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F.B. LEOPOLD CO. v. ROBERTS FILTER MFG. CO.

March 10, 1995

THE F.B. LEOPOLD CO., INC., Plaintiff, -vs- ROBERTS FILTER MANUFACTURING COMPANY, INC., Defendant.


The opinion of the court was delivered by: DONETTA W. AMBROSE

 Pending before the Court are two Motions for Summary Judgment filed by Plaintiff, The F.B. Leopold Co. [hereinafter Leopold], pursuant to Fed. R. Civ. P. 56. Leopold initiated this patent infringement action on December 18, 1992. Defendant, Roberts Filter Manufacturing Company [hereinafter Roberts Filter], has filed a counterclaim for declaratory judgment of invalidity and non-infringement of Leopold's patents, and has also asserted claims under § 43 (a) of the Lanham Act, as well as claims which seek relief for unfair competition, anti-trust, and defamation. The instant Motions for Summary Judgment concern Roberts Filter's counterclaims for anti-trust and defamation. Oral argument on these motions was held on February 17, 1995. For the reasons set forth below, Leopold's Motion for Summary Judgment as to Defendant's Defamation Counterclaim will be granted in part and denied in part. Leopold's Motion for Summary Judgment as to Defendant's Antitrust Counterclaim will be granted.

 Summary judgment may only be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56 (c). Rule 56 mandates the entry of summary judgment, after adequate time for discovery and upon motion, against the party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In considering a motion for summary judgment, this Court must examine the facts in a light most favorable to the party opposing the motion. International Raw Materials, Ltd. v. Stauffer Chemical Co., 898 F.2d 946, 949 (3d Cir. 1990). The burden is on the moving party to demonstrate that the evidence creates no genuine issue of material fact. Chipollini v. Spencer Gifts, Inc., 814 F.2d 893, 896 (3d Cir. 1987). The dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). A fact is material when it might affect the outcome of the suit under the governing law. Id. Where the non-moving party will bear the burden of proof at trial, the party moving for summary judgment may meet its burden by showing that the evidentiary materials of record, if reduced to admissible evidence, would be insufficient to carry the non-movant's burden of Proof at trial. Celotex, 477 U.S. at 322.

 Because the facts have been set forth (extensively) in the parties' briefs *fn1" , and this action has been the subject of various motions previously addressed by this Court, we need only briefly summarize the nature of this action here. The claims which are the subject of this suit primarily are the result of the efforts of Leopold and Roberts Filter to secure a bid on a public contract to supply filtration equipment for the City of Reading's Maiden Creek Filter Plant Filter Rehabilitation Project. Leopold and Roberts Filter are competitors in the water filtration business.

 In December, 1989, the City of Reading began preparing a rehabilitation project for its Maiden Creek Filtration Plant. The City of Reading worked on this project in conjunction with engineers from Entech, Inc. and BCM. Leopold sales representatives corresponded with the engineers concerning the use of the Leopold IMS plate and media for the project. (See Volume I of Roberts Filter's Exhibits, Exhibit 31) During this time, Leopold was pursuing a patent for its "Cap for Underdrains in Gravity Filters." (See Volume I of Roberts Filter's Exhibits, Exhibits 34, 35) The patent was eventually issued on September 22, 1992, and is referred to by the parties as the "427 patent." *fn2" (See Volume I of Roberts Filter's Exhibits, Exhibit 39) The patented product essentially consists of a Leopold underdrain and a porous plate (the "IMS Cap"). *fn3" (Leopold's Exhibits (Antitrust), Exhibit 5; see also Leopold's Exhibits (Defamation), Exhibit 10)

 Leopold was designated as the basis of the design for the Maiden Creek Filter Rehabilitation Project. (Leopold's Exhibits (Antitrust), Exhibit 8, p.1) Roberts Filter also sought to bid on the project. (See Volume I of Roberts Filter's Exhibits, Exhibits 32, 38, 56) Roberts was eventually added as an acceptable alternative supplier for the project. (Volume I of Roberts Filter's Exhibits, Exhibits 44, 62)

 A series of meetings and an exchange of correspondence then ensued concerning Leopold's assertion that the design proposed by Roberts Filter for the project would infringe on Leopold's 427 patent. (See e.g. Volume I of Roberts Filter's Exhibits, Exhibits 45, 49, 53, 55, 58, 60, 63, 64) The bidding for the project was initially set for November 18, 1992, but was postponed so that additional tests could be conducted on the proposed designs. (Volume I of Roberts Filter's Exhibits, Exhibit 62, p.2) On December 18, 1992, Leopold filed the instant action alleging, inter alia, that a demonstration conducted by Roberts Filter at the Godwin Pump facility in New Jersey infringed on Leopold's patent. At the December 29, 1992, pre-counsel meeting of the Reading City Counsel, it was decided that all bids on the filtration contracts would be rejected and the bidding was again postponed. (Volume I of Roberts Filter's Exhibits, Exhibit 62, p.5; see also Leopold's Exhibits (Antitrust), Exhibit 17) Ultimately, Leopold was unable to bid on the City of Reading project and Roberts Filter was awarded the contract. (Volume I of Roberts Filter's Exhibits, Exhibit 68)

