throbber
IN THE UNITED STATES DISTRICT COURT
`FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
`
`NAPCO, INC.,
`)
`
`
`)
`
` Plaintiff,
`)
`
`
`)
`
` v.
`)
`1:21-CV-00025
`
`)
`LANDMARK TECHNOLOGY A, LLC,
`)
`
`)
` Defendant.
`)
`
`MEMORANDUM OPINION AND ORDER
`
`THOMAS D. SCHROEDER, Chief District Judge.
`This is a patent case in which Plaintiff NAPCO, Inc. (“NAPCO”)
`seeks a declaration that a patent of Defendant Landmark Technology
`A, LLC (“Landmark”) is invalid as well as recovery for alleged
`abusive patent practices. Before the court is the motion of
`Landmark to dismiss Count III of NAPCO’s first amended complaint,
`which alleges a violation of the North Carolina Abusive Patent
`Assertions Act (“the Act” or “the APAA”), N.C. Gen. Stat. § 75-
`140 et seq., a statute that has not been construed by any court.
`(Doc. 17.) Landmark argues that NAPCO has failed to plead the
`essential elements of the offense, that the Act is preempted by
`federal law, and that the Act violates the First and Fourteenth
`Amendments to the U.S. Constitution as well as the Commerce Clause.
`(Doc. 18.) NAPCO has responded in opposition (Doc. 39), and the
`Attorney General of North Carolina submitted an amicus brief to
`defend the validity of the Act (Doc. 49). A separate amicus brief
`
`
`
`
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`was submitted by various companies and retail and technology groups
`also in defense of the Act. (Doc. 50.) NAPCO further moves for
`expedited, limited discovery. (Doc. 37.) For the reasons set
`forth below, both motions will be denied.
`I.
`BACKGROUND
`A.
`Factual Background
`NAPCO’s first amended complaint makes the following factual
`allegations, which the court accepts as true for the purposes of
`the motion to dismiss:
`NAPCO is a North Carolina corporation and owner of
`www.binders.com (“the website”). (Doc. 15 ¶ 3.) Vulcan, NAPCO’s
`wholly-owned subsidiary, operates the website. (Id.)
`Landmark is a limited liability company organized under the
`laws of North Carolina and with its principal place of business in
`Durham. (Id. ¶ 5.) Its annual reports with the North Carolina
`Secretary of State indicate that its business is “Patent
`Licensing.” (Id. ¶ 6.) Landmark owns the rights to U.S. Patent
`No. 7,010,508 C1 (“the ‘508 patent”) (Doc. 15-1 at 2), which it
`has sought to enforce against potential infringers through the
`issuance of demand letters (Doc. 15 ¶¶ 18-19).1 These demand
`letters are allegedly identical and include the same offer to
`
`
`1 The content of the ‘508 patent, entitled “Automated Business and
`Financial Transaction Processing System,” (Doc. 15 ¶ 45), is not relevant
`to the motions before the court. Accordingly, the court does not detail
`the patent here.
`
`
`
`2
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`license the patent for a fee of $65,000. (Id. ¶¶ 31-32.)
`In October 2020, NAPCO received a demand letter from Landmark
`that accused NAPCO and the website of infringing on the ‘508 patent
`and that offered a non-exclusive license to the ‘508 patent for
`$65,000. (Id. ¶¶ 12, 36; Doc. 15-1.) The demand letter indicated
`that the $65,000 license fee represents “a substantial discount to
`the historic licensing price of Landmark’s portfolio, and w[ould]
`not be available in the event of litigation.” (Doc. 15 ¶ 43; Doc.
`15-1 at 3.) The demand letter did not include the name or address
`of the patentholder, nor did it include an element-by-element claim
`analysis or description of services that allegedly infringed the
`‘508 patent. (Doc. 15 ¶¶ 36, 38.) Landmark requested that NAPCO
`respond to the demand letter within 15 days. (Id. ¶ 43.)
