United States: A Tale Of Two "Patent Troll" Cases: Contrasting Recent Developments In The Vermont And Nebraska AGs’ Litigations

We have been following Vermont AG Bill Sorrell's groundbreaking consumer protection lawsuit against alleged patent troll MPHJ since it was filed in 2013. At the same time, we have been noting the progress of the reverse-image federal case in which MPHJ and another alleged patent troll, Activision TV, Inc.,1 have sought to enjoin Nebraska AG Jon Bruning from bringing his own enforcement action similar to Vermont's (see, e.g., here, here, and here).

The fortunes of these two AG cases diverged further over the last several days. In Vermont, a state court on Thursday rejected MPHJ's attempt to dismiss the Vermont AG's case for lack of jurisdiction. In stark contrast, a Nebraska federal court on Tuesday granted the companies' motions for injunctions against the Nebraska AG and awarded them attorney fees and costs. See Memorandum Order, Activision TV, Inc. v. Bruning, No. 8:13-cv-00215 (D. Neb. Sept. 2, 2014). That these relatively similar cases have almost simultaneously resulted in such different outcomes demonstrates in a nutshell the complexity of the myriad issues involved, as well as the role AGs have carved for themselves at the center of the ongoing debate over the current state of the patent system.

Following Vermont's victory earlier this summer on its motion to remand, the Vermont AG's office chalked up another win when Vermont Superior Court Judge Helen M. Toor rejected MPHJ's argument that state courts lack jurisdiction over its conduct. Judge Toor's decision concluded that, because the Vermont AG alleged that the letters sent by the company to individuals, businesses, and organizations in the state contained allegedly false and deceptive statements and thus were themselves violations of Vermont law, the very act of MPHJ sending those letters was sufficient minimum contact to vest jurisdiction in Vermont state courts. She further held that Vermont has a powerful interest in enforcing its own consumer protection laws to protect its own citizens against fraudulent and deceptive conduct. Because courts in other states likely would not conclude that they had jurisdiction over Vermont consumer protection claims, Vermont courts likely provide the only forum for resolving the state's allegations. As a result of this decision, the Vermont AG's case will move forward, with discovery currently scheduled to conclude by May 28, 2015.

In contrast, a few days later and 1,500 miles away, U.S. District Court Judge Joseph F. Bataillon handed a setback to Nebraska AG Jon Bruning by granting summary judgment in favor of MPHJ and another alleged patent troll, and issuing injunctions against the AG's office's attempt to enforce consumer protection laws against the companies. Judge Bataillon reiterated his earlier finding that federal patent law preempts Nebraska consumer protection law. He then held that the Nebraska AG's office had failed to overcome this finding by demonstrating that the alleged trolls or their counsel had made claims that were objectively or subjectively baseless and made in bad faith. The court further held that the First Amendment also provided grounds for relief, noting that each company "has a right to both enforce its patents and the right to counsel of its choosing," including when a patent owner is merely "threaten[ing] suit for infringement." On these grounds, the court granted injunctions preventing the AG's office from:

[P]ursuing any action against the plaintiff[s] as to these patents and to plaintiff[s'] patent enforcement activity in relation thereto, including plaintiff[s'] counsel, unless the Attorney General can make a showing of bad faith, based on actions of plaintiff[s] that show both an objective and subjective baselessness, as to past or future activities.

The court also granted both companies' motions for attorney fees and costs in an amount to be determined.

It should be kept in mind that the developments in these cases, while important, are just one aspect of the wider, ongoing debate over the issues raised by alleged patent trolls and the patent system more broadly. As the Vermont litigation continues and the Nebraska decision is possibly appealed, even these rulings are far from definitive guidance on where the debate will lead. Meanwhile, AGs remain engaged on this issue in a number of other ways. For example, 44 AGs submitted formal comments on the Federal Trade Commission's (FTC) recent proposal to investigate the role and impact of patent assertion entities on competition, in which those AGs urged the FTC to share its findings with AGs to facilitate their collaborative consumer protection role.

We will continue to monitor these and other developments as they occur. For now, the only thing that remains clear in the wake of these developments is that AGs will remain deeply involved in representing the interests of their states and citizens on this subject.

Footnote

1 Activision TV, Inc., is not related to the NASDAQ-listed entertainment software company Activision Blizzard, Inc.

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