Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. Neb.: Nebraska Attorney General enjoined from preventing law firm’s representation of patent assertion entity MPHJ, (Jan 16, 2014)

By Peter Reap, J.D., LL.M.

MPHJ Technology Investments, LLC was entitled to a preliminary injunction prohibiting the Attorney General of the State of Nebraska, Jon Bruning, and his employees, David Lopez and David Cookson, from taking any steps to enforce the cease and desist order issued to the Texas law firm of Farney Daniels, PC on July 18, 2013, in any manner that would prevent or impede the firm from representing MPHJ in connection with licensing and litigation of U.S. patents owned by MPHJ with respect to companies based in, or having operations in, Nebraska, the federal district court in Omaha has decided (Activision TV, Inc. v. Pinnacle Bancorp, Inc., January 14, 2014, Bataillon, J.). However, the Attorney General was free to revisit the preliminary injunction with the court if, at some point during his investigation of MPHJ’s patent enforcement efforts, evidence supported a claim of bad faith.

Background. The court’s preliminary injunction granted to MPHJ mirrored an earlier preliminary injunction granted last September to Activision. Activision originally filed this action against Pinnacle Bancorp, Inc., alleging patent infringement in violation of 35 U.S.C. § 271 et seq. Activision, acting through counsel Farney Daniels, believed that certain companies were violating its patents throughout the United States. Farney Daniels sent letters to these companies (five in Nebraska) asking for information to determine if in fact violations occurred or were occurring.

From February to June of 2013, the Nebraska Attorney General’s Office Consumer Mediation Center received three complaints regarding patent license solicitation letters sent by Farney Daniels and/or an entity named BriPol LLC, AccNum LLC, or IsaMai LLC, on behalf of MPHJ Technology Investments, LLC. On July 12, 2013, Activision filed this lawsuit against Pinnacle Bancorp, Inc., alleging patent infringement.

The state had initiated an investigation into whether patent infringement enforcement efforts by Farney Daniels amounted to unfair or deceptive practices in violation of the Nebraska Consumer Protection Act and the Uniform Deceptive Trade Practices Act. On July 18, 2013, the Nebraska Attorney General filed a cease and desist order against the Farney Daniels firm. The cease and desist order prohibited the law firm from initiating new patent infringement enforcement efforts within the State of Nebraska.

Following the issuance of that order, Activision amended its complaint to include Nebraska Attorney General Jon Bruning, and his employees, David Lopez and David Cookson. Activision contended that its First Amendment rights were infringed as a result of the cease and desist order, as it could not hire and associate with the counsel of its choice; that its Fifth and Fourteenth Amendment rights to due process were violated; that federal patent law preempted state law; and that the Noerr-Pennington doctrine was applicable in this case. Activision was granted its requested injunction on September 30, 2013. MPHJ then filed for intervention and also asked for a preliminary injunction.

Mootness. The Attorney General argued that because he had withdrawn the July 18, 2013 cease and desist order, there was no issue left before the court with regard to either Activision or MPHJ. However, MPHJ and Activision both disagreed. MPHJ contended that the Attorney General did not issue a withdrawal of the cease and desist order as it related to Farney Daniel’s dealings on behalf of MPHJ. The cease and desist withdrawal only dealt with Farney Daniels and Activision. Further, Activision and MPHJ argued that merely withdrawing the cease and desist order was insufficient. Both of these parties filed claims alleging constitutional violations of their rights.

The court agreed with Activision and MPHJ. First, the withdrawal did not address the rights of MPHJ and its representation by Farney Daniels. More importantly, the withdrawal letter clearly did not admit to liability and indicated that the Attorney General might pursue further courses of action for violation of state law. It was clear based on the language of the withdrawal of the cease and desist order that the Attorney General had not made it “absolutely clear” that further enforcement measures would not occur. Thus, the motion for preliminary injunction was not moot, the court ruled.

Preliminary Injunction

The extraordinary remedy of a preliminary injunction should not be granted unless the movant has demonstrated: (1) the threat of irreparable harm to it; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; (3) the probability that it will succeed on the merits; and (4) the public interest.

Merits. The court had already determined that Activision would likely succeed on the merits, as the Nebraska Attorney General had not shown any bad faith on the part of Activision. The court further determined that the letters related to patent infringement were likely preempted by the federal government. Finally, the court determined that the cease and desist order operated as a prior restraint against Activision and violated its right to choose its own counsel. For the reasons set forth in the preliminary injunctions granted as to Activision, based on the facts as applied to MPHJ which were virtually the same as Activision, MPHJ was likely to win on the merits of this case, the court held.

Irreparable harm. MPHJ contended that it had and continues to suffer irreparable harm. The cease and desist order, argued MPHJ, is unconstitutional. Thus its ability to enforce its patents and hire counsel of its own choosing is impaired. As previously stated, the withdrawal of the case and desist order did not denigrate the constitutional violations, nor did it protect MPHJ from future review by the Attorney General. MPHJ suffered and continues to suffer irreparable harm, according to the court.

Balance of harms. The balance of harm clearly weighed in favor of MPHJ. As stated in the court’s ruling on behalf of Activision, “The public has a right to protection from scams and unfair trade practices. However, Activision’s constitutional right to hire counsel of its choosing to pursue investigations and lawsuits against infringers is clearly impeded by the cease and desist order.” This same analysis applied to MPHJ.

Public interest. As the court previously stated: “The public interest is served by enforcing the Constitution of the United States. This means that Activision and others have a right to counsel and a right to have counsel pursue their interests. It also means that Activision and others have a due process right to a meaningful process prior to issuance of a cease and desist order.” The same analysis applied to MPHJ and this factor weighed in favor of MPHJ.

Negotiation of a final injunction. Both Activision and MPHJ contended that the defendants must agree to a finding that they committed an unconstitutional violation under 42 U.S.C. § 1983 and must pay some amount of costs and fees. An order permanently enjoining the state defendants from enforcing the cease and desist orders would likely occur in this case, the court reasoned.

Thus, the parties were ordered to attempt to draft an agreed upon final permanent injunction and submit the draft to the court within 14 days of the date of the order. If that was not possible, the court would order the magistrate judge to enter an expedited progression order dealing with this part of the case as to both Activision and MPHJ and the nonbank defendants, so that that this portion of the case could proceed to the merits, and the court could enter a permanent injunction or address the merits on motions for summary judgments.

The case is No. 8:13CV215.

Attorneys: Cassandra L. Klingman (Farney, Daniels PC) for Activision TV, Inc. Carrie S. Dolton (Gober, Hilgers PLLC) for Pinnacle Bancorp, Inc.

Companies: Activision TV, Inc.; Pinnacle Bancorp, Inc.

Cases: StateUnfairTradePractices NebraskaNews