# NAPCO, INC. v. LANDMARK TECHNOLOGY A, LLC

> District Court, M.D. North Carolina · August 19, 2021

URL: https://www.frixlaw.com/law-library/cases/10253857

## Case

- **Court:** District Court, M.D. North Carolina
- **Decided:** August 19, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10253857

## How later opinions describe it (automated extraction)

- finding bad faith sufficiently alleged where company “conducted no investigation, analysis, or review prior to sending” demand letter and emails showed knowledge that process could not infringe subject patent
- holding the application of a preempted law unconstitutional under the Supremacy Clause
- explaining that injury-in-fact requires a “distinct and palpable injury” that is “fairly traceable” to the challenged conduct

## Opinion text

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
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.
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
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).
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
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
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
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
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
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
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.
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
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
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
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.
(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
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”).
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
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).
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
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 by
federal statute. See U.S. CONST. art. VI, cl. 2; Crosby v. Nat'l
Foreign Trade Council, 530 U.S. 363, 372 (2000). Even where
Congress does not explicitly state that a federal statute preempts
state law, a court may find state law preempted to the extent it
conflicts with a federal statute or where Congress intended “to
occupy the field.” Crosby, 530 U.S. at 372. The former category,
often termed “conflict preemption,” occurs where “it is impossible
for a private party to comply with both state and federal

requirements” or “state law stands as an obstacle to the
accomplishment and execution of the full purposes and objectives
of Congress.” Amgen, Inc. v. Sandoz Inc., 877 F.3d 1315, 1326
(Fed. Cir. 2017). To find state law conflicts with the purposes
of a federal act, “a high threshold must be met,” and the court
should not conduct “a freewheeling judicial inquiry into whether
a state statute is in tension with federal objectives.” Chamber
of Com. of U.S. v. Whiting, 563 U.S. 582, 607 (2011) (plurality
opinion) (quoting Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S.
88, 110 (1992) (Kennedy, J., concurring in part and concurring in
judgment)). Further, “in a field which the States have
traditionally occupied,” the background assumption is “that the

historic police powers of the States were not to be superseded by
the Federal Act unless that was the clear and manifest purpose of
Congress.” Wyeth v. Levine, 555 U.S. 555, 565 (2009).
The Federal Circuit has stated that federal patent law neither
explicitly preempts nor occupies the field pertaining to state
unfair competition law. Hunter Douglas, Inc. v. Harmonic Design,
Inc., 153 F.3d 1318, 1332–33 (Fed. Cir. 1998), overruled on other
grounds by Midwest Indus., Inc. v. Karavan Trailers, Inc., 175
F.3d 1356 (Fed. Cir. 1999). As such, only conflict preemption is
at issue here. Additionally, although patent law is the domain of
the federal government, the Federal Circuit has explained that
unfair competition law is primarily within the power of the states,

and the court accordingly applies a presumption against
preemption. See Hunter Douglas, 153 F.3d at 1333-34.
As discussed above, unless “the language of a statute is clear
and unambiguous” such that “the courts must give it its plain and
definite meaning,” Lanvale Props., 731 S.E.2d at 809–10, North
Carolina courts interpret statutes in line with the intent of the
General Assembly “as gleaned from the language of the statute, the
spirit of the statute and the purposes to be accomplished by the
statute,” Foremost Ins., 232 S.E.2d at 418; see also Dickson v.
Rucho, 737 S.E.2d 362, 368 (N.C. 2018) (“The primary rule of
construction of a statute is to ascertain the intent of the
legislature and to carry out such intention to the fullest

extent.”). Further, North Carolina courts apply a presumption
against construing a statute in a way that would make it
unconstitutional and will “resolve all doubts in favor of [a
statute’s] constitutionality.” State v. Mello, 684 S.E.2d 477,
479 (N.C. Ct. App. 2009), aff'd, 700 S.E.2d 224 (N.C. 2010).6
These principles apply to the question of facial preemption
presented here. See Bell Atlantic Md., Inc. v. Prince George's
Cnty., 212 F.3d 865 (4th Cir. 2000) (“[W]hether a federal statute
preempts a state statute . . . is a constitutional question.”);
Crosby, 530 U.S. at 388 (holding the application of a preempted
law unconstitutional under the Supremacy Clause).
In promulgating the APAA, the General Assembly expressly

stated that the Act was intended not to conflict with federal
patent law. See, e.g., N.C. Gen. Stat. § 75-141(a)(3) (recognizing
that “North Carolina is preempted from passing any law that
conflicts with federal patent law”); id. § 75-141(a)(4) (“North
Carolina wishes to help . . . by encouraging the most efficient

6 North Carolina courts apply this presumption even in claims arising
under the U.S. Constitution. See Mello, 684 S.E.2d at 479-81. The court
is of course not bound by a state court’s interpretation of the U.S.
Constitution, but the state court's interpretation is relevant to the
constitutional analysis “only insofar as it fixes the meaning of the
regulation.” Griffin v. Wisconsin, 483 U.S. 868, 875 (1987).
resolution of patent infringement claims without conflicting with
federal law.”); id. § 75-141(b) (explaining “[t]he General
Assembly seeks . . . to strike a balance between (i) the interests

of efficient and prompt resolution of patent infringement claims
. . . and (ii) the intentions to respect federal law”).
With these principles and background in mind, the court now
considers the three grounds upon which Landmark contends the Act
is preempted.
Landmark first contends that the Act is preempted because it
is subject to a lower standard of proof than that required for bad
faith claims under federal law. Federal patent law protects good
faith representations of patent infringement, and the parties
acknowledge that claims of bad faith infringement must be shown by
clear and convincing evidence. Golan v. Pingel Enter., Inc., 310
F.3d 1360, 1371–72 (Fed. Cir. 2002).7 By contrast, claims under

the UDTPA may be proven by a preponderance of the evidence. See
Ga. Pacific Consumer Prods., LP v. Drehle Corp., 618 F.3d 441, 457
(4th Cir. 2010). This standard is not articulated within the UDTPA
but rather reflects the default standard applied to civil claims

7 While NAPCO acknowledges that Globetrotter Software, Inc. v. Elan
Computer Grp., Inc., 362 F.3d 1367, 1377 (Fed. Cir. 2004) (citing Golan,
310 F.3d at 1371), is controlling on the standard of proof required under
federal patent law, it reserves the right to argue on appeal that
Globetrotter has been abrogated by Octane Fitness, LLC v. ICON Health &
Fitness, Inc., 572 U.S. 545, 557 (2014) (holding that entitlement to
attorneys’ fees under federal patent law need not be shown by clear and
convincing evidence). (Doc. 39 at 13 n.5.)
in North Carolina. See Adams v. Bank of United of Tex. FSB, 606
S.E.2d 149, 154 (N.C. 2004). This default standard does not apply
where the legislature intends another standard of proof to apply.

