Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES NEWS: High Court urged to rule that Federal Circuit lacked jurisdiction in patent demand-letter dispute, (Jan 4, 2016)

By Thomas Long, J.D.

In a consumer protection action brought by the State of Vermont against a patent holder for sending allegedly deceptive demand letters to Vermont businesses, the State is asking the U.S. Supreme Court to decide whether the U.S. Court of Appeals for the Federal Circuit erroneously took jurisdiction over a patent holder’s appeal of an order remanding the case to state court. At issue is a September 28, 2015, decision by the Federal Circuit, holding that removal of the action was properly denied by a federal district court because the State’s complaint did not call into question federal law.

Consumer protection claims. The State of Vermont filed a state court action under the Vermont Consumer Protection Act (VCPA) against non-practicing entity MPHJ Technology Investments, LLC, alleging that letters mailed to Vermont businesses—which informed recipients that they may be infringing certain patents—were deceptive. The letters accused recipients of infringement and requested that the recipients either purchase licenses or confirm that they were not infringing the patents.

First removal motion. MPHJ moved to remove the case to the U.S. District Court for the District of Vermont on June 7, 2013. The district court remanded the case after finding it did not have subject matter jurisdiction. Upon return to the state court, the State was granted an amendment of its complaint, and MPHJ’s motion to dismiss for lack of personal jurisdiction was denied.

Second removal motion. In 2013, after the suit against MPHJ was filed, Vermont enacted the “Bad Faith Assertions of Patent Infringement Act” (BFAPIA), sometimes referred to as a “patent trolling” law. The BFAPIA created a cause of action in state court, enforceable by the attorney general or by a Vermont business, against anyone asserting patent infringement against the Vermont business in bad faith. Vermont has not filed suit against MPHJ under the BFAPIA.

However, MPHJ filed a second motion to remove on September 9, 2014, arguing that the injunction requested by the State would require MPHJ’s compliance with the BFAPIA. According to MPHJ, the federal court had jurisdiction because the requested injunction concerned the validity of 35 U.S.C. §§261, 271, 284, 285, and 287, as well as the First, Fifth, and Fourteenth Amendments, the Supremacy Clause, and the Patent Clause of the Constitution. The district court again remanded the case, finding that the State’s amended complaint never “revived” MPHJ’s right to remove in the first place. The State’s request for injunctive relief also made clear that the State did not seek relief under the BFAPIA. Even if the passage of the BFAPIA by the Vermont legislature provided a new opportunity for removal, the second removal was untimely. MPHJ again appealed to the Federal Circuit.

Jurisdiction. The State argued that the Federal Circuit lacked jurisdiction and should dismiss the appeal. However, the Federal Circuit noted, MPHJ had counterclaimed for a declaratory judgment that the VCPA was invalid or preempted as applied under the U.S. Constitution and the patent law. Seeking relief from the application of state law on preemption grounds in a compulsory counterclaim vested jurisdiction in the court as long as it “arose under” the patent laws. A counterclaim was compulsory where there was a logical relationship between the counterclaim and the main claim. The same underlying facts were involved in both the State’s claim and counterclaim 5, in the Federal Circuit’s view, and counterclaim 5 arose under federal patent law.

Removal. Although the Federal Circuit held that it had jurisdiction to hear the appeal, the court affirmed the remand to state court. Removal under Section 1442(a)(2) required that: (1) an action be instituted in state court; (2) the action be against or directed to the holder of a property right; (3) the property right be derived from a federal officer; and (4) the action would “affect” the validity of a federal law. Removal could not be based on Section 1442(a)(2) because MPHJ’s answer and counterclaims did not call into question the validity of any federal law. The amended complaint did not assert claims under, nor requested an injunction requiring MPHJ to comply with, the BFAPIA.

Petition for certiorari. In its petition for certiorari, the State of Vermont asserts that the Federal Circuit wrongly decided the jurisdictional issue. According to the State, the America Invents Act provided that the Federal Circuit had jurisdiction over an appeal from a final decision of a district court “in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under” federal patent law. The State argues that MPHJ’s challenge to the VCPA claims did not arise under federal patent law. The Federal Circuit’s “mistaken jurisdictional ruling has broad and unfortunate consequences that call for the Court’s review,” the petition states. In particular, the ruling will undermine state enforcement efforts against “patent trolls” in state court, the State contends.

The petition for certiorari in State of Vermont v. MPHJ Technology Investments, LLC, Docket No. 15-838, was filed December 28, 2015.

Attorneys: William H. Sorrell, Attorney General, and Bridget C. Asay, Solicitor General, for State of Vermont.

Companies: MPHJ Technology Investments, LLC

News: StateUnfairTradePractices VermontNews