washington companies. Companies on the receiving end of the demand letters 7 8 sometimes file suit, seeking a declaration of non-infringement. Between January 2019 and the 9 time of the Complaint, eleven such suits have been filed against Landmark. Landmark settles 10 quickly. Of the 27 lawsuits filed by or against Landmark between January 2019 and the time 11 the Complaint was filed, only four remain pending, with the vast majority settling within a few 12 13 months of filing. Four Washington companies have settled with LTA for payment of licensing 14 fees between $15,000 and $20,000 each. 15 The ‘508 patent was issued on March 7, 2006, to Lawrence B. Lockwood, as inventor. 16 Lockwood filed the patent application in 1995 as a continuation of other patent applications— 17 most of which he abandoned—dating back to 1984. Lockwood owns Landmark Technology, a 18 19 predecessor-in-interest to Plaintiff Landmark. Landmark claims it obtained enforcement rights 20 in the ‘508 patent, however no assignment was filed with the PTO. 21 The ‘508 patent is titled “Automated Multimedia Data Processing Network,” and claims 22 to patent the abstract idea of automated data processing of business transactions between 23 remote computer terminals. The Abstract for the ‘508 patent states: 24 25 A system for filing applications with an institution from a plurality of remote sites, and for automatically processing said applications 26 in response to each applicant’s credit rating obtained from a credit reporting service comprising a series of self-service terminals 27 remotely linked via a telephone line to a first computer at the 28 institution and to a second computer at the credit reporting service headquarters. Each remote terminal comprises a video screen and a 1 video memory which holds image-and-sound-generating 2 information arranged to simulate the aspect and speech of an application loan officer on the video screen. The simulated loan 3 officer is used to acquire loan request data from the applicant by guiding him through an interactive sequence of inquiries and 4 answers. The system may be utilized as a trading network whereby 5 stations are used by sellers and buyers to place and accept offers for securities, the central installation acting as a central 6 computerized database where all transactions are processed and the various data items stored and automatically updated. 7

8 Landmark does not target financial institutions that engage in loan processing. 9 Landmark is sending these letters out to every kind of business under the sun. For example, in 10 just one month, Landmark sent demand letters to businesses in the following industries: air and 11 oil filters; apparel; appliances; automotive supplies; building supplies; candy; college housing 12 13 supplies; consumer electronics; custom vehicles; department stores; event ticketing; fabrics; 14 florist; fluid connectors; food service; furniture; grocery; hardware; headsets; health and 15 beauty; HVAC; industrial supplies; inventory management; jewelry; kitchen products; 16 manufactured housing; material handling; mattress; paper; pet products; petroleum; pharmacy 17 services; pipe distributor; printers; sales and marketing; salon supplies; scientific laboratory 18 19 supplies; seeds; shoes; sporting goods; steam cleaners; and, water supplies. 20 The majority of demand letters sent by Landmark identify a simple, customer log-in 21 page on a company website as infringing the ‘508 patent. Landmark’s demand letters also 22 identify the following types of webpages as infringing: company home pages, shopping carts, 23 products pages, privacy practices, new customer registration, and ordering pages. 24 25 The State of Washington’s Complaint brings causes of action for violations of the CPA 26 and PTPA. The State of Washington alleges that the above actions of Landmark constitute a 27 violation of the CPA and the PTPA because Landmark is making assertions of patent 28 infringement in bad faith. The Complaint specifically addresses the concept of federal 1 2 preemption and pleads that it has met the standards for bad faith required under certain federal 3 cases. See Dkt. #1-1 at 30-31. 4 In the instant Motion, Landmark seeks dismissal under Rule 12(b)(6) arguing that the 5 PTPA violates the First Amendment and Washington Constitution as a prior restraint on 6 protected speech. Landmark also contends the PTPA is preempted by federal patent law, and 7 8 that it cannot be liable for prelitigation notice letters under the Noerr-Pennington doctrine. 9 Landmark moves to strike the Complaint’s allegation that the ‘508 Patent is invalid and to 10 strike other certain claims as outside the bounds of available relief. 