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Automated Transactions, LLC v. American Bankers Association

Supreme Court of New Hampshire, Sullivan

August 16, 2019

AUTOMATED TRANSACTIONS, LLC & a.
v.
AMERICAN BANKERS ASSOCIATION & a.

          Argued: February 14, 2019

          Shaheen & Gordon, P.A., of Concord (Steven M. Gordon, Timothy J. McLaughlin, and Stephanie K. Annunziata on the brief, and Mr. Gordon orally), for the plaintiffs.

          Devine, Millimet & Branch, P.A., of Manchester (Jonathan Shirley and Joshua M. Wyatt on the brief, and Mr. Wyatt orally), for defendant American Bankers Association.

          Litchfield Cavo, LLP, of Lynnfield, Massachusetts (Mark A. Darling and Bethany P. Minich on the brief, and Mr. Darling orally), for defendant Credit Union National Association.

          Desmarais Law Group, PLLC, of Manchester (Debra L. Mayotte on the brief and orally), for defendants Robert H. Stier and Pierce Atwood, LLP.

          Gilles R. Bissonnette, of Concord, on the brief, for American Civil Liberties Union of New Hampshire and Electronic Frontier Foundation, as amici curiae.

          HANTZ MARCONI, J.

         The plaintiffs, Automated Transactions, LLC (ATL) and David Barcelou, appeal an order of the Superior Court (Tucker, J.) dismissing their defamation and New Hampshire Consumer Protection Act (CPA) claims against the defendants, American Bankers Association (ABA), Credit Union National Association (CUNA), Robert H. Stier, and Pierce Atwood, LLP. The plaintiffs argue that the trial court erred because it could not determine, at the motion to dismiss stage, that the statements upon which the plaintiffs premised the defendants' liability were nonactionable. We affirm.

         I

         The plaintiffs' amended complaint alleges the following facts. Barcelou is an inventor who, after achieving success with various inventions in the 1970s and 80s, began working in 1993 toward "automating tournaments." He hoped to develop a system where any "game of skill" could automatically accept an entry fee, administrate a winner, and award the winner an immediate cash prize. Barcelou, who created a prototype of this "Automated Tournament Machine" in 1994, sought to include "automated teller machine" (ATM) functionality in his invention, i.e., the ability to dispense cash.

         Once his prototype was complete, Barcelou hired a computer scientist to document his invention, as well as an industrial design firm to help refine it. After creating additional prototypes, he filed patent applications, sought capital investments, and assembled a management team. Although his efforts to commercialize his invention were ultimately unsuccessful, he was granted an ATM-related patent by the United States Patent and Trademark Office in 2005. A short time thereafter, Barcelou sued the convenience store chain "7-Eleven," alleging that the store's "VCOM" machines infringed his newly-granted patent.

         In or around 2008, Barcelou formed ATL and made the company the exclusive licensor of his patent. ATL began offering patent licenses and bringing infringement litigation, and pursued additional patents on Barcelou's ATM-related innovations. The company's efforts were largely fruitful: from 2011 to 2012, ATL generated over $3 million in licensing revenues. In addition, the United States Patent and Trademark Office granted the plaintiffs additional ATM-related patents. It is in the wake of this success that the plaintiffs argue, in their amended complaint, that the defendants engaged in a "defamatory smear campaign . . . in a malicious effort to destroy" their legitimate licensing efforts. For example, the defendants made statements referring to ATL as a "patent troll," as well as statements characterizing ATL's licensing efforts as extortive. The plaintiffs contend that ATL's revenues have declined due to the defendants' statements, and that their statements permanently damaged Barcelou's reputation and caused him emotional distress.

         The plaintiffs sued the defendants, among others, [1] for defamation and for violation of the CPA. The defendants moved to dismiss the plaintiffs' claims, arguing, inter alia, that their statements could not give rise to defamation liability because they were only expressions of opinion. The trial court granted the defendants' motions. The court found that the references to the plaintiffs as patent trolls were no more than the opinions of the defendants, the facts upon which those opinions were based were evident from context, and the statements did not imply the existence of other facts. Regarding the statements referring to the plaintiffs' activity as extortive, the court dismissed the plaintiffs' defamation claims as to these statements because it found them to be rhetorical hyperbole, not assertions of fact. The court also dismissed the plaintiffs' CPA claims.

         II

         On appeal, the plaintiffs argue that the court erred in dismissing their claims. In reviewing a motion to dismiss, our standard of review is whether the allegations in the plaintiffs' pleadings are reasonably susceptible of a construction that would permit recovery. Sanguedolce v. Wolfe, 164 N.H. 644, 645 (2013). We assume the plaintiffs' pleadings to be true and construe all reasonable inferences in the light most favorable to the plaintiffs. Id. We need not assume the truth of statements that are merely conclusions of law, however. Id. We then engage in a threshold inquiry that tests the facts in the complaint against the applicable law, and if the allegations constitute a basis for legal relief, we must hold that it was improper to grant the motion to dismiss. Id. In conducting this inquiry, we may also consider documents attached to the plaintiffs' pleadings, documents the authenticity of which are not disputed by the parties, official public records, or documents sufficiently referred to in the complaint. Ojo v. Lorenzo, 164 N.H. 717, 721 (2013).

