If the nonmoving party fails to oppose the motion by written
objection, memorandum, affidavits and other evidence, the Court
"will accept as true all material facts set forth by the moving
party with appropriate record support." Anchorage Assocs. v.
Virgin Islands Bd. of Tax Rev., 922 F.2d 168, 175 (3d Cir. 1990)
(quoting Jaroma v. Massey, 873 F.2d 17, 21 (1st Cir. 1989)).
Even where the non-moving party has failed to establish a triable
issue of fact, summary judgment will not be granted unless
"appropriate." Fed. R.Civ.P. 56(e); see Anchorage Assocs., 922
F.2d at 175. Rule 56(e) of the Federal Rules of Civil Procedure
requires that the case be evaluated on its merits, with summary
judgment being granted for the movants only if they are entitled
to a judgment as a matter of law. See Anchorage Assocs., 922
F.2d at 175.
A. Count IV: Unfair Competition
Defendants Absolute and Knight allege that the Attorney
Defendants engaged in acts of unfair competition by sending
letters to Sensenig and Vandergrift alleging infringement of the
'851 and '575 patents. The Attorney Defendants seek summary
judgment, offering three arguments: (1) The letters were sent in
good faith and within the Plaintiff's rights under the patent
laws; (2) Absolute incurred no damage as a result of the
transmittal of the letters; and (3) the letters cannot form the
basis of an unfair competition claim because they are protected
under New Jersey's "absolute litigation privilege." See Att'y
Defs.' Br. Supp. Summ. J. at 20-29 (filed Feb. 26, 1999).
For the reasons that follow, I conclude that the Attorney
Defendants are entitled to summary judgment on the ground that
New Jersey's "absolute litigation privilege" is applicable to the
letters sent by the Attorney Defendants to Absolute's
customers.*fn11 This Court is satisfied both that it has the
power to apply the litigation privilege to Absolute's unfair
competition claim and that, once applied, the privilege insulates
the Attorney Defendants from liability for any claim of unfair
competition. Without these letters — the core of Count IV's
allegations — no factual dispute remains, and the Attorney
Defendants are entitled to judgment as a matter of law.
This Court's power to apply a state-law privilege to a pendent
state-law counterclaim in a federal question case derives from
the evidentiary rules governing federal civil cases. Rule 501 of
the Federal Rules of Evidence provides in relevant part:
[T]he privilege of a witness, person, government,
State, or political subdivision thereof shall be
governed by the principles of the common law as they
may be interpreted by the courts of the United States
in the light of reason and experience. However, in
civil actions and proceedings, with respect to an
element of a claim or defense as to which State law
supplies the rule of decision, the privilege of a
witness, person, government, State, or political
subdivision thereof shall be determined in accordance
with State law.
Fed.R.Evid. 501 (emphasis added). It cannot be disputed that
Absolute and Knight's claim for unfair competition is a state-law
claim to which state law supplies the rule of decision. See
Dynamic Instrument Corp. v. Fedtro, Inc., 266 F. Supp. 848, 851
(E.D.N.Y. 1967) (holding that when allegations of patent
infringement are made in bad faith a tort law claim arises "under
state law but not patent law"); see also Trio Process Corp.,
250 F. Supp. at 928 (characterizing claim against defendant for
making false allegations of patent infringement as a "nonfederal"
claim). Consequently, this Court has the power to determine any
privilege the Attorney Defendants might assert against
this claim in accordance with New Jersey law.
While this conclusion may seem obvious, decisions concerning
the application of privileges are not generally so simple.
Indeed, a great deal of confusion surrounds the application of
state-law privileges in cases arising under a District Court's
federal question jurisdiction. See Jack B. Weinstein & Margaret
A. Berger, 3 Weinstein's Federal Evidence §§ 501.02[b][c]
(Joseph M. McLaughlin, ed., Matthew Bender 2 ed. 1997). Courts
have approached the application of state-law privileges in such
cases differently, with many courts asserting a preference
against the application of state-law privileges. See, e.g.,
Harding v. Dana Transport, Inc., 914 F. Supp. 1084 (D.N.J. 1996)
(Rosen, Maj. J.) (stating that federal privilege law applies in
cases with both federal and state claims); Woods v. New Jersey
Dep't of Educ., 858 F. Supp. 51, 54-55 (D.N.J. 1993) (Kugler,
Mag. J.) (applying federal common law in construing
attorney-client privilege); Robinson v. Magovern, 83 F.R.D. 79,
84-85 (W.D.Pa. 1979) (invoking policy of Rule 501 that, in
non-diversity cases involving both federal and state law claims,
federal privilege law will generally apply to both); Steffes v.
Stepan Co., 144 F.3d 1070, 1074-75 (7th Cir. 1998) (refusing to
apply Illinois "absolute litigation privilege" in federal
question case); Auersperg v. Bulow, 811 F.2d 136, 141 (2nd Cir.
