[T]he Office of the Vermont Attorney General is asking a federal judge to dismiss a lawsuit that challenges the state’s 2013 law designed to stop companies from making “abusive” patent infringement claims.
Solicitor General Bridget Asay filed a document in U.S. District Court on Friday saying that Judge William Sessions should reconsider and clarify a recent decision that would have allowed an alleged patent troll to keep suing Vermont.
Asay filed the document on behalf of Attorney General Bill Sorrell. In it, the state says that MPHJ Technology Investments has no right to sue Vermont for its anti-trolling law because the law has never affected the company and any claims MPHJ makes are purely hypothetical.
“We think that they don’t have standing to challenge the [patent-trolling law], which means they’re not being injured at the time,” Asay said. “We are also defending the statute on the merits … The state has asked the court to dismiss the entire case.”
Registered in Delaware and owned by a Texan, MPHJ is the same company that Sorrell sued in 2013 for allegedly sending dubious claims of patent infringement to small businesses across Vermont as a method to extract money from them in the form of licensing fees.
The original case, State of Vermont v. MPHJ Technology Investments, started in Washington Superior Court but is now tied up in the U.S. Court of Appeals following about two years of back-and-forth over whether state or federal judges should hear the arguments.
The company filed this new federal suit against Vermont over an unrelated intellectual property law that went into effect in July 2013.
Vermont’s allegations
According to the original case, MPHJ’s company “HarNol LLC” owns several patents that generally relate to “computer architecture and process for digital document management.” An example would be using an office copy machine that automatically scans documents and sends them as emailed .pdf attachments, according to a letter. The company considers people who use that technology to be in violation of the company’s patent, court documents say.
Sorrell alleged that MPHJ was using up to 40 similar “Shell LLCs” to send out a series of three letters that would seek to get money from small businesses before threatening to take them to court. He argued that “no court has ruled on the validity of the patents.” At least 75 Vermont businesses had been affected by similar letters as of 2013, according to Asay, including two nonprofit organizations.
The first letter would tell the company it was infringing on MPHJ’s patent and invited the small business to pay a licensing fee or fill out a questionnaire demonstrating that it hadn’t infringed the patent law, according to court documents. If the company didn’t respond, according to the attorney general, a second letter would tell the small business that MPHJ’s “shell” company was lining up a lawyer.
The third letter would threaten to take the target company to court, according to the attorney general’s arguments in court documents. But despite the threats, the attorney general’s office said MPHJ never had any intention to bring the small businesses to court, and the company never retained a lawyer.
MPHJ had all along been hoping to obtain licensing fees from the businesses, the attorney general’s office argued, rendering the claims as “deceptive” and “unfair” under Vermont’s Consumer Protection Act. The company’s lawyers at Farney Daniels in Texas forwarded VTDigger’s requests for comment to a representative who did not issue a statement before this article was published.
The latest conflict involves a separate case that MPHJ brought against Vermont for the law called the Bad Faith Assertions of Patent Infringements Act, which the Legislature passed and went into effect in 2013. Vermont has never sued the company under that patent-trolling law, and the law did not exist when Vermont brought its original case in state court.
On June 3, Sessions issued an order that would allow the Delaware company to challenge the constitutionality of Vermont’s intellectual property law in federal court as part of the legal dispute that the attorney general called a “groundbreaking” lawsuit when he first filed it.
The judge also ruled that MPHJ could move forward with its federal lawsuit that Vermont’s anti-patent trolling law violates the company’s First Amendment rights. At the same time, he rejected MPHJ’s other constitutional claims that Vermont was unfairly targeting the company, and its claim that Vermont is infringing on interstate commerce.
Vermont is now pushing further to have Sessions throw out the rest of the case. The document filed by Asay, the solicitor general, cites testimony from the original case in which MPHJ says it has not been affected by the Bad Faith Assertions of Patent Infringements Act. Asay said that if the state can persuade the judge to throw out the case, the next step would be to get the original case back into Vermont’s court system.
“Ultimately, we think once the case is back in state court we think the case can be resolved in less than a year,” Asay said. “We’re confident that once the state court can try the evidence that we have, we’re confident that we will prevail.”
Legal opinions
According to court documents, MPHJ owns several patents on scanning technology and considers people using it to be in violation of the company’s patent. Vermont is not the first state to sue MPHJ under a consumer protection law, but it’s the first state that hasn’t agreed to settle.
The Federal Trade Commission — the only entity that can bring consumer protection complaints against companies at the federal level — settled its case against MPHJ in 2014. New York settled a claim against MPHJ in 2013.
“They’re certainly doing a lot of flailing around,” said Justin McCabe, an intellectual property lawyer for the firm Dunkiel Saunders in Montpelier. “They [MPHJ] were losing their initial suit and then decided to strike back with some very spurious claims.
“But I think this is really, for them, for MPHJ, this is really a sort of bet the company fight,” McCabe said.“If Vermont wins this case, there’s a very good chance that many other states are going to follow Vermont’s lead.
“They’re trying to find some argument that sticks, some argument that will win the day for them, so they can get out of this mess, and probably leave Vermont forever,” McCabe said. “They’re in a tight spot, I think.”
Walter Judge, an intellectual property attorney for Downs Rachlin Martin, said one of the most striking parts of the case is that the merits of MPHJ’s actions have not yet been decided. He said the process has become so complicated that it’s “stuff that only a legal wonk could love.”
Judge called the extensive legal process “emblematic” of the way MPHJ and other patent trolls do business in general. “One could argue that this second lawsuit is part of MPHJ’s strategy to tie everybody up in court,” he said.
McCabe said Vermont’s consumer protection case against MPHJ is very strong. “What we’re seeing in MPHJ’s most recent attempts is to try to keep the state from engaging in the next step of the legal process, which is going to be discovery.
“The next step in the case is going to be the state going through and getting documents related to MPHJ and its practices,” McCabe said. “Depending on that evidence or what they find will really determine the outcome of the case.”
The case against Vermont’s patent trolling law will move forward after Sessions rules on the attorney general’s June 12 filing.
In the original case against MPHJ, Vermont has moved to get it back into state court and have the Second Circuit speed up that decision.