`NAPCO contends that the website does not infringe on the ‘508
`patent and that Landmark knew or should have known that fact, and
`that Landmark willfully disregarded the falsity of its assertion
`in sending NAPCO the demand letter. (Id. ¶¶ 105-08.) Based on
`these allegations, NAPCO’s amended complaint seeks a declaration
`of noninfringement on the ‘508 patent (Count I) and a declaration
`of invalidity of the ‘508 patent (Count II). (Id. ¶¶ 110-21.)
`NAPCO also brings a claim against Landmark for asserting patent
`infringement in bad faith in violation of the APAA (Count III).
`(Id. ¶¶ 122-32.) Landmark now moves to dismiss Count III of the
`amended complaint, arguing (1) NAPCO has failed to plead the
`
`
`
`3
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`essential elements of a claim under the APAA; (2) the APAA is
`preempted by federal law, both facially and as applied to this
`case; and (3) the APAA is unconstitutional because it violates the
`First and Fourteenth Amendments to the U.S. Constitution as well
`as the dormant Commerce Clause. (Doc. 18.) The motion is now
`fully briefed and ready for resolution. (See Docs. 39, 49, 50,
`53, 54.)
`NAPCO has also moved for expedited, limited discovery as to
`“matters relating to the corporate structure, status, liquidity,
`and historical assertions of patent infringement by . . . Landmark
`. . . to support a possible motion for bond under N.C. Gen. Stat.
`§ 75-144.” (Doc. 38 at 1; see Doc. 37.) This motion is also fully
`briefed and ready resolution. (See Docs. 38, 51.)
`B.
`Background of the Abusive Patent Assertions Act
`At issue in this case is the North Carolina Abusive Patent
`Assertions Act, enacted by the North Carolina General Assembly in
`2014. See N.C. Gen. Stat. 75-140 et seq. In promulgating the
`Act, North Carolina joined a growing number of states that have
`passed similar laws in an attempt to address the problems presented
`by non-practicing entities, known colloquially as “patent trolls,”2
`that make bad faith assertions of patent infringement. See Jason
`
`2 “A patent troll is somebody who tries to make a lot of money off a
`patent that they are not practicing and have no intention of practicing
`and . . . [have] never practiced.” Overstock.com, Inc. v. Furnace Brook,
`LLC, 420 F. Supp. 2d 1217, 1218 (D. Utah 2005), aff’d, 191 F. App’x 959
`(Fed. Cir. 2006) (internal quotation marks omitted).
`4
`
`
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`D. Gardner & Stephen J.E. Dew, North Carolina Abusive Patent
`Assertions Act: A Powerful Gun, but Will It Hold Up in a Gunfight?,
`17 N.C. J. L. & Tech. 391, 410-15 (2016).
`The Act prohibits a person from making “a bad faith assertion
`of patent infringement.” N.C. Gen. Stat. § 75-143. The statute
`does not define “bad faith assertion” but lists factors a court
`may consider to determine whether a defendant has made a bad faith
`assertion, including certain deficiencies in the demand letter; a
`demand for payment of a fee within an unreasonably short period of
`time; actual or constructive knowledge by the patentholder that
`the assertion of patent infringement was meritless; the deceptive
`nature of the assertion; and whether the person has sent the same
`demand to multiple recipients and against a wide variety of
`products without demand letters reflecting differences between
`recipients. Id. § 75-143(a). The statute also lists factors a
`court may consider as evidence that the assertion was not made in
`bad faith, including that the demand letter was not deficient; the
`defendant made a good faith effort to establish that the plaintiff
`infringed the patent; the defendant made a substantial investment
`in the use of the patent or in the production or sale of a product
`or item covered by the patent; and the defendant demonstrated good
`faith business practices in previous efforts to enforce the patent
`or a substantially similar patent. Id. § 75-143(b).
`With this understanding of the Act, the court now turns to
`
`
`
`5
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`the motions before it.
`II. ANALYSIS
`A.
`Motion to Dismiss
`1.