1987) ("[C]ourts have consistently held that the asserted
privileges are governed by the principles of federal law"); PPM
America, Inc. v. Marriott Corp., 152 F.R.D. 32, 34 (S.D.N Y
1993) ("When cases involve both federal and state claims,
asserted privileges are governed by the principles of federal
These cases, which contain broad statements about the
applicability of federal privilege law, are distinguishable from
this case. For example, in many of these cases, the decision not
to apply state privilege law is made because there is a competing
federal privilege law that can be applied. See, e.g., Harding,
914 F. Supp. at 1090, 1097 (applying federal attorney-client and
work product privileges); Auersperg, 811 F.2d at 141 (applying
federal journalist privilege law). In others, the evidence for
which the privilege is asserted is relevant to both the state law
and federal law claims. See, e.g., Robinson, 83 F.R.D. at 84-85
(holding that privilege in issue was relevant to both antitrust
claim and pendent state claim). In still others, there is no
state-law privilege to be applied, see, e.g., PPM America,
Inc., 152 F.R.D. at 34 (ruling that New York statutory law does
not create a state journalist privilege to compete with the
federal journalist privilege), or there is only a federal claim.
See, e.g., Woods, 858 F. Supp. at 54-55 (stating that only
claims under § 1983 and the Individuals with Disabilities
Education Act were in issue). Finally, in some cases the
state-law privilege is not applied because there is a danger that
its application would seriously undermine a federal cause of
action or interest. See, e.g., Steffes, 144 F.3d at 1074-75.
Here, however, there is no competing "federal litigation
privilege." Nor is the litigation privilege in issue here
relevant to the merits of the underlying federal claims: While
the letters sent to Absolute's customers could be used to
substantiate an unfair competition claim, they offer no proof of
the validity, enforceability or the noninfringement of the '110
or '575 patents. And, most significantly, the application of New
Jersey's litigation privilege here will not undermine a federal
cause of action or interest.
This last point merits some discussion because it goes to the
heart of the Defendants' chief argument against the application
of New Jersey's litigation privilege. The Defendants contend that
patent holders who want to protect their patent rights by sending
notices of infringement to members of the trade must do so in
good faith. There is support in the case law for this position.
See, e.g., Surgical Supply Service, Inc., 206 F. Supp. at 571;
Sharnay Hosiery Mills, Inc., 109 F. Supp. at 959; Dynamic
Instrument Corp., 266 F. Supp. at 851. Defendants further argue
that Counterclaim Defendants' notices of infringement
were sent in bad faith. Enter New Jersey's litigation privilege.
This privilege would thwart the bad-faith line of argument
because, if applicable, it would foreclose any inquiry into the
intent of the Attorney Defendants. Consistent with all absolute
privileges, it protects "the bad as well as the good," Peterson
v. Ballard, 292 N.J. Super. 575, 590, 679 A.2d 657, 664 (App. Div. 199
6) (citing Hawkins v. Harris, 141 N.J. 207, 213,
661 A.2d 284, 287 (1995)), and immunizes those whose statements are
protected from an examination of their motives, morals, and
intent. Consequently, the Defendants make a preemption argument,
hoping to convince this Court that federal law requiring good
faith trumps New Jersey's absolute litigation privilege.
This argument fails precisely because the application of New
Jersey's litigation privilege does not undermine any federal
interest. Defendants find support for their position in language
found in Mikohn Gaming Corp. v. Acres Gaming, Inc.,
165 F.3d 891, 896 (Fed.Cir. 1998), which states that "the propriety of [a
patentee's] actions in giving notice of its patent rights is
governed by federal statute and precedent and is not a matter of
state tort law." In Mikohn Gaming Corp., the Federal Circuit
was reviewing a District Court decision granting a preliminary
injunction against a patent holder with the effect of preventing
the patent holder from informing the trade of another's
infringement. See id. at 893-94. The party seeking the
preliminary injunction, Mikohn Gaming Corp., also alleged
violations of various state tort laws, including interference
with existing and prospective business relations. See id.
Putting aside the different procedural posture of that case and
that the Federal Circuit's opinion contained language indicating
that its holding was limited to that procedural setting, see
id. at 898, the Federal Circuit confined its holding to cases
where there is a conflict between federal and state law
concerning the propriety of notice letters: "To the extent that
conflict arises in the interaction between state commercial law
and federal patent law, federal law must be applied." Id. at
896 (emphasis added).
Just such a conflict existed in Mikohn Gaming Corp. The
federal law, the court reasoned, required that the propriety of a
notice letter be reviewed under a good faith standard while state
tort law in Nevada allowed the District Court to enjoin the
patent holder's notification to the trade on a much lesser
showing. See id. at 895-97. The court held that where state law
impinged upon the patent holder's federal right to protect its
patent rights in good faith, the federal law's good faith
standard trumped. See id.*fn12
There is no such conflict in this case. As the Attorney
Defendants point out, see Att'y Defs.' Br. Supp. Summ. J. at
21, patent holders have an undisputed right to notify the trade
that their patent rights are being infringed and that they intend
to protect those rights. See Surgical Supply Service, Inc. v.
