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.

Patent troll thinks it has a better shot in Federal Court

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MPHJ has filed for removal of the Vermont Attorney General’s (AG) lawsuit against it to federal court.  As is clear from the filing, MPHJ is trying to insert issues of patent law into the lawsuit in order to justify removal – unfortunately for MPHJ, none of those issues truly exist as the AG’s complaint doesn’t allege that MPHJ’s patents are invalid, unenforceable, or even that the Vermont businesses that MPHJ has chosen to send demand letters to don’t infringe.  If the AG seeks remand, it is certainly not a sure thing for MPHJ that it would remain in federal court.  A nice analysis of the issues MPHJ faces is over at The Essential Patent Blog.

The motion is here.

High Hurdle for State Laws to Curtail Patent Troll Activities

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Patent TrollThe question of how to limit the activities of patent trolls (aka patent assertion entities (PAEs) or non-practicing entities (NPEs)) has been a hot topic over the past several years.  The discussion of options for addressing the issue at the federal level continue, but in the absence of an overarching federal solution, states have been looking for ways to address the problem through state law.

Here in Vermont, for example, the Legislature is considering a bill (S.7.), to amend the Vermont Consumer Fraud statute to defines the criteria used to establish “bad faith” by a patentee sending demand letters (letters indicating that infringement may be occurring) to a potential infringer (see the full text of the bill here).  The legislation is focused on curtailing certain types of demand letters and the abusive practice that many patent trolls engage in, especially with small to medium sized businesses that may not have the financial means and wherewithal to challenge bald and possibly baseless claims of patent infringement.

Of course, seeking state solutions to a problem that is inherently a federal issue is always tricky because state laws in this area may be a) preempted by the broad scope of federal patent law and b) unconstitutional based on the general rule that a person has a right to redress of grievances before the courts, which in this case, includes the right to send demand letters or other notices of possible ensuing litigation so long as those letters are not sent in “bad faith.”  State laws that intrude upon this area run the risk of being held invalid when challenged in federal court.  In terms of patent preemption, the Federal Circuit has determined that in order for any state law tort claim (e.g., tortious interference, unfair business practices, etc.) to exist against a patent asserter, the assertion of the patent upon the potentially infringing party must be “objectively baseless” – which essentially means that a reasonable person would not have believed that they would have had a chance of a positive outcome in a lawsuit.  Unfortunately, the current draft of the Vermont legislation fails to directly address this issue.

Where the current draft of the bill falters is in its omission of language that requires a court (federal or state) to first determine whether or not the patent asserter has made an objectively baseless claim of patent infringement.  The bill does include objective criteria of baselessness, such as if the patentee knows its patent is invalid (see, sections (b)(6) and (b)(7) (and possibly (b)(8)(B), but that would be a stretch in my view), which have previously supported a finding of objective baselessness.  However, the present bill would be stronger, and more closely comport with federal law, if these criteria, individually, were required findings of the court, not just potential basis for determining that the demand letter was served in bad faith.  The law should also include an additional criterion giving broader authority to the courts to account for other factual situations, such as, “other indicia of objective baselessness” or “other indicia that no reasonable person would have considered their potential case to have merit.”

If the current bill goes forward, how is this most likely to play out?  In the past, the Federal Circuit has been quick to look to the definition of “objective recklessness” for guidance in interpreting the meaning of “objective baselessness,” and this has been an increasingly high burden for parties to meet.  Thus, I could see a patent troll, who is hailed into state court, quickly filing a counter claim/suit and having the case removed to federal court, and then successfully using the Federal Circuit’s definition of objective recklessness (which also covers frivolous suits and attorney’s fees under 35 U.S.C. 285) to avoid any state law claims.  Depending on the facts, this could make the law fairly useless if Vermont state courts apply the caselaw set forth by a Vermont district court and the facts in that case are highly supportive of a finding of bad faith.

In the end, the best part of this bill may be the ability of the Attorney General’s office to go after trolls. The Attorney General’s (AG) involvement ups the ante for any patent troll, flips the balance of power in the typically patent troll situation (there by discouraging the basic strategy of most patent troll), and importantly, can serve to insulate Vermont businesses from the claims made by patent trolls because there would be no direct recourse by the patent troll on a potential infringer.  Of course the AG would still need to meet the standard of “objective baselessness” – but the deterrence factor alone may  have a valuable dampening effect on troll activity in Vermont.  It could be strengthened further if the statute required the AG’s office to investigate any complaints of bad faith patent demand letters served on Vermont businesses.

Supplementing federal law with clearly defined and narrow state legislation make sense, and focusing on expanding the remedies and claims available under the Vermont Consumer Fraud statute is a good approach. But the current legislation needs some important revisions before it can serve as an effective deterrent of bad faith patent troll claims.  I will outline some other steps that would complement this approach in future posts.