`Legal Standard
`While the Federal Circuit has exclusive jurisdiction over
`appeals involving patent issues, application of Federal Rule of
`Civil Procedure 12(b)(6) in patent cases is a procedural question
`governed by the law of the regional circuit. W.L. Gore & Assocs.
`v. Medtronic, Inc., 850 F. Supp. 2d 630, 632 (E.D. Va. 2012)
`(citing McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1355–56 (Fed.
`Cir. 2007)). Therefore, this court applies the rule of the Fourth
`Circuit. See Polymer Indus. Prods. Co v. Bridgestone/Firestone,
`Inc., 347 F.3d 935, 937 (Fed. Cir. 2003); see also McZeal, 501
`F.3d at 1356.
`Federal Rule of Civil Procedure 8(a)(2) provides that a
`complaint must contain “a short and plain statement of the claim
`showing that the pleader is entitled to relief.” Fed. R. Civ. P.
`(8)(a)(2). Under Rule 12(b)(6), “a complaint must contain
`sufficient factual matter . . . to ‘state a claim to relief that
`is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
`(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
`(2007)). A claim is plausible “when the plaintiff pleads factual
`content that allows the court to draw the reasonable inference
`that the defendant is liable for the misconduct alleged.” Id. In
`
`
`
`6
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`considering a Rule 12(b)(6) motion, a court “must accept as true
`all of the factual allegations contained in the complaint,”
`Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam), and all
`reasonable inferences must be drawn in the plaintiff’s favor.
`Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). “Rule
`12(b)(6) protects against meritless litigation by requiring
`sufficient factual allegation ‘to raise a right to relief above
`the speculative level’ so as to ‘nudge[] the[] claims across the
`line from conceivable to plausible.’” Sauers v. Winston-
`Salem/Forsyth Cnty. Bd. Of Educ., 179 F. Supp. 3d 544, 550
`(M.D.N.C. 2016) (alteration in original) (quoting Twombly, 550
`U.S. at 555). “[T]he complaint must ‘state[] a plausible claim
`for relief’ that permit[s] the court to infer more than the mere
`possibility of misconduct based upon ‘its judicial experience and
`common sense.’” Coleman v. Md. Ct. App., 626 F.3d 187, 190 (4th
`Cir. 2010) (alterations in original) (quoting Iqbal, 556 U.S. at
`679). Thus, mere legal conclusions are not accepted as true, and
`“[t]hreadbare recitals of the elements of a cause of action,
`supported by mere conclusory statements, do not suffice.” Iqbal,
`556 U.S. at 678.
`In ruling on a motion to dismiss, courts may consider
`documents attached to either the complaint or the motion to dismiss
`without converting the motion into one for summary judgment so
`long as the documents are “integral to the complaint and
`
`
`
`7
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`authentic.” Philips v. Pitt Cnty. Mem. Hosp., 572 F.3d 176, 180
`(4th Cir. 2009).
`2.
`Pleading the Essential Elements of a Violation
`Landmark first argues that Count III must be dismissed because
`NAPCO has failed to allege essential elements required to state a
`violation of the Act. (Doc. 18 at 5.) Specifically, Landmark
`contends that the Act amended the North Carolina Unfair and
`Deceptive Trade Practices Act (“UDTPA”) and therefore claims under
`the Act must satisfy both the specific requirements of the Act as
`well as the more general pleading requirements of N.C. General
`Statute § 75-1.1. (Id. at 5-6.) Landmark further argues that
`NAPCO has failed to plead an “actual injury” and “reliance” as
`required by § 75-1.1. (Id. at 6-9.) In response, NAPCO contests
`the applicability of the pleading requirements of § 75-1.1 to
`claims brought under the Act. (Doc. 39 at 6-10.)
`As a federal court construing North Carolina law, this court
`is obliged to apply the jurisprudence of North Carolina's highest
`court, the Supreme Court of North Carolina. See Private Mortg.