Adler, 206 F. Supp. 564, 571 (E.D.Pa. 1962); Sharnay Hosiery
Mills, Inc. v. Sanson Hosiery Mills, Inc., 109 F. Supp. 956, 959
(E.D.Pa. 1951); Dynamic Instrument Corp., 266 F. Supp. at 851.
Indeed, notice is even a perquisite to obtaining damages for
infringement. See 35 U.S.C. § 287 (1994). This is the federal
interest the Federal Circuit sought to protect in Mikohn Gaming
Corp. Far from emasculating the protections afforded patent
holders, the application of New Jersey's "absolute litigation
privilege" only serves this interest, for even a showing of bad
faith by a state tort law claimant will not subject a
notice-giver to liability under the privilege. If anything, New
Jersey's litigation privilege enhances patent-holder
The Seventh Circuit's decision in Steffes speaks to the
relation between federal interests and the application of
"absolute litigation privileges" in much the same terms.*fn14
Steffes had sued her employer under Title VII and the Americans
with Disabilities Act contending she had been for fired because
of her gender and disability. See Steffes, 144 F.3d at 1073-74.
The employer retaliated by informing Steffes's subsequent
employer about the suit and the disability. See id. The court
concluded that applying Illinois' "absolute litigation privilege"
to the comments made by Steffes's former employer would
effectively prevent Steffes from bringing a claim for
retaliation, which is statutorily provided for by both Title VII
and the ADA. See id. at 1075. Unlike the Steffes case, the
application of New Jersey's litigation privilege in this case
would not threaten a federal interest or federally provided-for
right: it would amplify it.
In the end, the application of New Jersey's "absolute
litigation privilege" to the facts of this case just makes sense.
New Jersey has over time developed an extremely protective
"absolute litigation privilege," reflecting the state's policy
interest that "persons [engaged in litigation] . . . be allowed
to speak and write freely without the restraint or fear of an
ensuing action." Peterson, 292 N.J.Super. at 590, 679 A.2d at
664 (citing Hawkins, 141 N.J. at 213, 661 A.2d at 288).
Traditionally, this privilege has been applied first and foremost
to protect statements made by attorneys. See Hawkins, 141 N.J.
at 213-15, 661 A.2d at 287-88. The Defendants, alleging a
state-law claim, are attempting to avoid the application of a
state-law privilege even though they would have been subject to
that privilege had they brought their claim in state court.
Federally protected rights will not suffer by the application of
the privilege in this case. Surely in a case like this a court
may apply a state-law privilege. See Baravati v. Josephthal,
Lyon & Ross, Inc., 28 F.3d 704, 707 (7th
Cir. 1994) (applying state absolute privilege for defamation in
case arising entirely under federal jurisdiction where state law
issue was substantially in dispute); Niagara Mohawk Power Corp.
v. Megan-Racine Associates, Inc., (In re Megan-Racine
Associates, Inc.), 189 B.R. 562, 569 (Bankr. N.D.N.Y. 1995)
(holding that Rule 501 dictates repair to state privilege law on
state claims resolved in federal bankruptcy courts); Hartsell v.
Duplex Products, Inc., 895 F. Supp. 100, 101-03 (W.D.N.C. 1995)
(holding that state privilege law applies to both state and
federal claims after balancing state and federal interests
(citing United States v. Cartledge, 928 F.2d 93 (4th Cir.
Having decided that this Court has the power to apply New
Jersey's litigation privilege, I must determine whether the
application of the privilege ought to inoculate the Attorney
Defendants against liability for the letters they sent to
Sensenig and Vandergrift. This Court previously discussed the
scope and requirements of New Jersey's litigation privilege
extensively in Thomason v. Lehrer, 183 F.R.D. 161 (D.N.J.
New Jersey has recognized the litigation privilege as
the backbone to an effective and smoothly operating
judicial system. The litigation privilege is firmly
established in New Jersey case law. The privilege
protects, as absolutely immune from liability,
statements by attorneys made in the course of
judicial or quasi-judicial proceedings. Originally
applied in defamation cases, the litigation privilege
has been expanded to encompass both common-law and
statutory causes of action for tortious conduct. . .
. [The New Jersey Supreme] Court has written [that
i]f the policy, which in defamation actions affords
an absolute privilege or immunity to statements made
in judicial or quasi-judicial proceedings is really
to mean anything then we must not permit its
circumvention by affording an almost equally
unrestricted action under a different label. . . .
The protections of the litigation privilege apply to
any communication satisfying the following four
requirements: the communication must have been (1)
made in judicial or quasi-judicial proceedings; (2)
by litigants or other participants authorized by law;
(3) to achieve the objects of the litigation; and (4)
that have some connection or logical relation to the
Id. at 166-67 (citations, internal quotations and alterations
omitted, emphasis added). This privilege has also been extended
to the pre-litigation context, provided that the statements to be
protected are made in contemplation of litigation. See
Peterson, 679 A.2d at 660, 664 (citing Hawkins, 141 N.J. at
216-22, 661 A.2d at 289-92). More specifically, pre-litigation
protection has been given to "demand letters." Kanengiser v.