Last week, the Vermont AG’s Office filed a “conditional” Motion
to amend its Complaint against MPHJ Technology Investments, LLC (“MPHJ”) relating to alleged violations of the State’s state consumer protection laws. This move does not mean that the Vermont AG has given up on its case. To the contrary, it is probably trying to tighten up its consumer protection case by removing overly broad requested relief.
The motion asks to possibly amend its Complaint to remove relief that would enjoin MPHJ from “threatening Vermont businesses with patent-infringement lawsuits.” Importantly, it retains the right to ask the Court to enjoin MPHJ “from engaging in any business activity in, into or from Vermont that violates Vermont Law.” The AG’s Office also continues to seek considerable civil penalties for violation of the State’s Consumer Protection Act.
While others might see this request as a weakness in the AG’s case, I disagree. The AG seems to be cutting the dead wood in order to bolster its argument that it is not trying to enjoin lawful activity.
On Wednesday, it was reported
that the Virginia General Assembly passed legislation from the House
designed to crack down on misleading patent troll demand letters. Virginia’s efforts come on the heels of a letter
from over 40 state and territorial attorneys general to the U.S. Senate’s Commerce and Judiciary Committees urging federal patent litigation reform
Virginia, like other states (e.g.
, Kentucky and Oregon), has expressed concern over its small businesses being targeted with baseless letters threatening patent infringement. In an effort to provide some protection from frivolous claims, Virginia established criteria for when a claim has been made in “bad faith” (e.g.
, failing to specify how the target is infringing, etc.). More importantly, the legislation grants the Virginia Attorney General’s Office enforcement power to curb unwanted troll behavior.
While I have been critical of recent federal patent reform efforts to date for having any meaningful impact, it does appear that granting enforcement power to state attorneys general could have an effect on baseless patent infringement claims. Not only will it curb mass letters from being sent, it should also cause patent owners concern about asserting thinly-based claims of infringement. Companies might think twice before sending knee-jerk infringement letters to their competitors if they could face being investigated by the state.
For the last 1 ½ years, we have heard about proposed U.S. legislation that is aimed at discouraging baseless patent troll lawsuits. Yet, nothing has been signed into law. We’ve also seen various state Attorney Generals’
offices take action, panels of federal judges
urging steps to heighten the pleading requirements for such suits and even FTC commissioners
weighing in on the issue.
Yesterday, the Obama Administration
announced various initiatives designed to improve patent quality and “combat patent trolls.” They have been touted as a renewal of President Obama’s call for patent reform from his State of the Union address. The White House highlighted five current initiatives ranging from “promoting transparency” (e.g.
, updating ownership information during USPTO proceedings) to “making patents clear” (e.g.
, helping USPTO examiners more effectively examine so-called “functional claims” to ensure that patent claims are clear). The White House further announced three new initiatives that are allegedly designed to “strengthen the quality and accessibility of the patent system.”
While providing more resources to USPTO examiners is always welcomed, it is doubtful that any of these initiatives will have any impact on curbing troll activity. The real power in troll cases comes from the fact that cases can be brought on very thin allegations of infringement and it is not commonplace for defendants to recoup their attorneys’ fees for defending against such actions. There is not a uniform set of rules that apply to all patent infringement cases in federal court and as such, plaintiffs can try to game the system by bringing cases in jurisdictions that are either unfamiliar with complex patent litigation or have no rules governing such cases or both. The end result is that defendants can be faced with having to pay hundreds of thousands of dollars in needless discovery (primarily related to electronic information, such as e-mail, and archived data, etc.) right out of the starting gate in those jurisdictions that do not have a phased approach to patent litigation. Even if the Federal Rules of Civil Procedure are amended to required more detailed patent litigation claims, patent troll activity may not necessarily decrease as crafty counsel will figure out language to meet the bare minimum that is required. What would have an impact is legislation that awards attorneys’ fees to the prevailing party (much like in the copyright context- 17 U.S.C. § 505). This would provide the ultimate disincentive to bring frivolous cases. It will be interesting to see if any meaningful measures are actually implemented in the near future as many people seem to think that there is a problem with the current system.
