MPHJ Will Have to Fight Demand Letter Dispute With Vermont in State Court

Bloomberg BNA’s Patent Trademark & Copyright Law Daily™is the IP industry’s premier news service, offering objective, timely,and reliable daily news coverage and commentary from leading IP law...

By Tony Dutra  

Aug. 11 — The Federal Circuit refused on Aug. 11 to step into the patent licensing “demand letter” controversy, a hot topic in Congress and among states expanding their consumer protection laws.

The court rejected a petition for writ of mandamus filed by MPHJ Technology Investments LLC, the target of several states' attorneys general for its mass mailings seeking royalties for patents related to scanning a document directly to e-mail. MPHJ was trying to move its conflict with the state of Vermont to federal court, but the appeals court's decision here means that the Vermont Superior Court will rule on its allegedly abusive business practices.

The court said it simply lacked jurisdiction to hear an appeal of the district court's decision to remand, which was driven by the conclusion that Vermont's complaint against MPHJ did not arise under federal patent law.

Demand Letter Practice Instigates Lawsuit

MPHJ's business model is to send letters to small businesses and others likely to have an allegedly infringing scanning device and threaten a lawsuit unless the recipient pays a license fee of about $900-1,200 per employee. In Vermont, a first such demand letter was sent from one of 40 wholly-owned shell subsidiaries of MPHJ. If the recipient did not respond, two subsequent letters were sent from the Texas law firm Farney Daniels LLP, each letter amplifying the threat of litigation.

Vermont Attorney General William H. Sorrell (D) filed a complaint in May 2013 against MPHJ, No. 282-5-13 (Vt. Sup. Ct.). The state made the charge under the Vermont Consumer Protection Act, 9 Vt. Stat. Ann. §2453(a), for unfair and deceptive acts and practices in commerce.

MPHJ removed the case to federal court, asserting a federal question in that the case arises under patent law, per 28 U.S.C. §1338(a).

Judge William K. Sessions III of the U.S. District Court for the District of Vermont said, “The State's complaint here is premised solely on Vermont state law, not federal patent law.” Vermont v. MPHJ Tech. Invs., LLC, No. 2:13-cv-00170-wks, 2014 BL 107238 (D. Vt., April 15, 2014).

Sessions remanded to state court, and MPHJ filed the petition and appeal at issue here. Vermont moved to dismiss.

No Appeal ‘Even if District Court Wrong.'

The Federal Circuit's short discussion began and ended with 28 U.S.C. §1447(d), which begins: “An order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.”

The district court's ground for remand—lack of federal jurisdiction—is covered under Section 1447(c), the court said, and the Supreme Court has said repeatedly that remand orders on Section 1447(c) grounds are “immunized” from appellate review.

“Section 1447(d) precludes this court from second-guessing the district court's jurisdiction determination regarding subject matter,” the court said, even in the case of legal error ordering the remand—something the court said twice.

MPHJ's case before the Vermont district court also included a motion to dismiss for lack of personal jurisdiction and for sanctions—grounds not covered by Section 1447(d). But the court rejected MPHJ's argument that Section 1447(d) was then “not even relevant.”

It said that “the remand order dominates any proceedings on this appeal,” in addressing the sanctions request. And though a district court could address personal jurisdiction before turning to subject matter jurisdiction, the court said, that “does not create an exception to the §1447(d) bar.”

The court thus granted Vermont's motion to dismiss.

Judge Pauline Newman wrote the court's opinion, joined by Chief Judge Sharon Prost and Judge Todd M. Hughes.

Assistant Attorney General Bridget C. Asay represented the state of Vermont. W. Bryan Farney of Farney Daniels, Georgetown, Texas, represented MPHJ.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com

Text is available at http://www.bloomberglaw.com/public/document/State_of_Vermont_v_MPHJ_Technology_Investments_Docket_No_1401481_.