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CAFC Can’t Review Vermont Demand Letter Enforcement


Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog, Inc.
Principal Lecturer, PLI Patent Bar Review Course
Posted: August 13, 2014 @ 11:15 am

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Last week the United States Court of Appeals for the Federal Circuit issued a decision in State of Vermont v. MPHJ Technology Investments, LLC. The decision, which was really not much of a decision because the Federal Circuit concluded they lacked jurisdiction, is interesting for at least several reasons.

First, MPHJ Technology Investments is the company that New York Attorney General Eric T. Schneiderman reached a settlement with in January 2014. See NY Attorney General Settles Investigation into Patent Troll. The other reason this case is of interest is because of Vermont’s extremely aggressive stance against the bad actors in the patent litigation industry. See Vermont Approves Patent Troll Legislation.

While Vermont’s actions are undoubtably laudable, despite what some conclude I suspect that when challenged the legislation will fall because it pre-empts patent law, which is federal. For example, one of the factors that would suggest a bad faith patent enforcement under the Vermont statute is if there has previously been a lawsuit or threatened lawsuit based on the same or similar claim of patent infringement.

While that probably sounds logical to the general public, there is no basis in the patent laws to say that you cannot sue or threaten suit on multiple similar patents. You may threaten to sue or sue on an issued patent and then subsequently obtain another patent that shares the same disclosure. This happens all the time, it is the right of the patentee to obtain multiple patents and build a portfolio and do so in no way suggests foul play. This is but a single instance where the Vermont legislation would upset the substantive rights granted by the federal government. But the Vermont patent troll legislation was not at issue in this case, although I suspect it will eventually be reviewed at some point.

The facts that set off this particular dispute arose out of allegedly false and misleading demand letters, which is an enormous problem in the patent industry. While the general public, popular press and many politicians want to believe there is a so-called “patent troll problem,” the reality is the problem is one of abusive litigation and abusive pre-litigation tactics. There is no place for false and misleading demand letters, and they should be stopped.

Here, on May 8, 2013, the State of Vermont through the Vermont Attorney General, filed suit against MPHJ in Vermont state court. The State alleged MPHJ engaged in unfair and deceptive trade practices under the Vermont Consumer Protection Act, stating that the letters con- tained threatening, false, and misleading statements. MPHJ subsidiary licensees wrote to various business and non-profit organizations operating in Vermont, requesting the recipient to confirm it was not infringing MPHJ’s patents or, alternatively, to purchase a license. If the offeror did not receive a response, a Texas law firm sent follow-up correspondence stating that an infringement suit would be filed.

MPHJ removed the case to the United States District Court for the District of Vermont on June 7, 2013, asserting federal question jurisdiction and diversity jurisdiction. The State moved to remand the case back to state court for lack of subject matter jurisdiction. Ultimately, the district court granted the State’s motion to remand the case back to State Court. MPHJ appealed to the Federal Circuit.

The Federal Circuit, per Judge Newman and with Chief Judge Prost and Judge Hughes, found that the Federal Circuit lacked jurisdiction to hear the appeal from a decision to remand the case back to State court, citing 28 U.S.C. 1447(d), which makes unreviewable “[a]n order remanding a case to the State court from which it was removed…”

Judge Newman went on to explain:

Section 1447(d) precludes this court from second-guessing the district court’s jurisdiction determination regarding subject matter. If the § 1447(d) bar applies, “review is unavailable no matter how plain the legal error in ordering the remand.” Briscoe v. Bell, 432 U.S. 404, 413 n.13 (1977) (citing Gravitt v. Sw. Bell Tel. Co., 430 U.S. 723 (1977)).

Therefore, in order for the Federal Circuit to review the Vermont statute or any others it will be necessary for a case removed to federal court to remain in federal court and not remanded back to State court, which would effectively make appellate review by the Federal Circuit impossible. Section 1447(d) seems, and the outcome likely unfair, although no one will likely shed a tear for MPHJ.

 

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Posted in: Federal Circuit, Gene Quinn, Government, IP News, IPWatchdog.com Articles, Patent Litigation, Patent Trolls, Patents

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

7 comments
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  1. While the state law may be overbroad, it’s my understanding that it would be unusual for a court to throw the entire law away if it can only invalidate one portion or sub-portion of it. So the problematic ‘multiple lawsuit’ issue you highlighted might get that bit of it negated, but the rest of the statue could theoretically be left in tact, unless the court finds the entire law is too broad.