See id.
Here, Landmark contends that the Act requires proof only by
a preponderance of the evidence because it is codified within
Chapter 75. To be sure, the Act itself contains no provision as
to an applicable standard of proof. See N.C. Gen. Stat. §§ 75-
140-145. In light of the General Assembly’s clear intention to
avoid conflict with federal law, it is unlikely that the General
Assembly intended the Act to be subject to a standard of proof
that would clearly conflict with federal law. As such, it is
reasonable to conclude that the legislature did not intend that
the Act be governed by the default preponderance of the evidence
standard, but rather that it should be subject to the clear and

convincing evidence standard required to avoid preemption under
federal law. This conclusion is strengthened by the fact that the
Federal Circuit’s 2002 opinion in Golan acknowledging the “clear
and convincing” standard would have been well-known to the General
Assembly by 2014 when it enacted the APAA as well as by the
presumption against preemption and the canon that statutes will be
interpreted in a manner to be found constitutional where possible.
Accordingly, the court interprets the Act as incorporating the
standard of proof required under federal law.8 Claims must
therefore be shown by clear and convincing evidence.9
Landmark next contends that the Act is preempted because it

interferes with the purposes and objectives of federal patent law
because, first, the Act contains a non-exhaustive list of factors
to consider in determining the existence of bad faith which are
less rigorous than the “objectively baseless” standard required
under federal law and, second, that the notice required by those
factors exceeds the requirements of federal patent law.
At issue is § 143 of the Act, which contains a list of factors
that “[a] court may consider . . . as evidence that a person has
made a bad-faith assertion of patent infringement.” N.C. Gen.

8 Because the court concludes that the General Assembly intended to
incorporate the standard of proof required under federal law, the court
does not engage in any “rewriting” of the statute. See Cooper v. N.C.
State Bd. of Elections, No. 5:08-CV-423-D, 2009 WL 9081691, at *10
(E.D.N.C. June 12, 2009) (“[A] federal court lacks power to rewrite state
statutes.”).

9 Alternatively, NAPCO contends that the standard of proof under Chapter
75 is severable from the Act. Where a statute contains both
constitutional and unconstitutional provisions, North Carolina courts
“sever the unconstitutional provisions and uphold the constitutional
provisions to the extent possible.” State v. Singletary, 786 S.E.2d
712, 720 (N.C. Ct. App. 2016) (citing Fulton Corp. v. Faulkner, 481
S.E.2d 8, 10 (N.C. 1997)). While absence of a severability clause may
provide insight into the General Assembly’s intent, it is not conclusive.
See Fulton, 481 S.E.2d at 10; Appeal of Springmoor, Inc., 498 S.E.2d
177, 185 (N.C. 1998). Given the General Assembly’s explicit intention
that the Act be consistent with federal law, any standard of proof that
would conflict with federal law would likely be considered severable.
Indeed, other courts in similar cases have found that “‘completely
eliminating the state law cause of action would do far greater violence
to likely legislative expectations’ than severing the standard of proof.”
See Landmark Tech., LLC v. Azure Farms, Inc., No. 3:18-CV-1568-JR, 2020
WL 1430088, at *4 (D. Or. Mar. 24, 2020).
Stat. § 75-143. Included among these factors are a failure of
the demand letter to contain certain information and factual
allegations concerning the specific manner in which the target’s

product infringes on the patent; a failure of the person making
the assertion to conduct an analysis comparing the claims in the
patent to the target’s product; a demand for payment of a license
fee or response within an unreasonably short period of time; actual
or constructive knowledge that the claim or assertion of patent
infringement is meritless; and the fact that the claimant has sent
substantially the same demand to multiple targets and against a
wide variety of products without reflecting on those differences
in a reasonable manner in the demands. Id. § 75-143(a). Landmark
argues that these factors present a conflict in that the bad faith
factors are more expansive than the objective bad faith standard
articulated under federal law and that the suggested notice

requirements are similarly too expansive.
A primary principle of federal patent law is that a patentee
must be free to make its rights known to a potential infringer so
that the latter can determine whether to cease its allegedly
infringing activities, negotiate a lease, or choose to risk
liability if the patent is enforced. See, e.g., Hunter Douglas,
153 F.3d at 1336. It is for this reason that federal patent law
requires claims of bad faith assertion of patent infringement to
be supported by both objective and subjective bad faith. Id.
However, a state need not explicitly write into a statute the
elements of objective and subjective bad faith to avoid preemption.
See id. at 1336-37; Globetrotter Software, Inc. v. Elan Comput.

Grp., Inc., 362 F.3d 1367, 1374 (Fed. Cir. 2004) (“[T]o avoid
preemption, bad faith must be alleged and ultimately proven, even
if bad faith is not otherwise an element of the tort claim.”
(internal quotation marks omitted)); see also Landmark Tech., LLC
v. Azure Farms, Inc., No. 3:18-CV-1568-JR, 2019 WL 3763762, at *6
(D. Or. June 26, 2019) (incorporating federal objective
baselessness and subjective bad faith standards into Oregon bad
faith patent infringement prohibition), report and recommendation
adopted in part, rejected in part, No. 3:18-CV-1568-JR, 2020 WL
1430088 (D. Or. Mar. 24, 2020); Puritan Med. Prod. Co. LLC v. Copan
Italia S.p.A., 188 A.3d 853, 860-63 (Me. 2018) (same, interpreting
Maine’s Actions for Bad Faith Assertion of Patent Infringement

statute); Summer Infant (USA), Inc. v. TOMY Int'l, Inc., No. CV
17-549MSM, 2019 WL 5540224, at *2-3 (D.R.I. Oct. 25, 2019) (same,
interpreting Rhode Island’s bad faith assertions of patent
infringement statute and stating that “courts have consistently
found that claims based on the state-law bad faith standard are
preempted, unless the claimant presents sufficient evidence to
allow a fact-finder to determine that the assertion of patent
infringement was both objectively baseless and made in subjective
bad faith”).10
Although Landmark argues that the Act’s bad faith factors
interfere with the objectives and purposes of federal patent law,

this does not appear to be the case. Another court analyzed a
similar statute under Oregon law which contained a nearly identical
list of factors to consider in determining the existence of bad
faith. See Landmark Tech., LLC v. Azure Farms, Inc., No. 3:18-
CV-1568-JR, 2020 WL 1430088, at *5 (D. Or. Mar. 24, 2020). There,
the court found that the factors did not interfere with federal
law because they were non-exhaustive, the court was not required
to consider them, and they could inform a court’s determination of
subjective bad faith rather than objective baselessness. See id.
For these same reasons, the Act’s bad faith factors – including
those relating to notice – do not interfere with the purposes of
federal patent law. The list of factors here “may” be considered

by the court, but the court is permitted to consider “[a]ny other
factor the court finds relevant.” N.C. Gen. Stat. § 75-143(a)(12).
As such, the factors – including the suggested notice requirements
– are not mandatory requirements for individuals asserting patent
infringement and do not present a clear conflict with federal law.
To the extent Landmark argues that the Act broadens the
objective bad faith inquiry beyond the “objectively baseless”

10 To the extent Landmark contends that NAPCO has failed to plausibly
plead these requirements, those arguments are addressed, infra.
requirement under federal law, this argument is meritless. The
Act contains factors to consider in finding “bad faith” but does
not specify that these factors show objective bad faith. Rather,

these factors may be considered in relation to the subjective bad
faith inquiry permitted under federal law without presenting any
conflict. In light of the General Assembly’s intent not to
conflict with federal law and the canon that statutes will be
interpreted in a manner that is constitutional where possible, the
court concludes that these factors relate to subjective bad faith,
rather than objective baselessness, and the statute is not
preempted on those grounds.11
b. Failure to plead consistent with federal law
Even if the Act is not wholly preempted, Landmark argues,
NAPCO has failed to plead its claim consistent with federal law in