 We will first address Leopold's Motion for Summary Judgment with respect to Defendant's counterclaim for defamation. Leopold contends that summary judgment should be granted in its favor for a number of reasons. Specifically, Leopold argues that it was either absolutely or conditionally privileged to publish the alleged defamatory statements and asserts various theories in support of these privileges. Leopold also claims that the statements that are the subject of this action are not defamatory and that Roberts Filter has failed to come forward with sufficient evidence to establish damage to the reputation or, to the extent that Roberts Filter has attempted to assert a claim for commercial disparagement, no pecuniary loss has been shown.

 The following has been identified by Roberts Filter as the subject of the defamation claim:

 
(a) That on or about October 21, 1992, Leopold, by and though its President and CEO, Marvin A. Brown, sent a letter to the Purchasing Agent of the City of Reading in which letter Brown accused Roberts of knowingly infringing the Leopold patent; copies of that letter were sent to various other persons; Leopold supplemented that letter with verbal communications to agents of the City of Reading, including Russell Smith, Reading's project engineer (Paras. 1-4, Seconded Amended Count V);
 
(b) That in early October, 1992, employees of Leopold met with Russell Smith and, by means of oral communication and through the exhibition of a device which falsely purported to be a sample of the Roberts' product, disparaged Roberts' product, suggesting that it was of flimsy construction and would not perform the functions that it was designed to perform. (Id., Paras. 8 and 9) (Bareis, pp. 29-44, Ex. 88; Smith, pp. 144-145, Ex. 89);
 
(c) That on or about February 17, 1993, James Lefever, a sales representative of Leopold, with Leopold's full knowledge, approval and cooperation, appeared before a meeting of Reading City Council and further accused Roberts of knowingly infringing Leopold (sic) patent and engaging in a conspiracy with city engineers to provide a product with which so infringed (Id., Para. 10) (Lefever, pp. 65070, Ex. 74, Ex. 75; ex. 97, pp. 6-7); and
 
(d) That on November 12, 1992, Leopold's Regional Sales Manager, Nelson Bareis, in a letter directed to Hazen & Sawyer, engineers on the Detroit project, accused Roberts of designing a product which would infringe the Leopold patent and requested that Roberts be eliminated as an acceptable supplier (Id., Para 12) (Ex. 55).

 Roberts Filter's Brief in Opposition to Summary Judgment, pp. 100-101.

 In Pennsylvania, actions for defamation are governed by 42 Pa.Cons.Stat.Ann. § 8343 which provides:

 
(a) Burden of Plaintiff.--In an action for defamation, the plaintiff has the burden of proving, when the issue is properly raised:
 
(1) The defamatory character of the communication.
 
(2) Its publication by the defendant.
 
(3) Its application to the plaintiff.
 
(4) The understanding by the recipient of its defamatory meaning.
 
(5) The understanding by the recipient of it as intended to be applied to the plaintiff.
 
(6) Special harm resulting to the plaintiff from its publication.
 
(7) Abuse of a conditionally privileged occasion.
 
(b) Burden of defendant.
 
(1) The truth of the defamatory communication.
 
(2) The privileged character of the occasion on which it was published.
 
(3) The character of the subject matter of defamatory comment as of public concern.

 42 Pa.Cons.Stat.Ann. § 8343 (1982).

 Additionally, we would note that although Count V of Roberts Filter's Second Amended Complaint is entitled "Defamation," the allegations have also been construed by the parties as commercial disparagement. In order to maintain an action for commercial disparagement, the plaintiff must prove that the disparaging statement of fact is untrue or that the disparaging statement of opinion is incorrect; that no privilege attaches to the statement; and that the plaintiff suffered a direct pecuniary loss as the result of the disparagement. U.S. Healthcare Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 924 (3d Cir. 1990). "A commercially disparaging statement...is one which is intended by its publisher to be understood or which is reasonably understood to cast doubt upon the existence or extent of another's property in land, chattels or intangible things, or upon their quality,...if the matter is so understood by its recipient." Id. (internal quotations omitted)

 Leopold first argues that it had an absolute privilege to publish the alleged defamatory statements because the statements "related to contemplated or actual judicial proceedings." (Leopold's Brief in Support of Summary Judgment (Defamation), p. 9) See Restatement (Second) of Torts § 587 (1977). This section of the Restatement provides, in relevant part, that:

 
A party to a private litigation...is absolutely privileged to publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding, or in the institution of or during the course and as a part of, a judicial proceeding in which he participates, if the matter has some relation to the proceeding.