Here is the latest in Activision’s quest to use Farney Daniels as its patent litigation counsel. (For those unfamiliar with the issue, see my prior postings
, which discuss various states’ reactions to this firm’s efforts to enforce patent rights for a particular patent troll across the country.) This past Monday, the Nebraska U.S. District Court Judge granted Activision’s request for a preliminary injunction against the Nebraska AG’s Office. Specifically, the Court prohibited the AG from:
[T]aking any steps to enforce the cease and desist order issued to Farney Daniels on July 18, 2013, in any manner that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of U.S. patents owned by Activision with respect to companies based in, or having operations in, Nebraska.
However, this injunctive relief has no bearing on the AG’s ability to continue to investigate Farney Daniels for violations of the State’s Consumer Protection Act and the Court reserved the AG’s right to revisit the injunction should its investigation uncover a claim of bad faith by Farney Daniels.
Some may tout this as a great victory for Farney Daniels, but it wasn’t a great surprise. The Nebraska AG’s Office conceded that it wouldn’t oppose Farney Daniels attorneys’ requests to appear in the Activision matter because that matter pre-dated its cease and desist order, which only applied to future actions. Although Farney Daniels can now file new actions on behalf of Activision against Nebraska-based entities, it’s unclear that there is any desire to do so. Further, the Nebraska AG is still free to investigate any new claim asserted by Farney Daniels. As such, this firm will continue to operate under the watchful eye of the State and is not out of the woods yet.
As I previously posted
, the Nebraska Attorney General’s Office issued a cease and desist letter barring any new patent infringement actions in Nebraska to a law firm that has a history of representing a so-called “patent troll” against Nebraska-based businesses. Last week, it was reported
that Activision TV filed suit in U.S. District Court in Omaha over the AG’s ability to restrict the law firm’s patent enforcement activities within the state. Activision allegedly wants to retain the law firm to litigate a patent infringement action against Lincoln-based, Pinnacle Bank and claims that the Nebraska AG overstepped its authority.
The Nebraska AG previously reported that the law firm was the subject of a prior investigation. Thus, it will be hard pressed to back down from the fight. It will be interesting to see how the Court rules given that the AG’s Office was acting under its authority to investigate and protect its consumers.
On Wednesday, the Vermont Attorney General’s Office brought suit
against an alleged patent troll, MPHJ Technology Investments, LLC, for violation of Vermont’s Consumer Protection Act. The Vermont AG claims that the troll engaged in “unfair and deceptive acts” by sending numerous, threatening letters via a host of shell companies to small businesses and not-for-profit organizations in Vermont. The Defendant claims to have a patent on the process of scanning documents and attaching them to email via a network.
At first glance, the suit complains of, among other things, tactics that are fairly commonplace in this arena:
- threatening litigation when the Defendant was neither prepared or likely to bring a litigation;
- targeting small businesses that were unlikely to have the resources to fight patent-litigation; and
- sending letters threatening infringement without independent evidence of infringement.
However, this is probably not what caught the attention of the Vermont AG’s Office. Rather, the numerous complaints by small, Vermont-based businesses and the pursuit of not-for-profit organizations, such as one providing home care to developmentally disabled Vermonters, probably provided the impetus for the State to take action.
The AG claims that various deceptive statements were made in what appears to have been an aggressive letter writing campaign, including:
- Defendant’s licensing program had received a positive response from the business community;
- Many or most businesses were interested in promptly purchasing a license from Defendant;
- The fair price of a license was $900-$1200 per employee (when the average license fee was under $900 in total);
- The shell companies had exclusive enforcement rights; and
- Defendant would sue the target business if it did not respond within two weeks (when Defendant and/or its shell companies had never sued anyone anywhere in the U.S., much less in Vermont).
Ordinarily, you don’t see a state becoming involved in private patent infringement disputes. However, one can understand Vermont’s involvement because of the numerous complaints by those without adequate resources to respond, especially the local, not-for-profit agencies servicing disabled Vermonters.
In spite of the foregoing, it’s not likely that we’ll see other states take action against patent trolls engaging in aggressive patent infringement campaigns against mainstream companies. The states don’t have the resources or the stake in the fight to get involved. Nonetheless, if one of your clients is a small business that receives a baseless infringement letter, it might be worthwhile to check in with your state’s AG’s Office. If enough companies have received similar threatening suits in your state, the AG’s Office may follow Vermont’s lead and consider taking action.