11 III. DISCUSSION 12 13 A. Legal Standard under Rule 12(b)(6) 14 In making a 12(b)(6) assessment, the court accepts all facts alleged in the complaint as 15 true, and makes all inferences in the light most favorable to the non-moving party. Baker v. 16 Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009) (internal citations omitted). 17 However, the court is not required to accept as true a “legal conclusion couched as a factual 18 19 allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 20 550 U.S. 544, 555 (2007)). The complaint “must contain sufficient factual matter, accepted as 21 true, to state a claim to relief that is plausible on its face.” Id. at 678. This requirement is met 22 when the plaintiff “pleads factual content that allows the court to draw the reasonable inference 23 that the defendant is liable for the misconduct alleged.” Id. The complaint need not include 24 25 detailed allegations, but it must have “more than labels and conclusions, and a formulaic 26 recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Absent 27 facial plausibility, a plaintiff’s claims must be dismissed. Id. at 570. 28 Where a complaint is dismissed for failure to state a claim, “leave to amend should be 1 2 granted unless the court determines that the allegation of other facts consistent with the 3 challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv- 4 Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). 5 B. Constitutional Claims 6 Landmark first argues, “[u]nder strict scrutiny, the [PTPA] is unconstitutional because it 7 8 infringes on protected prelitigation speech yet does not use the least-restrictive means to 9 achieve a sufficiently compelling interest.” Dkt. #23 at 16 (citing Reed v. Town of Gilbert, 10 Ariz., 576 U.S. 155, 163 (2015); Riley v. Nat’l Fed’n of the Blind of N.C., Inc., 487 U.S. 781 11 (1988)). Landmark contends that prelitigation demand letters are protected speech under the 12 13 First Amendment’s Petition Clause, despite proposing a commercial transaction, such as a 14 prelitigation settlement, id. (citing Sosa v. DIRECTV, Inc., 437 F.3d 923, 935 (9th Cir. 2006)), 15 and that content-based restrictions on protected speech “are presumptively invalid,” Id. (citing 16 R.A.V. v. City of St. Paul, Minn., 505 U.S. 377, 382 (1992)). Landmark argues that this 17 restriction of speech is not justified by a sufficiently compelling state interest. Id. at 16–17. 18 19 Landmark discusses prior restraint under the Washington State Constitution. Id. at 18. 20 The State of Washington responds “[Landmark] neglects to inform the Court… that bad 21 faith prelitigation demand letters are not protected by the Petition Clause,” and that numerous 22 cases “have held that bad faith assertions of patent infringement, in particular, are actionable 23 under the Petition Clause.” Dkt. #26 at 12–13 (emphasis in original) (citing Globetrotter 24 25 Software, Inc. v. Elan Computer Grp., Inc., 362 F.3d 1367 (Fed. Cir. 2004); NAPCO, Inc. v. 26 Landmark Tech. A, LLC, No. 1:21-CV-0025, 2021 WL 3678019 (M.D.N.C. Aug. 19, 2021); 27 28 Landmark Tech., LLC v. Azure Farms, Inc., No. 3:18-cv-1568-JR, 2020 WL 1430088 (D. Or. 1 2 Mar. 24, 2020)). 3 The State’s claims, under both the PTPA and CPA, clearly allege bad faith, see Dkt. #1- 4 1 ¶¶ 5.6, 5.9, 5.12, 5.13, 6.5, 6.8, 6.9, and bad faith infringement is precisely what the PTPA 5 prohibits, see RCW 19.350.020(1) (“A person may not make assertions of patent infringement 6 in bad faith”). Landmark cites no authority for the proposition that the Petition Clause protects 7 8 bad faith assertions of patent infringement. Furthermore, whether or not Landmark’s letters 9 were sent in bad faith is not a question that can be resolved at the 12(b)(6) stage of litigation. 10 The State’s pleading on this issue is adequate. 11 The Start argues that the PTPA is not addressing content but conduct, thus subjecting 12 13 the statute to rational basis review. Dkt. #26 at 13–14. The State summarizes the law thusly: 14 …bad faith assertions of patent infringement should be considered conduct, notwithstanding that the conduct at issue was carried out 15 by means of written communication, because “the First 16 Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech.” Sorrell v. 17 IMS Health Inc., 564 U.S. 552, 567, 131 S.Ct. 2653 (2011). Therefore, “it has never been deemed an abridgement of freedom 18 of speech or press to make a course of conduct illegal merely 19 because the conduct was in part initiated, evidenced, or carried out by means of language, either spoken, written, or printed.” Giboney 20 v. Empire Storage & Ice Co., 336 U.S. 490, 502, 69 S.Ct. 684 (1949). The Supreme Court thus held, in Giboney, that it is 21 permissible for antitrust laws to prohibit “agreements in restraint of 22 trade.” Id. The same analysis applies here.