         "To survive the motion to dismiss, the plaintiff[s] must have alleged facts that would show that the defendant[s] failed to exercise reasonable care in publishing a false and defamatory statement of fact about [the plaintiffs] to a third party." Cluff-Landry v. Roman Catholic Bishop of Manchester, 169 N.H. 670, 678 (2017) (quotation omitted); see Pierson v. Hubbard, 147 N.H. 760, 763 (2002); Indep. Mechanical Contractors v. Gordon T. Burke & Sons, 138 N.H. 110, 118 (1993). Embedded in this recitation is the requirement that the challenged statement be one "of fact." Pierson, 147 N.H. at 763. Conversely, "[a] statement of opinion is not actionable unless it may reasonably be understood to imply the existence of defamatory fact as the basis for the opinion." Thomas v. Telegraph Publ'g Co., 155 N.H. 314, 338 (2007) (citing Milkovich v. Lorain Journal Co., 497 U.S. 1, 18-19 (1990));[2] accord Nash v. Keene Publishing Corp., 127 N.H. 214, 219 (1985); see also Restatement (Second) of Torts § 566, at 170 (1977) ("A defamatory communication may consist of . . . an opinion, but a statement of this nature is actionable only if it implies the allegation of undisclosed defamatory facts as the basis for the opinion."). A further corollary of defamation law's factual requirement is that statements of "rhetorical hyperbole" are not actionable because they cannot reasonably be interpreted as factual assertions. Milkovich, 497 U.S. at 20 (quotation omitted); see Pease, 121 N.H. at 65. Whether a given statement can be read as being or implying an actionable statement of fact is a question of law to be determined by the trial court in the first instance. Thomas, 155 N.H. at 338-39; accord Piccone v. Bartels, 785 F.3d 766, 772 (1st Cir. 2015); see also Riley v. Harr, 292 F.3d 282, 291 (1st Cir. 2002) ("[T]he courts treat the issue of labeling a statement as . . . protected opinion as one ordinarily decided by judges as a matter of law." (quotation and brackets omitted)). Words alleged to be defamatory must be read in the context of the publication taken as a whole. Morrissette v. Cowette, 122 N.H. 731, 733 (1982); accord Duchesnaye v. Munro Enterprises, Inc., 125 N.H. 244, 249 (1984).

         An important criterion for distinguishing statements of opinion from statements of fact is verifiability, i.e., whether the statement is capable of being proven true or false. See Milkovich, 497 U.S. at 21-22; Piccone, 785 F.3d at 771-72; see also 1 Robert D. Sack, Sack on Defamation § 4.2.4, at 4-22 n.74 (4th ed. 2014) (noting the primacy of verifiability). "Where an expressive phrase, though pejorative and unflattering, cannot be objectively verified, it belongs squarely in the category of protected opinion." Piccone, 785 F.3d at 772 (quotations omitted); see also Phantom Touring, Inc. v. Affiliated Publications, 953 F.2d 724, 728 (1st Cir. 1992) (finding statement that theater production was "a rip-off, a fraud, a scandal, a snake-oil job" to be protected opinion because, in part, there could be "no objective evidence to disprove it"); Catalfo v. Jensen, 657 F.Supp. 463, 468 (D.N.H. 1987) (finding statement that plaintiff was "sleazy" to be expression of opinion because, even assuming the word carried the definition "marked by low ethical standards, . . . it is [not] capable of verification" because "[e]thical standards are inherently subjective"). "The vaguer a term, or the more meanings it reasonably can convey, the less likely it is to be" verifiable and hence actionable. Levinsky's v. Wal-Mart Stores, Inc., 127 F.3d 122, 129 (1st Cir. 1997); see also McCabe v. Rattiner, 814 F.2d 839, 842 (1st Cir. 1987).

         Of course, even if a statement is properly described as an opinion, that "does not automatically shield it from a defamation claim. After all, 'expressions of "opinion" may often imply an assertion of objective fact.'" Yohe v. Nugent, 321 F.3d 35, 41 (1st Cir. 2003) (quoting Milkovich, 497 U.S. at 18); see Thomas, 155 N.H. at 339 (explaining that certain statements were not protected because, "even assuming arguendo these statements are opinions, they are clearly based upon undisclosed facts"). At the same time, "even a provably false statement is not actionable . . . when an author outlines the facts available to him, thus making it clear that the challenged statements represent his own interpretation of those facts." Riley, 292 F.3d at 289 (quotation omitted); see Piccone, 785 F.3d at 772-73 (explaining that, even if statement that plaintiff was "unprofessional" was provably false, it was not actionable because defendant disclosed the facts upon which he based his statement). When the speaker discloses the facts upon which he bases his statement, "no reasonable reader would consider the term anything but the opinion of the [speaker] drawn from the circumstances related." Chapin v. Knight-Ridder, Inc., 993 F.2d 1087, 1093 (4th Cir. 1993); see also Partington v. Bugliosi, 56 F.3d 1147, 1156 (9th Cir. 1995) (explaining that "[t]he courts of appeals that have considered defamation claims after Milkovich have consistently held that when a speaker outlines the factual basis for his conclusion, his statement is" not actionable for defamation; citing cases).