11 Landmark’s reliance on Eubanks v. Wilkinson, 937 F.2d 1118 (6th Cir.
1991), for its argument that the incorporation of the requirements of
federal patent law constitutes an impermissible rewriting of the Act is
misplaced. In that case, the district court found that language used
in a state statute was unconstitutionally vague and supplied new limiting
language for the statute. See id. at 1121. The Sixth Circuit found
this selection of entirely new language by the district court infringed
on the powers of the state legislature. See id. at 1127. Landmark also
cites to United States v. Sims where the Fourth Circuit declined to adopt
a reading of a statute that “directly conflict[ed] with how courts and
the United States itself” had interpreted it. 914 F.3d 229, 252 (4th
Cir. 2019). Here, the court does not supply any additional language to
the Act but rather interprets the General Assembly’s intention in
prohibiting “bad faith” assertions of patent infringement in line with
the language of the statute. As discussed supra, this interpretation
is consistent with the applicable precedent of the Federal Circuit and
with the interpretations of other courts construing similar statutes.
Accordingly, Landmark’s contention that upholding the Act requires the
court to engage in rewriting it is meritless.
two respects. First, it argues that NAPCO has failed to plausibly
plead both “objective baselessness” and “subjective bad faith,” as
required by federal patent law. (Doc. 18 at 10-12.) Second, it

contends that NAPCO’s claim is barred by the Noerr-Pennington
doctrine. (Id. at 13.) Landmark further argues that the claim
should be dismissed as premature. (Id. at 12; Doc. 53 at 9-10.)
NAPCO, in turn, argues that it has sufficiently pleaded both
“objective baseless” and “subjective bad faith” and that Noerr-
Pennington does not apply because it has sufficiently alleged that
Landmark’s petitioning activity is a “sham.” (Doc. 39 at 15-18.)
It further argues that the claim should not be dismissed as
premature as it has plausibly pleaded its claim, as required at
the present stage. (Id. at 18.)
i. Bad faith allegations
“[F]ederal 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.” Globetrotter, 362 F.3d at 1374 (citing Zenith Elecs.
Corp. v. Exzec, Inc., 182 F.3d 1340, 1355 (Fed. Cir. 1999)).
“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.” Id. (citing Zenith, 182 F.3d
at 1355). “Accordingly, to avoid preemption, ‘bad faith must be
alleged and ultimately proven, even if bad faith is not otherwise
an element of the tort claim.’” Id. (citing Zenith, 182 F.3d at
1355). To make a claim of bad faith under federal patent law, a
party must plead both objective and subjective bad faith. See id.

at 1374-75. The parties agree as much. (See Docs. 18, 39.) The
only issue is whether NAPCO has sufficiently pleaded bad faith
here.
The Federal Circuit has explained that objective bad faith is
satisfied where the claim is objectively baseless “in the sense
that no reasonable litigant could realistically expect success on
the merits.” See Globetrotter, 362 F.3d at 1376. Whether such a
claim meets this standard is determined on a case-by-case basis.
See Zenith, 182 F.3d at 1354. “In general, a threshold showing of
incorrectness or falsity, or disregard for either, is required in
order to find bad faith in the communication of information about
the existence or pendency of patent rights.” Golan, 310 F.3d at

1371 (internal citation omitted); c.f. Matthews Int'l Corp. v.
Biosafe Eng'g, LLC, 695 F.3d 1322, 1332 (Fed. Cir. 2012) ; see
also Zenith, 182 F.3d at 1354 (“Obviously, if the patentee knows
that the patent is invalid, unenforceable, or not infringed, yet
represents to the marketplace that a competitor is infringing the
patent, a clear case of bad faith is made out.”). Meanwhile, the
subjective component requires a showing that the patentee
demonstrated subjective bad faith in enforcing its patent.
Globetrotter, 362 F.3d at 1375. Under federal law, in order to
seek to protect patent rights, patentholders “are allowed to make
representations that turn out to be inaccurate provided they make
them in good faith.” Golan, 310 F.3d at 1371.

NAPCO contends that objective bad faith is established based
on its allegations that Landmark “knew, and should have known,
that the claims as reasonably construed could not possibly cover
NAPCO’s products, services, and technology,” that NAPCO’s services
and websites do not infringe the subject patent because they do
not practice every limitation of the independent claims, and that
NAPCO does not own or control the servers alleged to infringe the
patent. (Doc. 39 at 16.) Notably, NAPCO’s complaint states that
“any reasonable investigation of the website, including by
purchasing a single product through the website, would have
revealed that it does not infringe any valid claim” of the ‘508
patent. (Doc. 15 ¶ 107.)

Other courts have found that a failure to conduct a reasonable
investigation may constitute objective bad faith. See, e.g., Reid–
Ashman Mfg., Inc. v. Swanson Semiconductor Serv., L.L.C., No. C–
06–4693, 2007 WL 1394427, at *9 (N.D. Cal. May 10, 2007) (finding
bad faith adequately pleaded where complaint alleged that patentee
had never adequately inspected the accused product prior to suit
and pictures patentee took of allegedly infringing product were of
a prototype rather than of the product); Triple7Vaping.com, LLC v.
Shipping & Transit LLC, No. 16-CV-80855, 2017 WL 5239874, at *7
(S.D. Fla. Feb. 6, 2017) (finding allegations, including “that a
reasonable investigation . . . by purchasing a single product from
the Website[] would have revealed that the Website does not

infringe S&T's patents,” sufficient to show objective
baselessness); Veolia Water Sols. & Techs. N. Am., Inc. v. Aquatech
Int'l Corp., 123 F. Supp. 3d 695, 701 (W.D. Pa. 2015) (finding bad
faith sufficiently alleged where company “conducted no
investigation, analysis, or review prior to sending” demand letter
and emails showed knowledge that process could not infringe subject
patent); see also Nuance Commc'ns, Inc. v. MModal LLC, No. CV 17-
1484-MN-SRF, 2018 WL 6804488, at *4 (D. Del. Dec. 27, 2018)
(finding objective baselessness alleged where party’s “non-
infringement allegations detail elements of the Asserted Patents
that are not met in the accused product”), report and
recommendation adopted, No. CV 17-1484 (MN), 2019 WL 181322 (D.

Del. Jan. 11, 2019).
Here, NAPCO has alleged that its technology does not infringe
Landmark’s patent and that Landmark failed to engage in a basic
investigation by purchasing a single item from the website which
would have revealed that the website does not infringe Landmark’s
patent. If true, this would constitute objective bad faith by
demonstrating Landmark’s disregard for the correctness of its
allegations.12 As such, at this early stage, NAPCO has alleged
sufficient facts to support a finding of objective baselessness.
To the extent Landmark contends NAPCO failed to plead

subjective bad faith, this argument fails. Not only has NAPCO
alleged that Landmark failed to conduct a basic investigation that
would have revealed NAPCO’s non-infringement, it has also alleged
that Landmark engaged in a pattern of meritless litigation against
various entities and has attempted to force quick settlements,
based on the in terrorem effect of its demands, without any intent
of litigating its claims. See Eon-Net LP v. Flagstar Bancorp, 653
F.3d 1314, 1326 (Fed. Cir. 2011) (affirming district court’s
finding of subjective bad faith where plaintiff’s case “had
‘indicia of extortion’ because it was part of [plaintiff]'s history
of filing nearly identical patent infringement complaints against
a plethora of diverse defendants, where [plaintiff] followed each

filing with a demand for a quick settlement at a price far lower
than the cost to defend the litigation”). Notably, the demand
letter here offered a licensing fee of $65,000 available for a
period of approximately two weeks and which would “not be available
in the event of litigation.” (See Doc. 1-1 at 3.) In light of
these allegations, NAPCO has alleged sufficient facts to plausibly
plead subjective bad faith. Accordingly, Landmark’s motion to

