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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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.