         Furthermore, statements of "imaginative expression" or "rhetorical hyperbole" are generally nonactionable because they "cannot reasonably be interpreted as stating actual facts about an individual." Milkovich, 497 U.S. at 20 (quotation and brackets omitted); see Pease, 121 N.H. at 65 (concluding that phrase "journalistic scum of the earth" could not reasonably be understood as assertion of fact because the phrase "was no more than rhetorical hyperbole" that "[e]ven the most careless reader must have perceived" was not meant literally (quotation and brackets omitted)); Greenbelt Pub. Assn. v. Bresler, 398 U.S. 6, 13-14 (1970) (concluding that, "as a matter of constitutional law, the word 'blackmail' . . . was not" defamatory as used by the defendant; context of statement made clear that word was used to criticize plaintiff's negotiating position, not to accuse him of literal crime of blackmail). "For better or worse, our society has long since passed the stage at which the use of the word 'bastard' would occasion an investigation into the target's lineage or the cry 'you pig' would prompt a probe for a porcine pedigree." Levinsky's, 127 F.3d at 128. A statement containing arguably hyperbolic language, however, must still be evaluated in its appropriate context to determine whether it could be reasonably construed as asserting or implying the existence of defamatory facts. See id. at 130-32 (statement that "you are sometimes put on hold for 20 minutes-or the phone is never picked up at all" could, when considered in context, be reasonably interpreted as factual assertion); Gray, 221 F.3d at 248-49.

         On appeal, the plaintiffs argue that the statements they challenged in their amended complaint are actionable for defamation because they are capable of being proven false or otherwise do not qualify as rhetorical hyperbole. They also argue that, when each challenged statement is considered in context, each can be reasonably understood to imply the existence of undisclosed defamatory facts. In addition, the plaintiffs contend that the trial court could not determine, at the motion to dismiss stage, that the challenged statements were nonactionable. Specifically, the plaintiffs claim their amended complaint alleged that the facts expressed by the defendants, and upon which the defendants relied to support the challenged statements, were false. Finally, the plaintiffs contend that the court erred in dismissing their CPA claims.

         Before turning to our analysis of the challenged statements, we make the following observations. The plaintiffs' amended complaint alleges that many of the defendants' statements are defamatory because they refer to ATL as a “patent troll.” Generally speaking, “patent troll” is a derogatory phrase used to describe “a class of patent owners who do not provide end products or services themselves, but who do demand royalties as a price for authorizing the work of others.” John M. Golden, “Patent Trolls” and Patent Remedies, 85 Tex. L. Rev. 2111, 2112 (2007); see Halo Electronics, Inc. v. Pulse Electronics, 136 S.Ct. 1923, 1935 (2016). Use of the phrase has proliferated in recent years as “[a]n industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 396 (2006) (Kennedy, J., concurring); see Golden, supra. Despite this uptick in use, "a widely accepted definition of a patent troll has yet to be devised." Golden, supra at 2112 n.7. The term is

used by some to refer to any party that doesn't actually produce goods or services. Indeed, some use "troll" to refer to anyone who is suing them . . . . Others would exclude some entities-notably universities and individual inventors-from the troll definition. Still others would limit patent trolls further, to include only . . . companies whose primary line of business is filing patent suits. And even that definition is too broad for some, who would limit the term patent troll to those who assert patents they bought from others, only those who assert invalid patents, or only those who engage in certain "abusive" tactics in patent litigation, such as pressuring allegedly infringing manufacturers by threatening those manufacturers' end-user customers, or seeking nuisance-value settlements.

         John R. Allison et al., How Often Do Non-Practicing Entities Win Patent Suits?, 32 Berkeley Tech. L.J. 237, 242 (2017) (footnote omitted); see also Ronald J. Mann, Do Patents Facilitate Financing in the Software Industry?, 83 Tex. L. Rev. 961, 1023-24 (2005) ("[A]ny effort to design a suitable definition of the term 'troll' is likely to lend credence to the view that the status as a troll is in the eye of the beholder. Every firm that has a patent valuable enough to support major [infringement] litigation . . . has acquired that patent from some person who has invested the resources to invent that technology."); Electronic Frontier Foundation v. Global Equity, 290 F.Supp.3d 923, 946 (N.D. Cal. 2017) (statement that plaintiff "seems to be a classic patent troll" could not give rise to defamation liability because the statement was "an expression of opinion"). Thus, although "patent troll" ...


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