12 Whether Landmark’s investigation was adequate is a question of fact
not suitable for resolution at the current stage.
dismiss on these grounds will be denied.
ii. Noerr-Pennington immunity
Landmark next contends that the communications within its

demand letter are protected by Noerr-Pennington immunity. In
response, NAPCO argues that it has sufficiently alleged that
Landmark is engaged in “sham litigation” such that it cannot
benefit from such immunity.
The Petition Clause of the First Amendment provides that
“Congress shall make no law . . . abridging . . . the right of the
people . . . to petition the Government for a redress of
grievances.” The Supreme Court has recognized the “right to
petition as one of ‘the most precious of the liberties safeguarded
by the Bill of Rights[.]’” BE & K Constr. Co. v. NLRB, 536 U.S.
516, 524 (2002) (quoting United Mine Workers v. Ill. Bar Ass'n,
389 U.S. 217, 222 (1967)). “The Noerr–Pennington doctrine grants

First Amendment immunity to those who engage in petitioning
activity.” IGEN Int'l, Inc. v. Roche Diagnostics GMBH, 335 F.3d
303, 310 (4th Cir. 2003) (emphasis in original) (citing United
Mine Workers of Am. v. Pennington, 381 U.S. 657, 670 (1965), and
E. R.R. President's Conf. v. Noerr Motor Freight, Inc., 365 U.S.
127, 138 (1961)). This doctrine has been extended to certain pre-
litigation conduct, including demand letters. See Glass Equip.
Dev., Inc. v. Besten, Inc., 174 F.3d 1337, 1344 (Fed. Cir. 1999);
see also Globetrotter, 362 F.3d at 1376 (indicating Noerr-
Pennington immunity applies to pre-litigation communications
alleging patent infringement). To overcome this presumptive
immunity, a plaintiff must establish that the defendant's

instigation of litigation was merely a “sham.” Prof'l Real Estate
Invs., Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60
(1993) (“PRE”); see also Globetrotter, 362 F.3d at 1377 (applying
PRE sham exception in the context of pre-suit communications
alleging patent infringement). The two-part test articulated in
PRE requires the plaintiff to show not only that the litigation
was objectively baseless, but also that the defendant subjectively
intended to harm the plaintiff through the abuse of the
governmental process itself, as opposed to harms flowing from the
outcome of that process. See PRE, 508 U.S. at 60-61.
For the reasons already noted, NAPCO has sufficiently alleged
that Landmark’s demand letter was objectively baseless and brought

in subjective bad faith by relying on the threat of litigation to
extract a quick settlement. These same allegations sufficiently
support NAPCO’s contention that the demand letter was a “sham.”
Whether such allegations ultimately are supported, such that
Landmark cannot avail itself of Noerr-Pennington protection, is
not appropriate for consideration at the current stage. See
Hoffman-La Roche, Inc. v. Genpharm, Inc., 50 F. Supp. 2d 367, 380
(D.N.J. 1999) (declining to find Noerr-Pennington immunity on a
motion to dismiss because “reasonableness is a question of fact”).
Accordingly, Landmark’s motion to dismiss based on Noerr-
Pennington protection will be denied at this time.
iii. Prematurity

Landmark argues, in the alternative, that this claim should
be dismissed because it is premature in that the success of the
claim ultimately is dependent upon a finding of NAPCO’s non-
infringement. (Doc. 18 at 12; Doc. 53 at 9-10.) NAPCO argues
that dismissal on this ground is inappropriate because it has
plausibly alleged its claim as required at the present stage.
(Doc. 39 at 18.)
Although it is true that the success of NAPCO’s APAA claim is
dependent on the court finding that it did not infringe Landmark’s
patent, see Globetrotter, 362 F.3d at 1375 (objective baselessness
requires no reasonable expectation of success on the merits),
dismissal is premature. See, e.g., Gleason Works v. Oerlikon

Geartec, AG, 141 F. Supp. 2d 334, 338-39 (W.D.N.Y. 2001) (deferring
decision on, but not dismissing, claim of bad faith patent
infringement, explaining “the motion [for summary judgment] is
premature because it would be more productive and less wasteful to
consider the unfair competition counts after the primary issues of
infringement and validity have been addressed”); but see Azure
Farms, 2019 WL 3763762, at *7 (“Because plaintiff argues that new
assertions of objective baselessness are contravened by . . . the
'319 patent, assuming the statute itself is not preempted, the
Court should dismiss the claim without prejudice and thus allow
for allegations after the claim construction process.”). Were the
court to dismiss this claim and require NAPCO to first bring suit

solely on the validity of the patent, it would amount to a
functional prerequisite to suit that prospective litigants must
first successfully defend against a bad faith claim of patent
infringement. Requiring two separate proceedings would circumvent
the intentions of the General Assembly, which explicitly sought to
minimize “the threat of expensive and protracted [patent]
litigation.” N.C. Gen. Stat. § 75-141(a)(6). Although the court
may later determine that NAPCO’s other claims must be resolved
prior to consideration of the APAA claim, see, e.g., Fitbit, Inc.
v. Aliphcom, No. 5:15-CV-04073-EJD, 2016 WL 7888033, at *2 (N.D.
Cal. May 27, 2016) (bifurcating proceedings and staying antitrust
claim until determination of the validity of the patent

infringement claims), the APAA claim will not be dismissed on these
grounds at this time.
4. Constitutional Challenges
Lastly, Landmark contends that the Act violates the First
Amendment, the Equal Protection Clause of the Fourteenth
Amendment, and the dormant Commerce Clause. (Doc. 18 at 16-19.)
Each claim is addressed in turn.
a. First Amendment
Landmark claims that the Act violates the First Amendment in
two respects: first, that it imposes an unconstitutional content-
based restriction on speech and, second, that it
unconstitutionally compels speech. (Doc. 18 at 16-18.) This is

a facial challenge to the Act. In raising such a challenge,
Landmark confronts a “heavy burden.” Nat'l Endowment for the Arts
v. Finley, 524 U.S. 569, 580 (1998). The Supreme Court has
repeatedly stated that facial invalidation of legislation is
disfavored. See Wash. State Grange v. Wash. State Republican
Party, 552 U.S. 442, 450 (2008); Nat'l Endowment for the Arts, 524
U.S. at 580 (noting facial invalidation “has been employed by the
Court sparingly and only as a last resort”); FW/PBS, Inc. v.
Dallas, 493 U.S. 215, 223 (1990) (“[F]acial challenges to
legislation are generally disfavored.”).
i. Content-based restriction on speech
Landmark contends that the Act is a content-based restriction

on speech in that it targets speech – here, assertions of patent
infringement – based on its communicative content and should
therefore be subjected to strict scrutiny. (See Doc. 18 at 16;
Doc. 53 at 12-13.) It further argues, looking at the number of
entities that are exempted from the Act, that the law fails strict
scrutiny analysis because it is underinclusive for achieving its
stated goal. (Doc. 18 at 16-17.) NAPCO replies that the law is
not content-based because it does not apply to all assertions of
patent infringement, but rather only those made in bad faith.13
(Doc. 39 at 18-19.) It further contends that even if the Act were
considered content-based, it is properly tailored to “include only

those entities that lack the capitalization necessary to fear a
post-suit judgment.” (Id. at 20.)
The threshold inquiry is whether the Act regulates protected
speech. Courts have long distinguished between protected
expression and economic activity or, more generally, non-
expressive conduct. Sorrell v. IMS Health, 564 U.S. 552, 567
(2011). “[T]he First Amendment does not prevent restrictions
directed at commerce or conduct from imposing incidental burdens
on speech.” Id. For example, it is permissible for antitrust
laws to prohibit “agreements in restraint of trade.” See Giboney
v. Empire Storage & Ice Co., 336 U.S. 490, 502 (1949). “[I]t has
never been deemed an abridgement of freedom of speech or press to

make a course of conduct illegal merely because the conduct was in
part initiated, evidenced, or carried out by means of language,
either spoken, written, or printed.” Id.
Here, it is unclear whether the Act is properly characterized

