MONTPELIER -- Vermont Attorney General Bill Sorrell's lawsuit against an alleged "patent troll" scored a preliminary victory Monday when the U.S. Appellate Court for the Federal Circuit ruled that the case should be tried in Vermont.
MPHJ Technology Investments LLC, a patent holder that is being sued by the state over alleged violations of Vermont's consumer protection laws, has twice tried to move the case to federal court, saying questions of federal patent law belong under federal jurisdiction.
Federal courts have twice shot down MPHJ's argument. Sorrell said the latest remand back to the state court system is a victory.
"We're pleased the Federal Circuit has rejected MPHJ's appeal," Sorrell said in a news release.
MPHJ is a "patent assertion entity," meaning its primary activity is not innovation, but rather enforcing the patents it holds. Patent "trolls" issue wide-scale demands for "licensing fees" from businesses and nonprofits they say unfairly use their intellectual property.
In the case of MPHJ, the patented activity can cover such routine processes as emailing scanned documents.
Trolling targets often settle with the patent-holders by paying a sum of money, even if they feel the demand for it is unfair, because fighting the matter in court is prohibitively expensive for most operations.
In a series of demand letters sent to Vermont businesses and nonprofits, MPHJ claimed to hold a patent on the process of scanning documents and attaching them to emails via a network, according to Sorrell's release. The state's lawsuit against MPHJ claims the letters were unfair and deceptive.
The case is the first known patent trolling lawsuit to be filed on the basis of traditional consumer protection laws, Sorrell told VTDigger in April. The proceedings could hold major implications for the applicability of those laws to patent-trolling behavior.
Walter Judge, a litigator who specializes in intellectual property law at Downs Rachlin Martin, said the legal development could have national implications for other states looking to challenge alleged patent trolls.
"State attorneys general across the country might now feel that they have a free hand to sue alleged patent trolls in the favorable environment of their state courts, and keep the case there," Judge said.
Because of the significance of the latest decision, Judge said he wouldn't be surprised if MPHJ filed yet another jurisdictional appeal.
Soon after Sorrell filed suit, Vermont's Legislature passed more specific legislation in 2013 in an attempt to stem increased trolling activity. Other states have since followed suit, considering anti-trolling legislation of their own.
Comedian Adam Carolla also has joined the fight, in his case defending the podcasting rights of his company Lotzi Digital Inc. Carolla and Lotzi are responding to demand letters from the company Personal Audio LLC.
Carolla is crowd-funding his legal costs through a campaign on the website FundAnything.
"We're going to circle the wagons, band together, and come out throwing punches," Carolla said in a video asking fans for money. "Here's my plan. We all band together, all the podcasts. Because remember, if I go down, well then your favorite podcast is going down next, and we're going to all fall like dominoes. But if we all unify, and stand and fight together, we can beat the trolls."
Personal Audio has criticized Carolla for collecting money from fans for a lawsuit he doesn't need to defend.
"We are quite surprised that Carolla has turned down the offer that was accepted by his peers," Personal Audio CEO Brad Liddle said in a news release July 29. "Getting his fan base to continue to donate to his legal fund is a cynical exploitation of the publicity power he enjoys as an entertainer."
Liddle said his company will continue its licensing campaign.
Pending federal legislation aimed at curbing patent trolls was derailed in May, when Sen. Patrick Leahy, D-Vt., abruptly pulled a bill he had spent months helping to craft. The political machinations surrounding the federal legislation highlight competing priorities not just between nonprofits or small businesses and alleged patent "trolls," but also a rift between the business community and some tech businesses and universities.