23 Id. at 14. 24 The Court agrees with the State’s analysis on this topic. See also id. at 15. Assuming 25 all facts in the pleading are true, these boilerplate letters are not full of nuanced content but are 26 instead bad faith conduct. 27 28 Statutes regulating unprotected speech are subject to rational basis review. See 1 2 Ripplinger v. Collins, 868 F.2d 1043, 1057 (9th Cir. 1989). Under the rational basis standard, 3 “legislation is presumed to be valid and will be sustained if the classification drawn by the 4 statute is rationally related to a legitimate state interest.” City of Cleburne v. Cleburne Living 5 Ctr., Inc., 473 U.S. 432, 439, 105 S.Ct. 3249 (1985). It appears settled that bad faith patent 6 assertions are not protected speech. See, e.g., Sosa, supra; Globetrotter, supra. Landmark does 7 8 not really argue that the PTPA would fails rational basis review; the Court concludes that it 9 would survive such review because “abusive patent litigation, and especially the assertion of 10 bad faith infringement claims, can harm Washington’s economy.” RCW 19.350.005. 11 The Court agrees with the State that “The PTPA does not impose restrictions on speech 12 13 in advance of actual publication. It imposes after-the-fact liability for bad faith patent 14 assertions.” Dkt. #26 at 16. The PTPA is not a prior restraint on speech. Landmark has 15 otherwise failed to demonstrate it is in violation of the Washington State Constitution. 16 C. Federal Preemption 17 Landmark discusses the general principles of federal preemption of state laws, then 18 19 argues that “Courts have consistently required other states’ patent-assertion regulations to 20 require both objective baselessness and subjective bad faith to survive preemption.” Dkt. #24 21 at 20 (citing, inter alia, Landmark Tech., LLC v. Azure Farms, Inc., No. 3:18-CV-1568-JR, 22 2019 WL 3763762, at *6 (D. Or. June 26, 2019)). Landmark states: 23 …for the Act to survive preemption its scope would need to be 24 limited to objectively baseless claims made in subjective bad faith. 25 But as enacted, it far exceeds those boundaries. For example, nothing in the Act requires a plaintiff to prove that the patent 26 holder’s allegation of patent infringement was objectively baseless. See RCW § 19.350.020. And it attempts to artificially constrain 27 and replace the Federal Circuit’s two-part “bad faith” standard 28 with a list of factors created by state lawmakers. Id. Finally, the Act imposes liability for violations without requiring application of 1 the Federal Circuit’s clear-and-convincing-evidence standard. See 2 Golan, 310 F.3d at 1371.

3 Id. (citing Golan v. Pingel Enter., Inc., 310 F.3d 1360, 1371 (Fed. Cir. 2002)). Thus, 4 Landmark maintains, the PTPA is preempted by federal law and should be declared void. 5 In its Response, the State contends: 6 [Landmark]’s arguments concerning “objective baselessness” and 7 a two-part “bad faith” test derive from Federal Circuit case law 8 importing the “sham” litigation exception to Noerr-Pennington immunity into the patent infringement context. [Landmark]’s 9 Noerr-Pennington arguments are addressed in section 2.A.4, infra. As discussed therein, the State need not prove the “objective 10 baselessness” standard under Noerr-Pennington, and—even if such 11 proof is required—the State has adequately pleaded both parts of the two-part “bad faith” standard relied upon by [Landmark]. 12 13 Dkt. #26 at 19. The state also points out: 14 [Landmark] also relies on Federal Circuit case law to argue that the State must demonstrate bad faith by clear and convincing evidence. 15 The PTPA does not specify a standard of proof. Given the 16 legislature’s explicit intention that the PTPA not conflict with federal law, RCW 19.350.005, the Court may impute a clear and 17 convincing standard into the statute. The State’s Complaint pleads this standard. Compl. ¶¶ 5.14, 6.10. 18

19 Id. 20 The Court again agrees with the State that the pleading is adequate. The pleading 21 expressly addresses preemption by pleading bad faith under the federal standards. As stated 22 below, whether or not Noerr-Pennington immunity applies is a fact-intensive inquiry that 23 cannot be resolved via a motion to dismiss; the same applies for preemption. This is not a basis 24 25 for dismissal at this time. 26 D. The Noerr-Pennington Doctrine 27 Landmark argues that its patent-assertion letters are immunized under this doctrine. 28 The Noerr-Pennington doctrine derives from the First Amendment's guarantee of “the 1 2 right of the people . . . to petition the Government for a redress of grievances.” U.S. Const. 