`Inv. Servs., Inc. v. Hotel & Club Assocs., Inc., 296 F.3d 308, 312
`(4th Cir. 2002). When that court has not spoken directly on an
`issue, this court must “predict how that court would rule if
`presented with the issue.” Id. The decisions of the North
`Carolina Court of Appeals are the “next best indicia” of what North
`Carolina's law is, though its decisions “may be disregarded if the
`
`
`
`8
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`federal court is convinced by other persuasive data that the
`highest court of the state would decide otherwise.” Id. (quoting
`Liberty Mut. Ins. Co. v. Triangle Indus., Inc., 957 F.2d 1153,
`1156 (4th Cir. 1992)). In predicting how the highest court of a
`state would address an issue, this court “should not create or
`expand a [s]tate's public policy.” Time Warner Ent.-
`Advance/Newhouse P'ship v. Carteret-Craven Elec. Membership Corp.,
`506 F.3d 304, 314 (4th Cir. 2007) (alteration and quotation
`omitted).
`The North Carolina APAA has not been interpreted by any court.
`As such, the issue presented is one of first impression. Thus,
`this court is tasked with predicting what North Carolina’s highest
`court would conclude about the elements of a claim under the APAA.
`See Private Mortg., 296 F.3d at 312. In construing the North
`Carolina Act, the court applies the state law principles of
`statutory construction enunciated by the North Carolina Supreme
`Court. See Volvo Trademark Holding Aktiebolaget v. Clark Mach.
`Co., 510 F.3d 474, 482 (4th Cir. 2007). “In interpreting a
`statute, it is a general rule of construction that a statute is to
`be interpreted according to the intent of the legislature as
`gleaned from the language of the statute, the spirit of the statute
`and the purposes to be accomplished by the statute.” Foremost
`Ins. Co. v. Ingram, 232 S.E.2d 414, 418 (N.C. 1977). “[W]hen the
`language of a statute is clear and unambiguous, there is no room
`
`
`
`9
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`for judicial construction, and the courts must give it its plain
`and definite meaning.” Lanvale Props., LLC v. Cnty. of Cabarrus,
`731 S.E.2d 800, 809–10 (N.C. 2012).
`The APAA is codified as Article 8 of Chapter 75. The Act
`makes it “unlawful for a person to make a bad-faith assertion of
`patent infringement,” N.C. Gen. Stat. § 75-143, and permits “[a]
`target or person aggrieved by a violation of this Article or by a
`violation of rules adopted under this Article [to] bring an action
`. . . against a person who has made a bad-faith assertion of patent
`infringement,” id. § 75-145(b). Successful litigants may be
`awarded equitable relief, damages, costs and fees, including
`attorney’s fees, and “[e]xemplary damages” of the greater of
`$50,000 or three times the total of damages, costs, and fees. Id.
`A separate provision of the Act allows a court to require an
`alleged violator to post a bond equal to a good-faith estimate of
`the target’s fees and costs for litigating the claim and amounts
`likely to be recovered under § 75-145. Id. § 75-144(a). Prior to
`doing so, however, the court must find that a target has
`established a “reasonable likelihood that a person has made a bad-
`faith assertion of patent infringement in violation of this
`Chapter.” Id.
`Section 75-1 is contained in Article 1 of Chapter 75, which
`is entitled “General Provisions,” and declares illegal any
`combinations in restraint of trade. Section 75-1.1, also within
`
`
`
`10
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`Article 1, is entitled “Methods of competition, acts and practices
`regulated; legislative policy.” Section 75-1.1(a) provides:
`“Unfair methods of competition in or affecting commerce, and unfair
`or deceptive acts or practices in or affecting commerce, are
`declared unlawful.” N.C. Gen. Stat. § 75-1.1(a). North Carolina
`courts have held that § 75-1.1 contains three generalized pleading
`requirements, namely that (1) the defendant committed an unfair or
`deceptive act or practice (2) that was in or affecting commerce
`(3) which proximately caused injury. Reid v. Ayers, 531 S.E.2d
`231, 235 (N.C. Ct. App. 2000); see also Stack v. Abbott Lab’ys,
`Inc., 979 F. Supp. 2d 658, 666–67 (M.D.N.C. 2013). Additionally,
`where a claim under § 75-1.1 stems from an alleged
`misrepresentation, a plaintiff must also demonstrate reliance on
`that misrepresentation to prove proximate causation. Bumpers v.
