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.

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Comments

  1. Walter Judge says:

    Hi, Justin. A minor technical error in Judge Toor’s decision that you appear to have repeated. It was the Federal Circuit, not the Second Circuit, that affirmed Judge Sessions’ remand order. Yes, normally, appeals from the Vermont federal court go to the Second Circuit. But this went to the Federal Circuit precisely because MPHJ was (and continues to) alleging that this is fundamentally a “patent” case, appeals of which go exclusively to the Federal Circuit. Cheers.

    Walter Judge

    • Justin McCabe says:

      Thanks Walter! You know, I had thought that might be the case (and that I had read as much on the blurb from Vermont Business Magazine), but didn’t investigate the error myself. Hope all is well with you.

      Justin

  2. Walter Judge says:

    Thanks. All is well. As an FYI, even since Judge Toor’s decision, the MPHJ litigation continues to increase and multiply.

    1. On September 8, MPHJ filed a separate civil rights lawsuit in federal court against the Attorney General to try to stop the state court consumer protection case from proceeding. The complaint alleges that the action in state court violates MPHJ’s federal civil rights. It is case no. 2:14-cv-00191-wks (assigned to Judge Sessions — the same judge who ordered the remand in the original federal case).

    2. Then, the very next day, on September 9, MPHJ “re-removed” the state case to federal court. The alleged basis for this “re-removal” is that, after the remand, the state court granted permission for the AG to amend the state’s complaint against MPHJ to include claims under the new Bad Faith Assertion of Patent Infringement Act. MPHJ alleges that the amended complaint gives them a new basis for removing the case to federal court. It is case no. 2:14-cv-00192-wks (again, assigned to Judge Sessions).

    Thus, if you go to the Vermont federal court website, you will see 3 dockets involving MPHJ and the State of Vermont: 1) Vermont v. MPHJ — the original case removed by MPHJ and remanded by Judge Sessions (now marked “closed”); 2) MPHJ v. Sorrell, et al.; and 3) Vermont v. MPHJ. In the third case (the “re-removal”), the AG’s office has already filed a remand motion!

    Good Lord.

    • Justin McCabe says:

      That’s just nuts!

      Put an animal in a cage, and he’s going to thrash around – looks like that’s what MPHJ is doing…

  3. Walter Judge says:

    In fact, above and beyond the complicated web of litigation activity in Vermont, MPHJ is involved in similar litigation in at least two other jurisdictions.

    It brought an action in federal court against the FTC to stop the FTC from investigation its infringement-letter-writing practices. That suit was thrown out.

    It also brought a federal action in Nebraska to prevent that state’s AG from investigating said letter-writing practices. The court sided with MPHJ in that one.

    I don’t know if either of those two decisions are being appealed, or if there are other litigations in other jurisdictions also.

  4. Justin McCabe says:

    Thanks Walter – I knew about the FTC and Nebraska cases. The AG in Nebraska overreached in my opinion, but I think it still ended up slowing down MPHJ there.

  5. Walter Judge says:

    In its separate civil rights suit against the State/Sorrell (item #1 in my 9/25/14, 8:01 pm posting, above), MPHJ has now filed an Amended Complaint. If you go to docket 2:14-cv-00191-wks, you can see the amended complaint dated 12/29/14. If you look at Paragraph 6 of the amended complaint, it explains the purpose of the amended complaint. Paragraph 6 explains that MPHJ wants to go back to sending letters to potential infringers because the validity of its patents was recently upheld by an Inter Partes Review at the USPTO on Nov. 19, 2014. The amended complaint alleges that Sorrell is depriving MPHJ of its First Amendment right to send out patent infringement inquiry letters. A sample of the kind of letter it now wants to send out is attached as Exhibit F to the amended complaint.

  6. Walter Judge says:

    Update: the federal court issued a remand order yesterday.

    In the continuing legal wrangling between the State and MPHJ (the alleged “patent troll”) – which wrangling so far has never gotten past the issue of which court system the case should be heard in – the Vt. federal court has, once again, remanded the case against MPHJ back to Vermont state court. Yesterday’s Order arises out of MPHJ’s second attempt to remove the case from state to federal court, and is the Court’s second remand Order. On the second removal, MPHJ argued that, after the State filed its original Complaint against MPHJ, Vermont passed its “Bad Faith Assertions of Patent Infringement” law (i.e., the “anti-troll” law) and that the interim enactment of this law gave MPHJ new grounds for federal court jurisdiction. In response, the State, and the Court, disagreed, pointing out that the State never attempted to incorporate that new law into its Complaint in this case. That is, the case against MPHJ is being brought exclusively pursuant to Vt. consumer fraud law as it existed prior to the enactment of the anti-troll law, so that the case now is not any different than it was when the federal court remanded it back to state court the first time. Yesterday’s Order recaps the procedural history of the case and explains why, in the Court’s view, the State’s case is still not about the validity of MPHJ’s patents (which would give rise to federal court jurisdiction), but only about the legality of MPHJ’s activities in seeking to get Vermont businesses to pay it licensing fees. As it did the first time (and lost), MPHJ might attempt to appeal this remand order to the federal appeals court.

