AG Sorrell Addresses Congress Regarding Patent Trolls

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Bill Sorrell, Attorney General for the State of Vermont addressed The U.S. House of Representatives’ Committee on Energy and Commerce regarding patent trolls, and specifically, as I’ve commented on before, the need for States to be allowed to intervene on behalf of troll targets.  If any federal legislation should be passed on this issue, its the concept that States shouldn’t be preempted under the patent laws from asserting claims of unfair competition.

You can read the full press release below (note the links in the release are inactive):Sorrells tesitmony re Patent Trolls 4-8-14_Page_1 - Copy Sorrells tesitmony re Patent Trolls 4-8-14_Page_2 - Copy

 

Game On – State of Vermont and MPHJ Spar in District Court

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I'm not sure this sign makes MPHJ feel all that welcome.

I’m not sure this sign makes MPHJ feel all that welcome.

This past Tuesday, MPHJ and the State of Vermont presented arguments relating to two motions before Judge Sessions of the Vermont District Court—one regarding whether the Court has personal jurisdiction over MPHJ and the other in which the State was requesting remand back to State court.  I attended the hearing and, while both parties presented their arguments well, I think the smart money would be on the State to come out on top, at least for the time being, on both these issues.

Dismissal for lack of Personal Jurisdiction (PJ)?

Although the Court heard the PJ motion second, I’m going to review it first as I think the Judge Sessions’ questions present some keen insight into where this case is going.  I addressed MPHJ’s personal jurisdiction motion here, but in brief, MPHJ argued that sending demand letters to the State of Vermont is not sufficient to give the Court jurisdiction over them.  Judge Sessions approached this argument with skepticism and directed questions to MPHJ’s local counsel surrounding what conduct would MPHJ expect to avail themselves of the laws of the State of Vermont.  Judge Sessions implied that even the Federal Circuit has determined that all patentee conduct regarding demand letters is not protected by the First Amendment.

MPHJ’s response largely avoided the question, but rested its case on Federal Circuit precedent and by discussing a recent decision from a district court in Louisiana that decided, on similar legal claims and in view of substantially similar letters, that it did not have personal jurisdiction over (guess who?) MPHJ.

Judge Sessions, to his credit, did not let go of his line of questioning, and, after confirming his suspicions with the State, came to the unremarkable conclusion that whether or not MPHJ has sent demand letters in type and quantity that would give the Court jurisdiction is a factual question that was not ripe for him to determine (in spite of the Louisiana Court’s ability to make just such a determination).

Thus, it was readily apparent that the Court was not ready to rule on this issue and what that effectively means is that this case will go on, regardless of the decision on the motion to remand.

Judge Sessions

Judge Sessions – credit Seven Days

Remand to State Court?

This issue on whether to remand the case to state court is a much closer call and I discussed it briefly here.  The crux of the issue is whether the claims at issue raise a substantial federal question.  The State’s arguments, predictably, were that a single claim that is supported by a single theory that does not need a determination of any federal issue is enough to warrant state court jurisdiction.  Thus, the State’s complaint (and arguments before the Court) focused entirely on the misrepresentations and conduct by MPHJ in the State of Vermont, and did not imply or suggest that any of the patents were invalid or that there would be any substantial question of patent law.  Judge Sessions seemed to mostly agree with this argument, but…read on.

MPHJ responded that in spite of the State’s attempts to limit the complaint to misrepresentations and other such allegations, in order to determine liability under the Vermont consumer protection act a court would necessarily need to resolve difficult patent law issues.  For example, in order to determine whether MPHJ’s investigation was “insufficient” as alleged in the State’s complaint, a court would necessarily need to evaluate the claims of the patents at issue and whether possible infringement existed among the targets of MPHJ’s letters.  Moreover, both Judge Sessions and MPHJ noted that the State’s complaint also included a demand that MPHJ be permanently enjoined from sending demand letters in the state—a broad and far-reaching demand that would seem to invoke a substantial federal question.

Judge Sessions, however, queried the State as to whether this was the true intent of the demand or if, as would be reasonable from the context of the Complaint, that the demand should have been more narrowly tailored to an injunction addressing MPHJ’s sending of false or misleading demand letters.  The State was reluctant to give in on this point, but never quite articulated a reason.  My own retort would have been that it would have been quite possible that evidence could have been found in which the patents were invalid or that MPHJ believed them to be invalid—both of which would allow a state court to impose the injunction that the State requested without raising a substantial federal question.  Granted, that would have been a heavy lift for the State, but nonetheless, it would have readily defended the State’s position and demand.

In the end, Judge Sessions granted the State ten days to revise their complaint to address his concerns about the breadth of the demand.  In my mind, what this means is that so long as the State does so, Judge Sessions believes this case should be in state court.