`Cmty. Bank of N. Va., 747 S.E.2d 220, 226 (N.C. 2013).
`Not all articles contained in Chapter 753 are subject to the
`generalized pleading requirements of § 75-1.1 as a matter of
`course. See Reid, 531 S.E.2d at 234-35. Rather, there must be an
`indication that the General Assembly intended to limit an article
`by those requirements. See id. For example, in Reid, the North
`
`
`3 The remaining articles are entitled as follows: Article 2 - Prohibited
`Acts by Debt Collectors; Article 2A - Identity Theft Protection Act;
`Article 3 – Motor Fuel Marketing Act; Article 4 – Telephone
`Solicitations; Article 5 – Unsolicited Facsimiles; Article 5A – Home
`Foreclosure Rescue Scams; Article 6 – Truth in Advertising Act; Article
`7 – Credit Monitoring Services Act.
`11
`
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`Carolina Court of Appeals analyzed Article 2 of the UDTPA and found
`— based on the language employed in the article, rather than its
`codification within Chapter 75 — that the General Assembly intended
`the article to be limited by the generalized requirements of
`§ 75.1-1. Id. Although the article did not specially state that
`it was subject to the requirements of § 75-1.1, the court found
`that the General Assembly intended as much based on the following
`language contained in the final section of the article:
`The specific and general provisions of this Article
`shall exclusively constitute the unfair or deceptive
`acts or practices proscribed by G.S. 75-1.1 in the area.
`Notwithstanding the provisions of G.S. 75-15.2 and G.S.
`75-16, in private actions or actions instituted by the
`Attorney General, civil penalties in excess of two
`thousand dollars ($2,000) shall not be imposed, nor
`shall damages be trebled for any violation under this
`Article.
`
`Id. The court reasoned that the specific invocation of § 75-1.1,
`coupled with its implicit reference to Article 1’s allowance for
`trebled damages, demonstrated the General Assembly’s intent to
`limit Article 2 by the pleading requirements of § 75-1.1.
`Relying on Reid, Landmark contends that the Act is similarly
`subject to the pleading requirements § 75-1.1. Landmark points to
`the language of § 75-144 which states that a bond may only be
`imposed on a person if there is a “reasonable likelihood” the
`“person has made a bad-faith assertion of patent infringement in
`violation of this Chapter.” (Doc. 53 at 3 (emphasis added).) It
`further contends that § 75-144’s reference to § 75-145 links the
`
`
`
`12
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`provisions such that § 75-145 is also limited by § 75-1.1’s
`generalized pleading requirements. See N.C. Gen. Stat. § 75-144
`(allowing the court to impose a bond on a person that “has made a
`bad-faith assertion of patent infringement in violation of this
`Chapter” and the bond may include “amounts reasonably likely to be
`recovered under G.S. 75-145”).
`This is unpersuasive. As with the article at issue in Reid,
`the Act does not specifically state that it is subject to the
`generalized pleading requirements of § 75-1.1. But unlike Reid,
`the Act contains no specific reference to § 75-1.1 or Article 1.
`Further, in contrast with Article 2, § 75-145 does not assume that
`violations of the Act will be subject to the damages provision of
`Article 1. Compare N.C. Gen. Stat. § 75-56 (exempting civil
`penalties in excess of $2,000 under the article from Article 1’s
`trebled damages provision) with N.C. Gen. Stat. § 75-145(b)
`(detailing remedies available to a prevailing plaintiff without
`explicit or implicit reference to Article 1). In fact, in
`reference to enforcement actions by the Attorney General, the
`statute explicitly states that the Attorney General may “make
`rules, conduct civil investigations, bring civil actions, and
`enter into assurances of discontinuance as provided under this
`Chapter” and further that “the court may award or impose any relief
`available under this Chapter.” See N.C. Gen. Stat. § 75-145(a)
`(emphasis added). The fact that the General Assembly specifically
`
`
`
`13
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`articulated that the Attorney General’s powers under the Act
`include those powers outlined elsewhere in Chapter 75 is indicative
`of the General Assembly’s intent that the Act would not be subject
`to other provisions of Chapter 75 as a matter of course. Notably,
`no similar invocations of Chapter 75 appear in § 75-145(b) under
`which this action is initiated.