  7. Walter Judge says:

    UPDATE:

    http://theipstone.com/2015/01/19/second-strike-out-for-alleged-patent-troll/

    Sure enough, MPHJ is appealing the second remand decision. This will be MPHJ’s second appeal to the Federal Circuit of an order by Judge Sessions holding that the federal court does not have jurisdiction because the case against MPHJ is not a “patent” case, but only a case about MPHJ’s behavior in attempting to enforce said patent.

  8. Walter Judge says:

    Justin, you may be aware that there are now two legal cases involving MPHJ and the Vermont Attorney General pending in Vermont. Judge Sessions just issued an important decision in the second case.

    But first, some background. In the original case, Vermont v. MPHJ, MPHJ has twice tried to remove the case to federal court on the grounds that no matter how Attorney General Sorrell has framed his Complaint, it is fundamentally about MPHJ’s federal patent rights. Judge Sessions has remanded the case to state court twice, finding that the case is not about the validity of MPHJ’s patents per se, but only about its allegedly fraudulent activity in sending threatening letters to Vermont companies, which is a matter of state consumer protection law, not patent law, and, hence, there is no federal jurisdiction. The first time Judge Sessions remanded the case, MPHJ appealed the remand order but it was affirmed by the Federal Circuit, sending the case back down to state court, where the AG had filed it. In its second attempt at removal, MPHJ argued that an amendment to the Complaint by the AG invoked Vermont’s new anti-troll act, which gave MPHJ a new basis for seeking federal jurisdiction. The AG responded that the Amended Complaint does not in fact invoke the anti-troll act, and Judge Sessions agreed, again sending the case back to state court. MPHJ is now appealing that second remand order.

    In the second case, MPHJ v. Sorrell, filed directly in federal court and also before Judge Sessions, MPHJ is the plaintiff. MPHJ alleges that the State of Vermont is violating MPHJ’s civil rights by, supposedly, interfering with MPHJ’s constitutional rights to enforce its patents. In the latest activity in that case, Judge Sessions has just thrown out most of the MPHJ’s Complaint. See order dated June 3, 2015. The only claim that Judge Sessions has allowed to proceed is MPHJ’s challenge to the constitutionality of the new anti-troll act.

    -Walter

  9. Walter Judge says:

    So the “patent troll” saga in Vermont continues . . .

    The Court of Appeals for the Federal Circuit just issued a new decision confirming that Vermont’s lawsuit against alleged patent troll MPHJ can stay in Vermont state court.

    The CAFC has just affirmed Vermont federal Judge Sessions’ second decision to “remand” the case against MPHJ back to Vermont state court.

    After the first remand in this case, with the case back in state court, Vermont Attorney General Bill Sorrell amended his Complaint against MPHJ. MPHJ then removed the case again, arguing that the amendment invoked the new anti-troll law (even though the amended Complaint made no mention of the law), and that that law is unconstitutional, and therefore provided a basis for removing the case to federal court. The AG responded by again moving to remand the case, stating emphatically that the amended Complaint did not implicate the anti-troll law and that Vermont was not suing MPHJ under that law, but only under pre-existing Vermont consumer protection law. Again Judge Sessions remanded, agreeing with the AG that the amended Complaint did not invoke the anti-troll law. Again MPHJ appealed that remand order. And, again, the same federal appeals court has now shot down MPHJ’s (second) appeal – agreeing with the AG and with Judge Sessions that the AG’s case against MPHJ is not based on the anti-troll law and has nothing to do with federal patent rights.

    What is interesting about this decision – and about this entire case – is that it is about the legality or illegality of a patent-holders alleged trolling activities, but it is NOT about Vermont’s new anti-troll law. This new decision does not decide whether Vt.’s anti-troll law is or is not constitutional, nor whether it does or does not interfere with a party’s patent rights, specifically because the AG is not suing MPHJ under that law.

    One might well ask: why is Vermont’s Attorney General not using the anti-troll law against an alleged patent troll? The answer seems to be that the conduct by MPHJ that the AG is suing over in this case took place before the anti-troll law went into effect, and the lawsuit was filed before the law went into effect. Trying to apply that law retroactively against MPHJ might be problematic.

    So what now? After two years of procedural and jurisdictional battles that had nothing to do with the merits of the consumer protection case (at least in the view of the AG and the federal courts), will the case now proceed in state court to litigation on the merits?

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