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

Share on Twitter+1Share on LinkedInSubmit to StumbleUpon
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.

Controlling the Trolls (Part 3)

Share on Twitter+1Share on LinkedInSubmit to StumbleUpon

Previous posts (found here and here) described some of federal, state, and private activities that are being implemented or discussed in order to curb patent troll activities.  I have a few additional thoughts that I believe would contribute to this effort and would likely improve the patent system as a whole.

Other Options

One of the main issues with patent trolls, and broad patents in general, is that there are few efficient and economical ways to challenge a patent’s validity.  The only option currently proposed that addresses this to some extent is Sen. Schumer’s idea, but even that is suspect because the USPTO is not necessarily the most effective arbiter of invalidity determinations (if they were, no one would use inter partes examination to make their own case before the Patent Trial and Appeals Board).  Importantly, making the process of challenging patents more efficient is beneficial to all who participate in the patent marketplace and to the public (which shouldn’t give monopolies to non-innovative ideas).

Changes to the process of patent proceedings in federal court could go a long way toward addressing this problem and improve the patent system as a whole.

  • Patentee Statement Regarding Meaning of Claim
    • Shortly after the start of the litigation (as part of the required disclosure process?), the patentee should be required to provide a detailed statement regarding the meaning of its asserted claims and how the claim relates to the infringing product/process.  This statement should be in sufficient detail so as to determine possible infringement by the potential infringer and supported by references to the patent.
    • Pros
      • Provides further detail regarding the basis of the claim against the potential infringer
      • Places the patentee in a position to make definitive statements about its patent without the aid of possible invalidating references or the patentees technology (neither of which are inherently relevant to the determination of a claim’s meaning)
    • Cons
      • May not provide enough detail to settle the suit
  • Accelerated claim construction
    • Claim construction should be held prior to any discovery, and the patentee should be required to provide its brief first.
      • Pros
        • Lower cost to parties
        • Presents potential infringer with a first cut as to whether it has valid non-infringement and/or invalidity arguments
      • Cons
        • Parties may not be fully aware of potential claim terms that will need to be construed (but, court can always subsequently construe if necessary)
  • Unless a preliminary injunction is awarded, invalidity of the patent should be determined first.
    • Pros
      • Places discovery further down the road
      • May allow for joint defense agreements between multiple interested parties – collective action against a patent troll
      • May change tactic of defendant to not use reexamination process at USPTO
    • Cons
      • If patentee is being squeezed from market by competitor who is infringing, this process may delay an award of infringement

Patent trolls will typically go after smaller companies in order to a) raise money for future litigation against bigger companies and to b) avoid litigation.  Thus, if there were a scheme by which smaller companies could thwart these initial advances by patent trolls, trolls may be less effective overall at extracting licensing fees.  In this regard, the state or private companies could establish a fund for invalidity challenges to patents.  The fund could finance, for example, the commissioning of an invalidity analysis, a challenge at the USPTO (reexamination), or even portions of the litigation (especially if the process above was adopted).

  • Pros
    • By allowing small companies to challenge patents this should cut off a significant funding source for trolls
    • Smaller companies would have a better opportunity to compete in the marketplace as they would not be readily extorted (assumption being that smaller companies have less ability to absorb unnecessary license fees)
    • Any company that contributes could be allowed access to the fund
  • Cons
    • There will need to be factors regarding contribution to the fund, access to the fund, and what the fund will pay for.  These factors are likely to exclude some and not others.

The Diminshing Value of “Small” Improvements

Share on Twitter+1Share on LinkedInSubmit to StumbleUpon

U.S. Patent No. 7,469,381

In a previous post I discussed the problems with the Supreme Court’s Ebay v. Mercantile Exchange decision in the context of the denial of Apple’s preliminary injunction motion (Apple II), and namely my assertion that the nexus test between the claimed invention and sales based upon the inventive attribute should not be strictly applied.

Since then, the district court presiding over the Apple v. Samsung litigation also denied Apple’s request for a permanent injunction, which included additional patents that were deemed to be infringed by Samsung and lead to the 1 billion (yes, billion, with a “b”) dollar verdict.  As part of the court’s analysis, Judge Koh poured cold water on Apple’s claims that sales of iPhones were driven heavily by its design, stating:

But even if design was clearly a driving factor, it would not establish the required nexus.The design of the phones includes elements of all three design patents, as well as a whole host of unprotectable, unpatented features. Apple makes no attempt to prove that any more specific element of the iPhone’s design, let alone one covered by one of Apple’s design patents, actually drives consumer demand. The Federal Circuit made clear in  Apple II that customer demand for a general feature of the type covered by a patent was not sufficient; Apple must instead show that consumers buy the infringing product specifically because it is equipped with the patented feature.695 F.3d at 1376.

Apple v. Samsung, Order Denying Motion for Preliminary Injunction at page 8 (emphasis added).  There is no doubt that the district court’s analysis hues very closely to the intent of the Federal Circuit; however, what is also pronounced in the district court’s analysis is how inappropriate this standard is.  Under the rubric, almost any design patent that is component part of a larger system would not be entitled to an injunction without extraordinary evidence that it is the solely the patented feature that is driving consumer demand.  Consider where this may be a problem for design patent owners:

  • If the product is not being produced (Note: there are caveats in the caselaw for this situation, but their foundation may be shifting];
  • If the product has multiple patented design features that collectively define a design (as proffered by Apple);
  • If the product has a single design element, but that design element is amassed with one or more other unpatented design features;
  • If the design element is contained in a single device (think automobile headlight cover), but the device is contained in a larger product (e.g., car).

In each of the instances presented above, injunctive relief is difficult, if not impossible, to receive and the patentee would have to settle for monetary damages.  Admittedly, monetary damages, such as those granted in Apple’s case, may be sufficient (obviously Apple didn’t think so…); yet, it is bizarre that the courts (and the Supreme Court specifically) has essentially codified corporate march-in rights for patented technologies unless it can be shown that the patented concept has such “power” that it drives consumption of the product.  In the instant case, the district court has determined the license fee due to Apple and by not putting in place a permanent injunction, it has essentially dictated the terms of an agreement between the companies.

Interestingly, if Samsung were to continue to infringe, there would be a very strong argument that the case be deemed exceptional and that treble damages would be awarded.  Of course, this only increases the licensing fee and if Samsung finds it reasonable it will continue to infringe and just incorporate the cost into the device.

The rubric followed by the district court is even more problematic for utility patents.  Specifically, the district court stated that in order to receive an injunction, Apple would need to established that it’s ’381 patent was “necessary for the product to function, or a core technology of the product.”  This statement presents real problems for patentees: rarely, if ever, is a claimed invention “necessary for a product to function.”  Moreover, this presents some puzzling questions:

  1. What is the product? Is it the apparatus defined by the claims? Does it include those non-binding limitations presented in the preamble of a claim? If the novel feature is part of a larger system, is the product the entire system or merely the novel feature?
  2. What level of functionality is required? If the claimed invention is directed to a phone’s wireless connection, but the phone can still transmit data over its cellular connection, is the wireless connection necessary?  It is to certain wireless communications, but not to the phone as a whole.

These issues will likely be ferreted out in future decisions, but for now, this leaves patent practitioners and patentees in the dark as to how to draft claims to novel features of existing devices that would warrant injunctive relief.