`Landmark places significant weight on the term “this Chapter”
`in connection with “a bad-faith assertion of patent infringement”
`in § 75-144(a). However, this language does not reveal an intent
`that the Act be subject to the pleading requirements of § 75-1.1,
`which is simply one provision among the nine articles and over one
`hundred provisions included in Chapter 75. Had the General
`Assembly intended to link the Act to the requirements of § 75.1-
`1, it was aware how to do so – the Reid decision was issued in
`2000, fourteen years before the promulgation of the Act. Indeed,
`the General Assembly has explicitly linked multiple other
`provisions within Chapter 75 to § 75-1.1. See, e.g., N.C. Gen.
`Stat. § 75-40 (“A violation of this section is an unfair trade
`practice under G.S. 75-1.1.); id. § 75-64 (“A violation of this
`section is a violation of G.S. 75-1.1.”); id. § 75-122 (“A
`violation of G.S. 75-121 is an unfair trade practice under 75-
`1.1.”); id. § 75-128 (“A violation of this Article shall be an
`unfair and deceptive trade practice under G.S. 75-1.1.”). There
`would have been no need to do so if § 75-1.1 applied to all
`
`
`
`14
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`provisions of all articles of Chapter 75 as a matter of course.
`Here, the fact that the General Assembly used language neither
`implicitly nor explicitly connecting the Act to Article 1 or § 75-
`1.1, despite the Reid decision, suggests that the General Assembly
`did not have an intention to do so.
`In light of this analysis, the court rejects Landmark’s
`contention that a claim for a violation of the Act must allege the
`elements of a claim under § 75-1.1. Rather, a claimant must allege
`those elements required by the Act itself, namely that they are a
`target or person aggrieved by a violation of the Act.4 See N.C.
`Gen. Stat. § 75-145(b).
`Alternatively, Landmark contends that NAPCO has not met the
`requirements of the Act itself because it has not been “aggrieved,”
`as required by § 75-145(b). (Doc. 53 at 3-4.) NAPCO indicates
`that it has been aggrieved by Landmark’s alleged bad faith
`infringement claim in that it “was forced to divert resources from
`operating its business to address Landmark’s claim,” which
`included researching, reviewing, and investigating the claim,
`corresponding with attorneys, and defending against the claim, as
`well as incurring costs and fees, including attorneys’ fees. (See
`Doc. 39 at 8; Doc. 15 ¶¶ 130-31.) In response, Landmark argues
`that these damages do not constitute an injury under the law.
`
`
`4 As discussed in greater detail, infra, claimants must also allege
`objective and subjective bad faith as required by federal law.
`15
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`(Doc. 53 at 3-4.)
`The Act contains no definition of the term “aggrieved.”
`However, the North Carolina Supreme Court has previously explained
`that the term “person aggrieved” has “no technical meaning” and
`that “[w]hat it means depends on the circumstances involved.” In
`re Halifax Paper Co., 131 S.E.2d 441, 446 (N.C. 1963); see also
`N.C. Forestry Ass'n v. N.C. Dep't of Env't & Nat. Res., Div. of
`Water Quality, 571 S.E.2d 602 (N.C. Ct. App. 2002), rev'd on other
`grounds, 588 S.E.2d 880 (N.C. 2003). “[Aggrieved] has been
`variously defined: ‘Adversely or injuriously affected; damnified,
`having a grievance, having suffered a loss or injury, or injured;
`prejudiced; also having cause for complaint. More specifically
`the word(s) may be employed meaning adversely affected in respect
`of legal rights, or suffering from an infringement or denial of
`legal rights.’” In re Halifax Paper, 131 S.E.2d at 446 (quoting
`3 C.J.S. Aggrieved, p. 350). Accordingly, in order to determine
`the meaning of “aggrieved” in the context of the Act, “the
`circumstances involved” must be examined.