Side Notes

The State capably defended its position on both legal issues during the hearing, but lacked an understanding of some of the nuances of patent law so as to be able to effectively respond to both MPHJ and Judge Sessions’ concerns on those issues.  One example of this is above with regards to the complaint demand.  Another example came up when MPHJ explained its parent patent (scan to email technology), then informed the Court that the USPTO had recently granted a continuation application related to the parent in view of prior art submitted in ongoing Inter Partes Review proceeding (related to its other patents), and then discussed its pending litigations that involved the patents.  These talking points were meant to imply the breadth of the patented technology, its validity, and MPHJ’s willingness to assert it, and thereby undercut the State’s argument regarding the impropriety of MPHJ’s letters.

Although MPHJ’s representations were accurate to a point, they were incomplete without additional context, and the State did not deliver these clarifications.  For example, while the claims of a continuation application emanates from its parent, it is not necessarily the case that the claims in any way resemble the parent’s claims.  Moreover, looking at the file history, this latest application relies on multiple prior applications and is a continuation-in-part of those applications.  Thus, whether or not the continuation application vouches for the parent’s validity is suspect.

Also, the parent application is not being asserted in the pending litigations mentioned by MPHJ.  Admittedly, this could have been strategic since these patents are under Inter Partes Review, but nonetheless, the court should be aware that MPHJ was not asserting these patents that it felt comfortable using in its demand letters.  The Court should have also been made aware that in the recent NY Assurance of Discontinuance Agreement with MPHJ, the sample letters approved by the NY AG do not include assertions of 3 of the 5 patents asserted against Vermont entities (one patent was an application at the time, and has since been allowed).

Mr. Farney capably represented his position before Judge Sessions and did a good job presenting his arguments.  Given his formerly-reported involvement with the sending and follow-up with the demand letters, I wonder how he will do as a fact witness.

Patent Troll “Light” in Minnesota?

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Patent trolls may not feel so welcome after the MN AG’s actions.

MPHJ (patent troll of Vermont fame) and the Attorney General of Minnesota (AG) have settled a disagreement about MPHJ’s activities in Minnesota.  The Assurance of Discontinuance, which can be found here, includes some interesting provisions, and while some commentators have noted that this capitulation may signify the end of MPHJ’s activities in Minnesota, the agreement does present some interesting questions.

For example, would the agreement actually be enforceable if MPHJ sent a demand letter without getting the AG’s prior approval?  Constitutionally, MPHJ has the right to send demand letters so long as the letters are not objectively baseless.  The agreement may fall under the covenant-not-to-sue rubric, but covenants not to sue are only enforceable “if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.”  Newton v. Rumery, 480 US 386, 392 (1987).  While this agreement may serve MPHJ and the citizens of Minnesota, it does not serve the overall interests of the patent system, which is the existence of valid and enforceable patents (and the challenge and invalidation of improvidently granted ones).

There are several questions surrounding the AG’s approval of future MPHJ demand letters:

  1. What process is the AG going to use to vet the demand letters?

Is the AG going to conduct invalidity and unenforceability analysis (won’t it have to in order to determine whether the letters are objectively baseless)?  Will MPHJ be required to provide a claim construction so that the AG can evaluate the claims or will the AG do it themselves?  Is the AG going to reach out to potential infringers and request information regarding potential liability?  If a request for information is made, is that information kept confidential?  Does the potential infringer have a right to refuse to provide information?

  1. Will that process be open for public inspection?

If a letter is vetted by the AG, what information about that vetting will be available to members of the public so that people can understand what amount of diligence has gone into reviewing the demand letters? What information collected by the AG will be available?  If a claim construction is completed, will it be available for public inspection?

  1. Along the same vein, what impact will the AG’s stamp of approval have on subsequent recipients of MPHJ’s demand letters?

If approved, has the state of MN just said: “Yes, we think MPHJ has a legitimate claim”?  Would a business, who has received an AG approved letter, think that they have basis to challenge the validity of the demand?  What if the AG is wrong and the patent was actually unenforceable and therefore the sending of the demand letter was objectively baseless?

Other interesting questions include:

Does the scope of the letter include businesses outside of MN?  MPHJ appears to have agreed not to send a letter to anyone having an address in MN, but it is not clear that this would exclude a company having its headquarters in MN and a business in Wisconsin.  Should all business set up a corporation in MN for receipt of service of process to be under the protection of this agreement?  Could this be a national agreement that could completely doom MPHJ?

Which patents does this agreement apply to?  It appears to apply to any and all patents owned or acquired by MPHJ and its affiliates.  Why would MPHJ acquire any additional patents with this agreement in place?

Lastly, MPHJ attested that it has not received any money from anyone it sent a letter to and if this representation turns out to be false it has to pay $50K.  Given scope of MPHJ’s activities and its many, many subsidiaries, it will be very interesting to see whether any MN residents come forward.