13 Citing Globetrotter, 362 F.3d at 1377, NAPCO also contends that the
Act does not violate the First Amendment because the Federal Circuit has
already indicated that tort liability may be imposed on bad faith pre-
suit patent infringement assertions, “rest[ing] both on federal
preemption and the First Amendment.” (Doc. 39 at 20.) However,
Globetrotter addressed the right to petition under the First Amendment,
which is a separate consideration from whether laws expressly prohibiting
such assertions are unconstitutional content-based restrictions on
speech. As such, the court does not address that argument here.
as regulating speech or economic activity. While the Act addresses
“assertions of patent infringement” – which is ostensibly speech
– the Act only applies to “bad faith” assertions of patent

infringement – which could instead be considered conduct.
Unfortunately, neither party addresses this issue. Regardless,
the court need not decide this issue because even if the Act is
considered to regulate speech, it nevertheless passes
constitutional muster.
Content-based restrictions on speech – those restrictions
that target speech based on its communicative content – are
presumptively unconstitutional, and such laws are subject to
strict scrutiny. Reed v. Town of Gilbert, Ariz., 576 U.S. 155,
163-64 (2015). However, the First Amendment’s protection of speech
is not absolute. See United States v. Stevens, 559 U.S. 460, 468
(2010). The Supreme Court has “permitted restrictions upon the

content of speech in a few limited areas” that contain
“constitutionally proscribable content,” including obscenity,
defamation, incitement, speech integral to criminal conduct, and
fraud. See id. (internal quotations omitted); R.A.V. v. City of
St. Paul, 505 U.S. 377, 383-84 (1992). Although content-based
restrictions trigger strict scrutiny even where the speech falls
within one of these unprotected categories, “[w]hen the basis for
the content discrimination consists entirely of the very reason
the entire class of speech at issue is proscribable,” strict
scrutiny is not applied. See R.A.V., 505 U.S. at 388. In such
cases, however, as “the line between speech unconditionally
guaranteed and speech which may legitimately be regulated,

suppressed, or punished is finely drawn . . . the statute must be
carefully drawn or be authoritatively construed to punish only
unprotected speech and not be susceptible of application to
protected expression.” Gooding v. Wilson, 405 U.S. 518, 522
(1972). “In other words, . . . ‘[b]ecause First Amendment freedoms
need breathing space to survive, government may regulate in the
area only with narrow specificity.’” Id. (quoting NAACP v. Button,
371 U.S. 415, 433 (1963)). Where speech is unprotected, statutes
regulating such speech are subject to rational basis review. See
Ripplinger v. Collins, 868 F.2d 1043, 1057 (9th Cir. 1989) (“We
apply a rational basis test . . . because the statute regulates
only unprotected speech.”). Under the rational basis standard,

“legislation is presumed to be valid and will be sustained if the
classification drawn by the statute is rationally related to a
legitimate state interest.” Cleburne v. Cleburne Living Ctr.,
Inc., 473 U.S. 432, 439 (1985).
As a general rule, false speech is not categorically
unprotected. See United States v. Alvarez, 567 U.S. 709, 722
(2012). However, “[w]here false claims are made to effect a fraud
or secure moneys or other valuable considerations, say offers of
employment, it is well established that the Government may restrict
speech without affronting the First Amendment.” Id. (citing Va.
State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425
U.S. 748, 771–72 (1976)). Said another way, a false statement

associated with some form of “legally cognizable harm” may be
subject to restrictions consistent with the First Amendment. See
id. at 719. However, falsity of statement alone is not sufficient
– “[t]he statement must be a knowing or reckless falsehood.” Id.
at 719. Accordingly, in order to permissibly regulate false
speech, statutes must be drafted or construed narrowly such that
they apply only to knowing or reckless false statements made to
effectuate a legally cognizable harm.
Here, the Act does not regulate all assertions of patent
infringement but only “bad faith” ones. The Act specifies that
bad-faith infringement claims can harm North Carolina companies by
coercing businesses “to settle and to pay a licensing fee even if

the claim is meritless.” N.C. Gen. Stat. § 75-141(a)(6). In this
sense, the Act is akin to those regulating fraudulent statements
and, indeed, was enacted to prevent companies from being taken
advantage of by another’s wrongful assertions of patent
infringement. Given this, the Act proscribes certain
communications containing specific content precisely because of
the “distinctively proscribable content” of that communication.
As such, strict scrutiny should not be applied; rather, the Act
must be “carefully drawn or be authoritatively construed” to ensure
it addresses only unprotected speech. Gooding, 405 U.S. at 522.
As long as the Act meets this standard, it is subject to rational
basis review. See Ripplinger, 868 F.2d at 1057.

Viewed as a statute addressing false statements, the Act
adheres to First Amendment precedent. Because under federal patent
law a claim of a bad faith assertion must be supported by both
“objective baselessness” and “subjective bad faith,” even if not
explicitly written into the state law, claims may be brought under
the Act only if there is no reasonable expectation of success on
the merits of the infringement claim and the individual asserting
infringement knew or should have known that the claim had no
reasonable expectation of success. Further, as the discussed
above, the Act requires that a person or target be “aggrieved” by
the violation, constituting a cognizable legal harm. Further, the
Act does not encroach on a patentholder’s rights to assert

infringement of its patents. All such assertions are permissible
as long as they are not made in bad faith, as discussed supra.14

14 As the court finds that the speech at issue falls within an unprotected
category of speech and is based upon the proscribable nature of its
content, strict scrutiny is not applied and the court need not consider
Landmark’s argument that the law is not narrowly tailored due to the
number of entity classes exempted from the Act. (See Doc. 18 at 16-17);
see also Auburn Police Union v. Carpenter, 8 F.3d 886, 899 n.18 (1st
Cir. 1993) (examining whether a law challenged under both the First and
Fourteenth Amendments is unconstitutionally underinclusive and stating,
“[w]hen reviewing content-based distinctions, the Supreme Court has not
differentiated the Equal Protection Clause from the First Amendment”).
The court examines, infra, whether these class exemptions cause the Act
to fail rational basis scrutiny.
Based on this construction of the statute, the court finds that
the Act addresses only unprotected speech, consistent with First
Amendment precedent concerning the protection of false statements,

and is therefore subject to rational basis review. Prior to
engaging in this analysis, however, the court considers Landmark’s
remaining arguments to determine whether a heightened standard of
scrutiny should apply based upon another theory.
ii. Unconstitutionally compelled speech
Landmark next argues that the Act unconstitutionally compels
speech on the part of patentholders by allowing courts to find
holders act in “bad faith” if they omit certain information from
a demand letter. (Doc. 18 at 17-18.) In response, NAPCO argues
that the Act merely provides a “framework” that courts may utilize
– but are not required to utilize – in evaluating claims and that,
as consideration of the factors listed is discretionary, the Act

does not compel patentholders to speak in any particular manner.
(Doc. 39 at 20-21.) It further argues that the framework does not
interfere with the message of patent infringement conveyed. (Id.)
Compelled speech is considered a form of content-based
regulation on speech and therefore, if speech is compelled under
a statute, the statute is subject to strict scrutiny. See Greater
Balt. Ctr. for Pregnancy Concerns, Inc. v. Mayor & City Council of
Balt., 721 F.3d 264, 283 (4th Cir. 2013) (“[The] strict scrutiny
standard generally applies to content-based regulations, including
compelled speech.”).
Landmark contends that the Act compels speech based on § 75-
143, which indicates that “[a] court may consider” whether a demand

contains certain information “as evidence that a person has made
a bad-faith assertion of patent infringement.”15 See N.C. Gen.
Stat. § 75-143(a). This section also indicates that “a court may
consider” the fact that a demand contains the specified information
“as evidence that a person has not made a bad-faith assertion of
patent infringement.” Id. § 75-143(b). Notably, neither provision
requires that an individual disclose the specified information in
an assertion of patent infringement. Rather, the absence of such
information constitutes one of eleven defined factors that a court
“may” consider in determining the existence of bad faith. The
court is also permitted to consider “[a]ny other factor the court
finds relevant.” Id. § 75-143(a)(12).