`Since 2013, over two dozen states have enacted statutes
`focused on curbing bad faith assertions of patent infringement by
`so-called “patent trolls.” See Gardner & Dew, supra, at 410-15;
`(see also Doc. 50 at 4 (indicating that 32 states have passed such
`statutes)). The North Carolina General Assembly, in addressing
`the purpose of the Act, found that while “[t]he General Assembly
`
`
`
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`does not wish to interfere with good-faith patent litigation,” the
`“expense of patent litigation, which may cost millions of dollars,
`can be a significant burden on companies.” N.C. Gen. Stat. § 75-
`141(a)(3)-(4). It further explained that “[a]busive patent
`litigation, and especially the assertion of bad-faith infringement
`claims, can harm North Carolina companies.” Id. § 75-141(a)(6).
`It detailed that a business that receives a bad-faith infringement
`claim “faces the threat of expensive and protracted litigation and
`may feel that it has no choice but to settle and to pay a licensing
`fee even if the claim is meritless.” Id. The General Assembly
`found that this is a particular concern for small- and medium-
`sized companies that “lack the resources to investigate and defend
`themselves against infringement claims.” Id. Further, it
`declared, bad faith claims harm the economy more broadly in that
`“[f]unds used to avoid the threat of bad-faith litigation are no
`longer available to invest, produce new products, expand, or hire
`new workers.” Id. § 75-141(a)(7). In enacting the APAA, the
`General Assembly expressed particular concern about “abusive
`patent assertion entities who have limited liability, as these
`companies may hold no cash or other assets” and therefore were not
`deterred from making such bad faith assertions under preexisting
`law. See id. § 75-141(a)(9); see also 35 U.S.C. § 285 (allowing
`prevailing defendants in patent infringement actions to recover
`costs and attorneys’ fee awards in “exceptional cases”).
`
`
`
`17
`
`Case 1:21-cv-00025-TDS-LPA Document 55 Filed 08/19/21 Page 17 of 62
`
`

`

`The purpose of the Act, as articulated by the General
`Assembly, informs the understanding of the meaning of “aggrieved.”
`Section 75-141, entitled “Purpose,” sets out multiple reasons for
`the Act, which in substance provide that the law is designed to
`prevent companies from being forced to unnecessarily expend
`resources in investigating and defending against bad faith
`assertions of patent infringement, or being forced to pay an
`unnecessary licensing fee, which the General Assembly considered
`particularly pressing in light of the high cost and complexity of
`patent litigation coupled with the understanding that, under the
`prior status quo, companies with few assets were not deterred from
`making such assertions. N.C. Gen. Stat. § 75-141. Given this,
`someone is aggrieved under the Act when he receives a bad faith
`assertion of patent infringement and as a result expends funds
`investigating or defending himself from the claim or paying a
`licensing fee despite the claim being meritless. In conformity
`with North Carolina tort law, such damages would not include those
`that are “uncertain and speculative,” but may include damages such
`as lost profits where “such loss is the direct and necessary result
`of the defendant's wrongful conduct, and such profits are capable
`of being shown with a reasonable degree of certainty.” Reliable
`Trucking Co. v. Payne, 65 S.E.2d 132, 133 (N.C. 1951). Not
`included in the term “aggrieved,” as used in the Act, however, are
`“[c]osts and fees, including reasonable attorneys’ fees,” which
`
`
`
`18
`
`Case 1:21-cv-00025-TDS-LPA Document 55 Filed 08/19/21 Page 18 of 62
`
`

`

`the Act considers separate from damages. See N.C. Gen. Stat. § 75-
`145(b).