3 amend. I. Under the doctrine, those who petition any department of the government for redress 4 are generally immune from statutory liability for their petitioning conduct. Empress LLC v. 5 City & County of S.F., 419 F.3d 1052, 1056 (9th Cir. 2005) (citing Manistee Town Ctr. v. City 6 of Glendale, 227 F.3d 1090, 1092 (9th Cir. 2000)). The Noerr-Pennington doctrine arose in the 7 8 antitrust context and has been extended to court filings and even prelitigation activity. See 9 Sosa, 437 F.3d at 931 (citing E. R.R. Presidents’ Conference v. Noerr Motor Freight, Inc., 365 10 U.S. 127 (1961); United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965)). The only 11 exception to Noerr-Pennington is the sham exception, under which petitioning activity is not 12 13 immunized if it is both objectively baseless and in subjective bad faith. Id. at 930-31 (citing 14 Prof’l Real Estate Invs. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60–61 (1993). The 15 Federal Circuit has imported Noerr-Pennington immunity and the sham petitioning exception 16 from the antitrust context into the patent assertion context. See Globetrotter, 362 F.3d 1367. 17 The State argues that: the application of Noerr-Pennington immunity is a fact-based 18 19 inquiry not suitable for disposition under Rule 12(b)(6); Landmark is relying upon the wrong 20 standard for establishing “bad faith”; and that in any event the State adequately pleaded bad 21 faith under the standard it believes should apply or, alternatively, under the standard relied on 22 by Landmark. 23 The Court agrees with the State that whether or not Noerr-Pennington immunity applies 24 25 is a fact-intensive inquiry that cannot be resolved via a motion to dismiss. See Dkt. #26 at 20– 26 21. The State is correct that it adequately pleads Landmark is sending out prelitigation letters 27 in bad faith. A jury could easily find bad faith based on these facts and facts that could 28 plausibly be introduced at trial. Because there is a fact-intensive question of whether the sham 1 2 exception applies, the Court will not dismiss these claims under Rule 12(b)(6). 3 E. RCW 19.350.020(6) 4 The PTPA contains a provision exempting demands or lawsuits that include a claim for 5 relief arising under certain federal patent statutes, including 35 U.S.C. § 287. RCW 6 19.350.020(6). Landmark argues that its demand letters fall under this exemption “because 7 8 they were sent to provide notice under Section 287 as is required to exercise certain federal 9 patent rights.” Dkt. #23 at 26. 10 The State argues that this exemption “is intended to allow patent holders to provide 11 notice of infringement in good faith,” and that Landmark’s “proposed interpretation is absurd: 12 13 that the legislature intended to exempt demand letters asserting patent infringement from a 14 statute that addresses demand letters asserting patent infringement.” Dkt. #26 at 28. To do so 15 would allow the exemption to “entirely swallow the PTPA, and render it a nullity.” Id. The 16 State further argues that “[u]nder the extreme facts presented in this case, [Landmark] cannot 17 persuasively argue its attempts to extract licensing fees are bona fide section 287 pre-suit 18 19 communications.” Id. 20 The Court is troubled by the possible confusion created by this exemption. However, it 21 seems absurd to interpret the statute as proposed by Landmark, and the Court declines to do so 22 at this time. Further, interpreting all facts in the Complaint as true and drawing all inferences 23 in the light most favorable to the non-moving party, the Court agrees that Landmark cannot 24 25 persuasively argue its boilerplate demand letters to random small companies with websites 26 were bona fide section 287 pre-suit communications. Relief under Rule 12(b)(6) is not 27 warranted. 28 F. Rule 12(f) Requests to Strike 1 2 A court may strike from a pleading “an insufficient defense or any redundant, 3 immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). 4 Landmark asserts that references to the ‘508 patent being invalid should be stricken as 5 “false.” Dkt. #24 at 20-21. The Court finds that the State has at least some basis for asserting 6 that the ‘508 patent is invalid and declines to strike this from the pleading under Rule 12(f). 7 8 Landmark also argues that certain requests for restitution and injunctive relief should be 9 stricken because they are unavailable as a matter of law, and that the State’s request for 10 injunctive relief constitutes a prior restraint. Id. at 21–22. These are not valid uses of Rule 11 12(f); the Court will deal with such arguments via Rule 12(b)(6) or at summary judgment. 12 13 IV. CONCLUSION 14 Having reviewed the relevant pleadings and the remainder of the record, the Court 15 hereby finds and ORDERS that Defendant Landmark’s Motion to Dismiss under Rule 12(b)(6) 16 or, in the alternative, to strike under Rule 12(f), Dkt. #23, is DENIED. The Clerk is 17 DIRECTED to mail Defendant a copy of this Order at the following address: 18 19 Raymond Mercado, Ph.D. Landmark Technology A, LLC 20 219 Billingrath Turn Lane Cary, NC 27519 21

22 DATED this 28th day of October, 2022. 23 A 24 25 RICARDO S. MARTINEZ UNITED STATES DISTRICT JUDGE 26 27