Based on the language of these provisions alone, the Act does
not compel speech of any manner but rather provides a number of
factors a court may consider before making a finding of bad faith.
And although the disclosure of certain information may be

15 The Act indicates that a court may consider whether a “demand does not
contain all of the following information” as evidence of bad faith: the
patent application number or patent number; the name and address of the
patent owner or assignee; “[f]actual allegations concerning the specific
areas in which the target’s products, services, and technology infringe
the patent or are covered by specified, identified claims in the patent;”
and an explanation of why the person making the assertion has standing
if they are not identified as the owner. N.C. Gen. Stat. § 75-143(a)(1).
considered, it is possible for a court to make a finding of bad
faith even when such information is provided, and the reverse is
true as well. See id. § 75-143(a)-(b). Landmark does not cite,

nor has the court been able to locate, any prior case in which a
statute’s discretionary factors have been construed as compelling
speech.
Because the Act does not require any particular speech and,
indeed, patentholders remain free to make assertions of patent
infringement with or without the listed information, the court
finds that the Act does not unconstitutionally compel speech in
violation of the First Amendment. The Act is therefore not subject
to heightened scrutiny on these grounds.
b. Equal Protection Clause
Landmark next argues that the Act violates the Equal
Protection Clause of the Fourteenth Amendment by irrationally

policing bad faith patent infringement claims by non-operating
entities while exempting other organizations, including “operating
entit[ies],” “institution[s] of higher learning,” “technology
transfer organization[s],” and “nonprofit research
organization[s],” from the Act. (Doc. 18 at 18.) NAPCO responds
that the categorization of exempt and non-exempt organizations is
rational in light of the Act’s specific purpose of addressing
abusive patent assertions by entities who “hold no cash or other
assets.” (Doc. 39 at 22.) Moreover, it contends that this claim
is a mere repackaging of Landmark’s First Amendment claim and
should be dismissed on that basis alone. (Id. at 22-23.)
In evaluating an equal protection claim, the court must first

determine the proper standard of scrutiny to apply. The Supreme
Court has “long held that a classification neither involving
fundamental rights nor proceeding along suspect lines . . . cannot
run afoul of the Equal Protection Clause if there is a rational
relationship between the disparity of treatment and some
legitimate governmental purpose.” Armour v. City of Indianapolis,
Ind., 566 U.S. 673, 680 (2012) (internal quotation marks omitted).
In other words, such claims are subject to the rational basis test.
See id. However, classifications involving fundamental rights or
suspect classes are subject to strict scrutiny. See id. Although
Landmark contends this claim should be reviewed under strict
scrutiny because the Act is a content-based restriction on speech,

thereby involving a fundamental right (see Doc. 18 at 18); see
also Cent. Radio Co. Inc. v. City of Norfolk, Va., 811 F.3d 625,
633 (4th Cir. 2016), the court has rejected that argument. As
Landmark has failed to establish that a higher standard of scrutiny
should apply to the Act under either the First or Fourteenth
Amendments, the court reviews the Act under the rational basis
test.
The rational basis test is highly deferential. See Adkins v.
Rumsfeld, 464 F.3d 456, 469 (4th Cir. 2006). Under this standard,
“[a] challenged state action will survive . . . if it is rationally
related to legitimate government interests.” Cap. Associated
Indus. Inc. v. Stein, 283 F. Supp. 3d 374, 383 (M.D.N.C. 2017).

The test requires that the court determine “(1) whether the purpose
that animates [the challenged] laws and regulations is legitimate,
and (2) whether it was reasonable for the lawmakers to believe
that use of the challenged classification would promote that
purpose.” Adkins, 464 F.3d at 469 (internal quotations and
citations omitted) (alterations in original). Further, “[s]tates
are accorded wide latitude in the regulation of their local
economies under the police powers, and rational distinctions may
be made with substantially less than mathematical exactitude.”
New Orleans v. Dukes, 427 U.S. 297, 303 (1976). “[W]here ordinary
commercial transactions are at issue, rational basis review
requires deference to reasonable underlying legislative

judgments.” Armour, 566 U.S. at 680. And “although the
legislative findings and declaration of policy have no magical
quality to make valid that which is invalid, and are subject to
judicial review, they are entitled to weight in construing the
statute.” Hest Techs., Inc. v. State ex rel. Perdue, 749 S.E.2d
429, 433 (N.C. 2012).
Landmark contends that the Act cannot survive rational basis
review because various classes of patentholders are exempt from
the Act, including “operating entit[ies],”16 “institution[s] of
higher learning,” “technology transfer organization[s],” and
“nonprofit research organization[s].” (Doc. 18 at 18.) Landmark

argues that “[s]ince the Act’s stated purpose is to protect North
Carolina citizens from ‘bad faith’ assertions of patent
infringement, this disparate treatment of different categories of
patent owners makes no rational sense, since virtually all U.S.
patents are owned by so-called ‘operating’ entities.” (Id.)
Landmark misstates the full extent of the Act’s purpose. The
Act is not solely geared toward preventing bad faith assertions of
patent infringement, but rather seeks to prohibit a specific class
of such assertions. The General Assembly expressly recognized
that in lawsuits involving abusive patent assertions prior to the
passage of the Act, wrongly accused defendants were already able
to recover costs and fees following litigation in certain

circumstances. See N.C. Gen. Stat. § 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”). However, the General Assembly noted it acted
out of a concern that these preexisting remedies did “not serve as