    If I understand it from a layman’s understanding correctly, state law may touch on thing federal law does as well, as long as it doesn’t contradict that law. For example, there are federal safety standards for workplaces, but a state can place additional safety requirements as well, as long as it doesn’t contradict the federal law, correct?

    So, as long as the state doesn’t contradict federal law, they could have tighter requirements on demand letters than the Federal laws dictate, provided they don’t contradict something in Federal law?

    Also, if I understand this correctly, one of the big arguments by the state is less about the multiple lawsuit thing, and more about a (near total) lack of individual investigation into actual infringing activities. Especially the bit of the letter that that talks about the ability to infringe. The ability to infringe is not infringement. Actual infringement is. There are patents beyond counting I have the ability to infringe, but that is not a crime (at least I hope it isn’t!). I have to actually infringe.

  2. SadPanda,

    There are three types of preemption: 1) express preemption (when the statute expressly says there shall be no other law on this matter); 2) conflict preemption (the one that you mention above) and; 3) field preemption (as in, this field of law is reserved for the Federal Government). In Bonita Boats v. Thunder Craft Boats (1989), the Supreme Court unanimously held that ban on what was basically reverse engineering was preempted by patent law because it upset the careful balance in patent law. The most recent and well-known preemption case was Arizona v. United States (2012), where much of an immigration law passed by Arizona was struck down, even though the laws Arizona passed were aimed to “help” immigration policy in the United States.

    Whether Vermont’s law here upsets the careful balance of patent law… I think probably, but I don’t know for sure. If and when it is challenged, it will be interesting.

  3. I agree with J. It will be a very interesting argument to make and see unfold. I think it will be preempted since it explicitly defines activity a patent owner has the right to do as being a violation. The solution would be for Congress to do something with respect to demand letters, which they very well may do before the year is over.

  4. To all:

    The preemption issue is an interesting one. The fact that Newman didn’t believe it existed in this case gives me pause as to whether preemption exists in such cases. As Gunn v. Minton illustrates, not all suits involving patents are subject to appeal to the Federal Circuit.

    A even more interesting question is whether what the Vermont AG is doing here will pass constitutional muster. Admittedly, truly false and misleading assertions in such demand letters aren’t protected by the First Amendment, but simply basing such a suit on sending out many such demand letters is going to be hard to constitutionally justify under either federal or state First Amendment rights provisions.

  5. Treat court ordered fees as patent license.

    Problem solved (unless we introduce theory that somebody can out-of-the-blue demand moneys for single thing twice).

    Ofc. That interpretation would only cover patents that share claims.

    And all would fall into contract law.
    (Assumption: patents application contain list of similar patents that could be used to determined “same” patents, as to avoid actual claim constructions and other things)

  6. EG,

    On the “noisy” blog’s equivalent thread to this topic, one line of thought is whether the Vermont AG is engaging in the same questioned behavior regarding “false and misleading” assertions.

    If the letter under question has false and misleading assertions, such a letter is likely prosecutable under Vermont’s existing business laws. If the Vermont AG is seeking a targeting of patent “troll” specific behavior that does not have false and misleading assertions – and that in fact impinge on First Amendment rights – then the AG himself may be violating the law.

    On that same thread (and possibly with the same poster “J”) there is also an interesting discussion on the possible standard that a State may enact for letters, and whether that standard can impinge on the level of bringing suit, which may infringe on the domain of what is preempted by patent law. I think that reaching for a standard that rises above what is involved in federal patent law enforcement easily passed into the area that States are pre-empted.

  7. Same “J” here as that other blog… but different a different Anon!

    Over there, I was wondering if there should be a prohibition of sending letters to any company that can not be reasonably argued as infringing. Of course, that goes straight to a federal question, so for Vermont that wouldn’t work. For all the critiques (the other) anon leveled towards me, he didn’t mention the one that Anon just mentioned… and indeed, I think Anon is right. I don’t know how Vermont can get around preemption, because any regulation on demand letters would have to interfere with a patentee’s ability to enforce its patents.