 Restatement (Second) of Torts § 587 (1977). See also Restatement (Second) of Torts § 635 (1977) [applying § 587 to claims for commercial disparagement].

 Leopold cites Pinto v. Internationale Set, Inc., 650 F. Supp. 306 (D. Minn. 1986) and Walker v. Majors, 496 So. 2d 726 (Ala. 1986), in support of its position that the communications were absolutely privileged. In Pinto, the plaintiffs were former employees of the defendant who left their positions with the defendant company and began working for the defendant company's competitor. After the plaintiffs left the defendant company's employ, the defendant's counsel sent a letter dated January 2, 1986, to the plaintiffs' new employer which warned the plaintiffs' new employer that litigation would be instituted and accused the plaintiffs of unfair competition and conspiracy, fraud, misrepresentation, and other misdeeds. Pinto 650 F. Supp. at 307-308. Plaintiffs then filed suit against their former employer alleging, inter alia, defamation based on the January 2, 1986, letter. The court found that the communication was absolutely privileged because the letter "was written in anticipation of the March 1986 litigation, it concerned the claims made in that litigation, it [sought] to dissuade plaintiff from further engaging in the alleged activities which gave rise to the litigation, and it was directed to plaintiffs and their new employer on defendant's behalf." Id. at 308-309.

 In Walker v. Majors, 496 So. 2d 726 (Ala. 1986), the plaintiff, a land owner, filed suit alleging defamation against a real estate agent after the real estate agent sent letters, and returned the earnest money, to two prospective purchasers of the plaintiff's property. The letters included a paragraph which stated that the real estate agent was going to file suit against the land owners for breach of contract, and to recover damages incurred as a result of the land owners' fraudulent conduct. The court found that the letters were absolutely privileged because they were relevant to the contemplated judicial proceeding of the real estate agent.

 Roberts Filter cites Post v. Mendel, supra, and argues that "the defamatory communications were not made in the regular course of judicial proceedings and were not pertinent and material to the redress or relief sought." (Brief of Roberts Filter, p. 102-103) In Post, the plaintiff and defendant were engaged as opposing counsel in litigation. During the trial, defendant Mendel wrote a letter to plaintiff Post concerning Mendel's irritation at Post's conduct during trial. The letter was copied to the judge hearing the ongoing case, the Disciplinary Board of the Supreme Court, and Mendel's client in the ongoing case. The trial court found the letter absolutely privileged because it was disclosed in connection with a judicial proceeding. The Pennsylvania Supreme Court reversed, holding that the communication was not protected by an absolute privilege.

 In reaching its decision, the Court emphasized the importance of applying the privilege in accordance with its underlying policy and stated, "we do not believe issuance of the letter was within the sphere of activities which judicial immunity was designed to protect." Post, at 355, 356. The Court reasoned that the challenged communication must bear a certain relationship to the proceedings in order to qualify as privileged. Id. The Court then found that the letter contained matter which was not relevant to the judicial proceedings and that it was published to persons who had no direct interest in the proceedings. Id. at 357. Thus, unlike Pinto and Walker, the letter in Post did not "relate to the adjudication of the claims at issue in [the] proceedings." Pawlowski, 588 A.2d at 41.

 We next address Leopold's argument that it is entitled to summary judgment because it is protected, pursuant to Restatement (Second) of Torts § 592A, *fn4" by an absolute privilege to publish defamatory matter that it was required, by law, to publish. (See Leopold's Memorandum in Support of Summary Judgment (Defamation), p. 11). Leopold argues that the patent laws require a patent holder to notify a potential infringer before the patent holder may recover damages for infringement. Apparently, Leopold relies upon 35 U.S.C. § 287. This section provides, in relevant part:

 
§ 287. Limitation on damages and other remedies; marking and notice
 
(a) Patentees, and persons making or selling any patented article for or under them, may give notice to the public that the same is patented, either by fixing thereon the word "patent" or the abbreviation "pat.", together with the number of the patent, or when from the character of the article, this can not be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing a like notice. In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.

 35 U.S.C.A. § 287 (a) (West Supp. 1994) (emphasis added).

 Leopold has not presented any authority which would indicate that this section invokes an absolute privilege. We need not decide that issue, however, because Leopold has not demonstrated that it was required under section 287 to publish the alleged defamatory communications. Specifically, Leopold has not argued that its product was not properly marked. Under section 287, "two kinds of notice are specified--one to the public by visible mark, another by actual advice to the infringer. The second becomes necessary only when the first has not been given." Ceeco Mach. Mfg. Ltd. v. Intercole, Inc., 817 F. Supp. 979, 982 (D. Mass. 1992). Since there is no allegation that Leopold's product was not properly marked, there is no apparent need to invoke section 287 (a). We therefore find Leopold's argument to be without merit.

