Patent Troll Legislation Update

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CaptureSeveral states passed laws in the last year to go on the offensive against patent trolls, following in Vermont’s footsteps. Some variants of Vermont’s law of note:

1. Several states have codified the jurisdiction of the state courts to include the conduct of out-of-state patent trolls. However, it’s fairly clear that this provision cannot pass constitutional muster – personal jurisdiction is simply not established by the mere sending of a demand letter. With that said, however, it would be interesting to see how this would play out with the AG of a state involved and with the law being interpreted as a quasi-criminal matter (for example, Louisiana’s AG is the only entity allowed to go after patent troll activities). As Judge Toor made clear a few weeks ago, the constitutional protections offered to patent holders to send demand letters may not be as broad if their conduct trends toward nefarious activity.

2. Several states did not include a bond – it may be that this is already allowed generally in their jurisdictions, but it seems odd not to mention or delineate any boundaries.

3. Some states only allow their AG’s to prosecute patent troll activity.

Interestingly, no state has attempted to take on some of the more vexing activities of patent trolls. For example, there is no attempt to get past the endless shell corporate structures that these entities employ to avoid potential liability. I would think that a state could require an entity to provide notice to the state (similar to what Minnesota negotiated with MPHJ) of its desire to send an infringement letter and in that notice the state could require a) evidence of actual use of the patented technology by the entity and/or b) identification of the real party-in-interest with assets sufficient to present a bond (could they be required to register as a foreign corporation?). This would at least make the AG aware of patent litigation activity in the state (if a troll is sending thousands of letters, requiring notice may dissuade them from doing so).  But I’ve talked about some of these issues before.

Links to each state’s legislation and a brief summary of the differences from Vermont’s law are just below:*

VERMONT:

Standard Bad Faith/Good Faith Assertions of Patent Infringement used.

Bond: Motion by target, determination by court. Troll must post bond equal to good faith amount target would pay to litigate the assertion (not to exceed $250K).

Damages: Standard range of damages.

ALABAMA: No significant differences.

GEORGIA: No significant differences.

IDAHO:

Includes 3 year statute of limitations.

Regarding Bond: No upper limit (typically $250K) imposed by statute. The target of a patent troll must establish a reasonable likelihood that a person has made a bad faith assertion.

LOUISIANA:

Only the state’s attorney general has the authority to investigate and pursue claims.

Person’s (or entities) from outside the state making an assertion in-state is subject to the jurisdiction of the state.

No bond provision.

MAINE: No significant differences.

MARYLAND: No bond provision.

MISSOURI: No bond provision.

OKLAHOMA: Only state attorney general has authority to investigate and pursue claims.

OREGON: No bond provision.

SOUTH DAKOTA:

Includes an exception for publicly traded companies and patent owners using the patent in manufacturing and production of products and materials (in addition to the VT exceptions for higher education and technology transfer organizations for higher education institutions).

TENNESSEE: No bond provision.

UTAH: No significant differences.

VIRGINIA:

No bond provision.

Person from outside the state making an assertion in-state is subject to the jurisdiction of the state.

$2,500 civil penalty for each infraction.

WISCONSIN: No bond provision.

*Many thanks to Mathew Kryman, student at Vermont Law School and former intern at Dunkiel Saunders, for his help in analyzing the statutes.

*Thanks also to Rupalee Rashatwar, Program Coordinator/ Acting Legislative Coordinator at the National Association of Attorneys General for the compiling the legislative activities.

MPHJ’s Losing Streak Continues

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The State of Vermont has continued its winning ways against MPHJ.

A recent Vermont court decision continues the shut-out being tossed by the state of Vermont against MPHJ. You can read the full decision here.

Just to recap the proceedings before getting to the latest decision:

  • On May 13, 2013 the State of Vermont sued MPHJ in Vermont state court alleging violations of Vermont’s consumer protection law.
  • MPHJ removed the case to federal court and requested dismissal of the case due to a lack of personal jurisdiction.
  • Vermont filed a motion to remand on July 8, 2013 and District Judge William Sessions heard arguments on February 25, 2014.
  • Judge Sessions found that the federal court lacked jurisdiction and thus granted the state’s motion to remand on April 15, 2014.
  • MPHJ appealed to the Second Federal Circuit*, which affirmed the remand. State of Vermont v. MPHJ Technology Investments, LLC, Nos. 2014-1481, 2014-137, 2014 WL 3938955 (2d Fed. Cir. Aug. 11, 2014)

With the case in state court, Vermont Superior Court Judge Helen Toor heard the parties’ positions on the propriety of personal jurisdiction over MPHJ (note that Judge Sessions declined to decide this issue as he believed it was premature), i.e., whether MPHJ had minimum contacts with the state and whether it would be fair to exercise jurisdiction over MPHJ in the event that minimum contacts exists.

MPHJ and the state’s position differed mainly in the characterization of the letters that MPHJ sent.  MPHJ indicated that it was just a patentee defending its rights.  MPHJ relied on long-standing precedent that allows patentees to send demand letters to allegedly infringing parties (generally) without fear of being hailed into the infringer’s jurisdiction.  In contrast, the State (and ultimately, the Court) focused on the alleged illegality of the letters themselves.  In other words, since the State has alleged the letters violate Vermont’s consumer protection statute, the letters are sufficient, in and of themselves, to establish minimum contacts with the state where the letters were received.  The court analogized to cases involving text messages and mailings in violation of consumer protection laws, libel suits where the libeler was in a different jurisdiction than the libelee, and phone calls made in violation of the Telephone Consumer Protection Act.

The importance of the court’s insight should not be understated. My brief review of the cases cited by the court allow for much fewer contacts with the forum state than one would normally expect under standard personal jurisdiction factual scenarios.  We are basically in a hybrid civil-criminal scenario, where illegal activity, once committed in a state comes under the jurisdiction of that state.  We wouldn’t bat an eye at a state prosecutor charging an out-of-state person for a crime committed in the prosecutor’s state, and in much the same way, we shouldn’t be surprised if a business sends an illegal letter to a state resident and the state decides to prosecute.

The court then assessed whether or not, in spite of the minimum contacts, it would be fair to MPHJ to defend itself in Vermont.  Weighing heavily against MPHJ is the fact that it was the state, itself, as the plaintiff, and that MPHJ’s letters threatened suit of the alleged infringers (which would necessarily take place in Vermont) and ultimately the court found that it would be fair to subject MPHJ to the suit in Vermont courts.

Next up for the court will likely be discovery issues…this could take a while.

*ed. Thanks to Walter Judge of Downs Rachlin Martin PLLC for pointing out that it was the Federal Circuit that reviewed the remand decision of Judge Sessions, not the Second Circuit as set forth in Judge Toor’s opinion.

Headed back to State Court! MPHJ Loses Remand Motion.

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More details to come, but below is the opinion of Judge Session granting the State’s request to remand the MPHJ litigation back to VT State Court.  I predicted this result here.

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