`NAPCO’s allegations of harm closely align with North
`Carolina’s judicial definition of “aggrieved.” Specifically,
`NAPCO contends that it was forced to divert resources to research,
`review, and investigate Landmark’s claim, as well as correspond
`with attorneys and defend against the claim. (See Doc. 39 at 8;
`Doc. 15 ¶¶ 130-31.) In light of these allegations, NAPCO has
`plausibly pleaded that it has been aggrieved by Landmark’s
`violation of the Act. As such, Landmark’s motion to dismiss the
`claim on these grounds will be denied.5
`3.
`Preemption
`Landmark next alleges that the Act is preempted by federal
`law, such that dismissal is demanded. Landmark contends that, due
`to multiple conflicts with federal patent law, the Act is preempted
`as a whole. (Doc. 18 at 13-15.) It further contends that, even
`if the Act is not wholly preempted, NAPCO has failed to meet the
`
`
`5 In its reply brief, Landmark suggests for the first time that, for the
`same reasons NAPCO has not been “aggrieved,” NAPCO also lacks standing
`to bring this claim. (Doc. 53 at 3-4.) This appears to be an argument
`regarding injury-in-fact. (See id.) Typically, it is not proper to
`raise new arguments in a reply brief. Parker v. United States, No.
`1:05CR158-1, 2008 WL 11491651, at *10 (M.D.N.C. Mar. 3, 2008), report
`and recommendation adopted, No. 1:05CR158-1, 2008 WL 11491650 (M.D.N.C.
`May 19, 2008). Regardless, for the reasons discussed, supra, the court
`finds that NAPCO has sufficiently alleged an injury-in-fact. See Duke
`Power Co. v. Carolina Envtl. Study Grp., 438 U.S. 59, 72 (1978)
`(explaining that injury-in-fact requires a “distinct and palpable
`injury” that is “fairly traceable” to the challenged conduct).
`19
`
`
`
`Case 1:21-cv-00025-TDS-LPA Document 55 Filed 08/19/21 Page 19 of 62
`
`

`

`pleading requirements of federal patent law to survive dismissal.
`(Id. at 9-13.) Each of these arguments is addressed in turn.
`a.
`Facial preemption
`Landmark identifies three grounds upon which it contends the
`Act should be found to be facially preempted based upon conflicts
`with federal law. First, it argues that the standard of proof
`required by the Act conflicts with the “clear and convincing
`evidence” standard required under federal law. (Id. at 13.)
`Second, relying on the Act’s non-exhaustive list of factors to
`consider in determining the existence of “bad faith,” it contends
`that the Act’s definition of “bad faith” conflicts with federal
`patent law because the listed factors are more expansive than the
`strict “objective baselessness” standard necessary to establish
`bad faith under federal law. (Id. at 14.) Finally, it argues
`that the Act improperly requires patentholders to provide more
`information to potential patent infringers than the “actual
`notice” requirement articulated by the Federal Circuit. (Id. at
`14-15.) Based on these conflicts, and as the Act lacks a
`severability clause, Landmark asserts that the Act as a whole must
`be held invalid. (Id. at 15.) NAPCO responds that the standard
`of proof required under the Act is in fact severable and should be
`severed to keep in place the valid provisions of the Act. (Doc.
`39 at 14-15.) It further argues that the other grounds brought by
`Landmark do not preempt the Act, even if the Act does not mirror
`
`
`
`20
`
`Case 1:21-cv-00025-TDS-LPA Document 55 Filed 08/19/21 Page 20 of 62
`
`

`

`federal law, because the requirements under the Act may be
`“satisfied by showing the required federal analogue.” (Id. at 12-
`14.) Meanwhile, the State of North Carolina, in its amicus brief,
`contends that the General Assembly intended to incorporate into
`the Act the standard required under federal law. (See Doc. 49 at
`8-9.)
`Under the Supremacy Clause, a state law may be preempted

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