 Leopold also argues that it was conditionally privileged to make the communications at issue because (1) Roberts Filter and Leopold were rival claimants and, (2) the communications directly related to matters of public concern. *fn5" Roberts Filter argues that with respect to these conditional privileges, there are genuine issues of material fact concerning Leopold's alleged bad faith which preclude the entry of summary judgment on these conditional privileges.

 We will first address the rival claimant privilege. Under this theory, Leopold invokes the Restatement (Second) of Torts § 647. This section provides:

 
A rival claimant is conditionally privileged to disparage another's property in land, chattels or intangible things by an assertion of an inconsistent legally protected interest in himself.

 Comment (d): Belief in validity of claim.

 
...Under the rule stated in this Section a rival claimant is privileged to assert the inconsistent interest unless a trier of fact is persuaded that he did not believe in the possible validity of his claim. It is not necessary that the person asserting the claim should believe in its certain or even probable validity. It is enough if he believes in good faith that there is a substantial chance of its being sustained.

 Restatement of Torts (Second) § 647 (1977).

 It is the burden of Leopold to establish that the rival claimant privilege attaches to each of the communications. 42 Pa.Cons.Stat.Ann. § 8343 (b)(2). A patent holder may assert this privilege when the patent holder has claimed in good faith that a party has infringed its patent. See e.g. Kemart Corp. v. Printing Arts Research Lab., Inc., 269 F.2d 375, 391 (9th Cir. 1959), Oil Conservation Eng'g Co. v. Brooks Eng'g Co., 52 F.2d 783, 785-787 (6th Cir. 1931). We find that Leopold has met its burden in establishing that the rival claimant privilege applies to the communications which concern Roberts Filter's alleged infringement of the Leopold patent. (See Robert Filter's Brief, pp. 100-101, (a), (c) & (d))

 We must next address whether Roberts Filter has met its burden in setting forth facts of record from which a reasonable jury may find that Leopold abused this conditional privilege. See 42 Pa.Cons.Stat.Ann. § 8343 (a)(7). We are not concerned with assessing whether the publishers of the alleged defamatory material were correct in their assertion that Roberts Filter infringed the Leopold patent; rather, we focus on whether the publishers had reasonable cause to believe that the assertion of patent infringement was true. Kemart at 391 fn 10, and 393. See also Forman v. Cheltenham Nat. Bank, 348 Pa. Super. 559, 502 A.2d 686, 688 (Pa.Super.Ct. 1985) (publisher must reasonably believe in the validity of the claim), Fischer v. Bar Harbor Banking & Trust Co., 673 F. Supp. 622 (D. Me. 1987), aff'd, 857 F.2d 4 (1st Cir. 1988) ("Plaintiff has the burden of showing that the [defendant] did not have a good faith belief in the 'possible validity of [its] claim'...but rather that it acted in knowing or reckless disregard of the truth." Id., 673 F. Supp. at 626.). But see, Forman, 502 A.2d at 689 (Beck, J., concurring), (The question is not whether the person asserting the claim should believe in its certain or even probable validity, but rather whether the claimant believes in good faith, both when the rival property claim was initially asserted and when the claimant thereafter continued to maintain the claim, that there was a substantial chance of having the claim upheld.)

 Roberts Filter argues in its brief that it has set forth sufficient facts of record from which a reasonable jury could find that Leopold acted in bad faith. In particular, Roberts Filter argues that "a jury could easily conclude that Leopold, even though it may have viewed its patent as valid...knew very well that Roberts had not infringed it." (Roberts Filter's Brief at 103) (emphasis in original) Roberts Filter further asserts that "if Leopold knew, as the fair inference to be drawn from the evidence suggests it did, that [Roberts Filter] did not infringe its patent, then its defamatory or disparaging communications accusing Roberts of infringing cannot have been made in good faith." (Roberts Filter's Brief at 103)

 We begin by analyzing each of the alleged defamatory communications. The first alleged defamatory communication is an October 21, 1992, letter written by Leopold President and CEO Marvin Brown to Maria Ballas (apparently a Reading city official) which states:

 
I understand that you intend to publish an addendum for the subject project that will allow Roberts Filter to provide an alternative to the Leopold Universal Underdrain with IMS Cap; a Clay Underdrain Block with an IMS Cap. We believe that the Roberts design will infringe on our patent. Unfortunately, any legal action must first be levied against the end-user of the ...

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