16 The Act defines operating entities to include a person primarily
engaged in, over the preceding 24-month period, “research and technical
or experimental work to create, test, qualify, modify, or validate
technologies or processes for commercialization of goods or services;
manufacturing; or the provision of goods or commercial services,”
disregarding the selling and licensing of patents. N.C. Gen. Stat. § 75-
142(5).
a deterrent to abusive patent assertion entities who have limited
liability, as these companies may hold no cash or other assets.”
N.C. Gen. Stat. § 75-141(a)(9). As such, the legislature stated

it was specifically focusing the Act on preventing bad faith
assertions of patent infringement by entities that lack cash or
other assets, as these entities were unlikely to be deterred from
preying on local businesses by preexisting law. The desire to
prevent such remediless abuse, as well as to avoid the ensuing
cost to local businesses and the state economy as a whole, is a
legitimate purpose.
The court must next consider whether it was reasonable for
the lawmakers to believe that excluding various groups from the
Act would promote that purpose. Excluded under the Act are demand
letters or assertions of patent infringement from operating
entities, institutions of higher education, nonprofit research

organizations, and technology transfer organizations owned by or
affiliated with institutions of higher education or nonprofit
research organizations. N.C. Gen. Stat. § 75-143(c). In crafting
these exclusions, the General Assembly sought to tailor liability
under the Act to entities that do not have cash or other assets
that would be available in the event of an adverse judgment in
litigation under preexisting patent law. Certainly, the fact that
operating entities, as defined by the Act, must be actively
involved in activities demanding some measure of assets – such as
manufacturing, research, or the provision of goods and services –
aligns with this goal. See N.C. Gen. Stat. § 75-142(5).
Similarly, it is not unreasonable for the General Assembly to

conclude that institutions of higher education and nonprofit
research organizations, as well as entities affiliated with them,
are sufficiently capitalized to be deterred from making bad faith
assertions of patent infringement by preexisting patent law. In
determining the appropriate groups for exclusion, the General
Assembly attempted to isolate a group that may be undercapitalized
and undeterred by the prior legal status quo. The Act, as written,
does not appear unreasonable for that purpose.17
c. Dormant Commerce Clause
Finally, Landmark argues that the Act violates the dormant
Commerce Clause in that it provides special protections to “North
Carolina person[s]” accused of patent infringement, amounting to

“simple economic protectionism.” (Doc. 18 at 19.) NAPCO contends
that the Act is facially neutral as it does not make any
distinction between in-state and out-of-state persons when
considering who may make a bad-faith assertion of patent

17 To the extent Landmark contests the utility of a statute focused on
non-practicing entities for the purpose of reducing bad faith patent
assertions (see Doc. 54 at 17-21 (contesting multiple issues, including
whether non-practicing entities bring less meritorious patent claims)),
these arguments are unpersuasive in light of the court’s conclusion that
the purpose of the Act is to reduce bad faith patent assertions
specifically by entities with limited assets. Further, the mere fact
that there is research supporting both sides of an argument does not
alone render the General Assembly’s judgment unreasonable.
infringement or whether such an assertion has been made. (Doc. 39
at 24.) It further contends that the Act does not burden the flow
of interstate commerce and that, regardless, Landmark lacks
standing as a North Carolina entity to raise this claim.18 (Id.

at 25.)
The Commerce Clause of the U.S. Constitution empowers
Congress “[t]o regulate Commerce with foreign Nations, and among
the several States.” U.S. CONST. art. I, § 8. Although “phrased

18 Although courts should avoid ruling on constitutional issues where a
case may otherwise be dismissed on standing grounds, see Ashwander v.
TVA, 297 U.S. 288, 345-48 (1936) (Brandeis, J., concurring) (offering
the standing requirement as one means by which courts avoid unnecessary
constitutional adjudications), the court cannot reach a conclusion on
the issue of standing based on the briefing before it. Neither party
addresses the applicable legal standard. (See Docs. 39, 53.) Moreover,
NAPCO does not specify whether its argument is based on Article III
standing or prudential standing grounds. (See Doc. 39 at 25-26.) In
fact, its whole argument regarding standing is presented in a single
sentence. (See id. (“Finally, Landmark lacks standing as a North
Carolina entity to raise this claim.”)); see also M.D.N.C. L.R. 7.2(a)
(requiring opening briefs, response briefs, and reply briefs to contain
the party’s argument “which shall refer to all statutes, rules and
authorities relied upon”). Landmark defends its standing by claiming
it is within the “zone of interests” protected by the dormant Commerce
Clause. (See Doc. 53 at 15.) However, the Supreme Court has indicated
that the “zone of interest” analysis does not pertain to standing at all
but rather reflects a statutory inquiry. Lexmark Int'l, Inc. v. Static
Control Components, Inc., 572 U.S. 118, 127 (2014). After Lexmark, it
is unclear whether the “zone of interest” test remains applicable to
Landmark’s dormant Commerce Clause challenge. See Sierra Club v. Trump,
929 F.3d 670, 701–02 (9th Cir. 2019) (questioning the applicability of
the “zone of interest” test to dormant Commerce Clause claims, explaining
that “[e]ven if a zone of interests test may have been applied to some
cases considering constitutional claims . . . prior to Lexmark, we think
that Lexmark has called into question its continuing applicability to
constitutional claims”). As the briefing on this issue is insufficient
and presents a risk of confusing the issues before the court, the court
will proceed directly to the content of the dormant Commerce Clause
challenge.
as a grant of regulatory power to Congress, the Clause has long
been understood to have a ‘negative’ aspect that denies the States
the power unjustifiably to discriminate against or burden the

interstate flow of articles of commerce.” Or. Waste Sys., Inc. v.
Dep’t of Envtl. Quality, 511 U.S. 93, 98 (1994). Thus, with
certain exceptions, the so-called “dormant” Commerce Clause
prohibits states from discriminating against the free flow of
interstate commerce. Underpinning this doctrine is “concern about
‘economic protectionism, that is, regulatory measures designed to
benefit in-state economic interests by burdening out-of-state
competitors.’” Dep't of Revenue of Ky. v. Davis, 553 U.S. 328,
337-38 (2008) (quoting New Energy Co. of Ind. v. Limbach, 486 U.S.
269, 273-74 (1988)).
Courts apply a two-step inquiry to state laws challenged under
the dormant Commerce Clause. First, a court “inquires whether the
state law discriminates against interstate commerce.” Brown v.

Hovatter, 561 F.3d 357, 363 (4th Cir. 2009) (emphasis in original).
If the law is discriminatory facially or in practical effect, it
is “virtually per se invalid,” unless the “discrimination is
demonstrably justified by a factor unrelated to economic
protectionism.” Id. (internal citations omitted). However, if
the state law has an impact on interstate commerce but is neither
discriminatory on its face nor in practical effect, the court next
considers “whether the state law[] ‘unjustifiably . . . burden[s]
the interstate flow of articles of commerce.’” Id. (quoting Or.
Waste Sys., 511 U.S. at 98). Under this analysis, a state law
will be upheld “unless the burden imposed on such commerce is

clearly excessive in relation to the putative local benefits. If
a legitimate local purpose is found, then the question becomes one
of degree.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).
“In determining whether a statute has ‘a legitimate local purpose’
and ‘putative local benefits,’ a court must proceed with deference
to the state legislature.” Yamaha Motor Corp., U.S.A. v. Jim's
Motorcycle, Inc., 401 F.3d 560, 569 (4th Cir. 2005).
Here, Landmark contends that the Act is both facially
discriminatory and discriminatory in its practical effect.
Landmark contends that “the Act facially discriminates between
N[APCO] and its out-of-state competitors because – by imposing the
specter of liability on patent owners asserting infringement

against North Carolina companies – the Act discourages interstate
patent licensing.” (Doc. 53 at 15.) However, Landmark does not
cite to any provision of the Act that operates as described, and
the court cannot discern any such provision. While the Act defines
a “target” as a “North Carolina person,” N.C. Gen. Stat. § 75-
142(6), the Act makes it generally “unlawful for a person to make
a bad-faith assertion of patent infringement,” id. § 75-143(a),
and “[a] target or person aggrieved by a violation of this Article
. . . may bring an action” under the Act, id. § 75-145(b) (emphasis
added). By the terms of the Act, the right to bring civil actions
under the Act is not limited to North Carolina persons but may
include anyone aggrieved by bad faith assertions of patent

infringement, meaning that an actor could incur liability from
assertions against both in-state and out-of-state entities.
Moreover, both in-state and out-of-state patentholders may equally
incur liability under the Act. As such, the Act does not facially
discriminate against interstate commerce. While the parties, and
thus the claim, must still fall within the personal jurisdiction
of North Carolina courts, the Act itself does not differentiate
between claims based upon the residency of the claimant. But see
id. § 75-144(a) (allowing only “target[s]” to move for a pre-
judgment bond). Further, Landmark provides no argument as to how
the Act is discriminatory in its application. Accordingly, the
court does not find the Act to discriminate against interstate

commerce, either facially or in practical effect.
As the Act is nondiscriminatory, the court must next consider
whether the it “unjustifiably . . . burden[s] the interstate flow
of articles of commerce.” Or. Waste Sys., 511 U.S. at 98. In so
doing, the court considers whether the Act has a legitimate local
purpose and weighs the local benefits of the Act against any
burdens it imposes on interstate commerce. See Yamaha, 401 F.3d
at 569. As discussed above, the Act is designed to prevent bad
faith assertions of patent infringement by entities with limited
resources. The Act accomplishes this purpose by allowing
individuals accused of patent infringement in bad faith to
proactively bring a claim under the Act and provides for the

recovery of damages, costs, fees, and “exemplary damages” and, in
some circumstances, the imposition of bonds to ensure the entity
has sufficient assets to cover those amounts. These provisions
serve the dual purposes of deterring bad faith assertions of patent
infringement by covered entities and allowing victims of such bad
faith assertions to pursue judicial resolution of the claim with
the assurance that, if the claim under the Act is successful, they
will recoup their costs. As the court gives deference to the
determinations of the General Assembly regarding the Act’s purpose
and benefits, the court is satisfied that the Act has both a
legitimate purpose and local benefits.
Relying on Yamaha, Landmark contends that the Act unduly

burdens interstate commerce because it will have “a substantial
‘chilling effect’ on the assertion of patent rights in North
Carolina.” (Doc. 18 at 19.) However, Yamaha is inapposite. In
that case, the Fourth Circuit invalidated a law that heavily
burdened out-of-state interests by permitting existing in-state
motorcycle dealerships to challenge the establishment of new
dealerships anywhere else in the state, unbounded by the existing
dealership’s geographical reach, which created a significant
barrier to entry into the market. See 401 F.3d at 571. The
statute set a low threshold for what existing dealerships needed
to show to trigger a formal evidentiary hearing, and even frivolous
protests could take years to resolve. Id. Comparing that statute

with dealer protection statutes of other states, the court found
that “a manufacturer has no way of avoiding the [statute]’s reach
. . . and this makes an attempt to open a new dealership in
Virginia more burdensome than anywhere else.” Id.
Here, Landmark has alleged no fact approaching those in
Yamaha. Landmark’s conclusory assertion that the Act will “chill
interstate communications” regarding patent licensing is based
only on an alleged fear of incurring liability; Landmark provides
no facts or any evidence to support this claim. Further, unlike
the statute at issue in Yamaha, the Act creates no barrier to enter
the North Carolina market; the Act imposes no greater burden on
patentholders outside of North Carolina than those within North

Carolina and does not provide special protections to in-state
victims. It is also no more burdensome than similar statutes
enacted in over two dozen other states. See Gardner & Dew, supra,
at 410-15; (Doc. 50 at 4).
In light of the Act’s purpose and benefits, the court finds
that the Act does not unduly burden interstate commerce, and
Landmark’s dormant Commerce Clause challenge fails. Accordingly,
the motion to dismiss on this ground will be denied.
B. Motion for Expedited, Limited Discovery
NAPCO moves for expediated, limited discovery of “matters
relating to the corporate structure, status, liquidity, and

historical assertions of patent infringement by . . . Landmark
. . . .” (Doc. 38 at 1.) NAPCO contends that early discovery is
necessary to determine whether additional parties should be joined
to the present litigation and whether Landmark should be required
to post a bond pursuant to § 75-144. (Id. at 4-6.) In response,
Landmark argues that (1) NAPCO’s possible future decision to file
a motion for bond is not sufficient to establish good cause for
discovery, (2) NAPCO has failed to show irreparable harm in the
absence of early discovery, (3) the discovery requests are
overbroad, and (4) the bond provision of § 75-144 is preempted and
unconstitutional.19 (Doc. 51 at 1-2.)
The Federal Rules of Civil Procedure generally provide no

access to discovery until the parties have conducted an initial
pretrial conference and established a plan for such discovery.
Fed. R. Civ. P. 26(d)(1) (citing Fed. R. Civ. P. 26(f)). However,
“[c]ourts have granted expedited discovery when unusual
circumstances exist.” ForceX, Inc. v. Tech. Fusion, LLC, No.
4:11CV88, 2011 WL 2560110, at *4 (E.D. Va. June 27, 2011) (internal

19 Landmark also contends that the request for early discovery is improper
while Landmark’s motion to dismiss is still pending. (Doc. 51 at 1.)
As the court has denied Landmark’s motion to dismiss, this argument is
now moot.
quotation marks omitted). Although the federal rules do not set
out a specific standard for evaluating expedited discovery
requests, a majority of courts, including those within this

district, review a request for expedited discovery for
“reasonableness or good cause, taking into account the totality of
the circumstances.” See Allen v. City of Graham, No. 1:20CV997,
2021 WL 2037983, at *6 (M.D.N.C. May 21, 2021) (collecting cases).20
“Typically, ‘[t]o determine whether a request [for early
discovery] is reasonable, courts look to five factors: (1) whether
a motion for preliminary injunction is pending, (2) the discovery
request's breadth, (3) the purpose for requesting expedited
discovery, (4) the burden on the defendant to comply with the
requested discovery, and (5) how far in advance of the typical
discovery process the request is made.’” Id. (quoting Garnett v.
Zeilinger, No. 17CV1757, 2017 WL 8944640, at *1 n.1 (D.D.C. Dec.

15, 2017)) (alterations in original). Courts applying this test
also look to whether the moving party would suffer irreparable
harm in the absence of early discovery. See, e.g., Lewis v.
Alamance Cnty. Dep't of Soc. Servs., No. 1:15CV298, 2015 WL
2124211, at *2 (M.D.N.C. May 6, 2015); Merz N. Am., Inc. v. Viveve
Med. Inc., No. 2:17-CV-15-BR, 2017 WL 11613694, at *2 (E.D.N.C.

20 While some courts apply a test similar to the test for a preliminary
injunction, that approach “has been criticized.” Allen, 2021 WL 2037983,
at *6. The parties agree that the good cause or reasonableness standard
should be applied here. (See Doc. 38 at 3-4; Doc. 51 at 2-3.)
May 5, 2017); Teamworks Innovations, Inc. v. Starbucks Corp., No.
1:19CV1240, 2020 WL 406360, at *3 (M.D.N.C. Jan. 24, 2020).
Here, NAPCO argues that early discovery is warranted to

determine whether any additional parties should be joined to the
present action and whether Landmark should be required to post a
bond pursuant to § 75-144. However, NAPCO fails to demonstrate
any harm, let alone irreparable harm, that it will incur should
early discovery not be granted. In the absence of such showing,
the court cannot conclude that there is good cause for early
discovery. Accordingly, NAPCO’s motion for early expedited,
limited discovery will be denied.
III. CONCLUSION
For the reasons stated,
IT IS THEREFORE ORDERED that Defendant’s motion to dismiss
(Doc. 17) is DENIED and Plaintiff’s motion for expedited discovery

(Doc. 37) is DENIED.

/s/ Thomas D. Schroeder
United States District Judge

August 19, 2021

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10253857. Public record. Not legal advice.