State of Vermont v. MPHJ Technology Investments, LLC
Filing
61
OPINION AND ORDER granting 9 Motion to Remand. Signed by Judge William K. Sessions III on 4/14/2014. (law)
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
STATE OF VERMONT,
Plaintiff,
v.
MPHJ TECHNOLOGY INVESTMENTS,
LLC,
Defendant.
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Case No. 2:13-cv-170
Opinion and Order
Plaintiff State of Vermont (“State”) brings this action
under the Vermont Consumer Protection Act (“VCPA”) against
Defendant MPHJ Technology Investments, LLC (“MPHJ” or
“Defendant”), for sending letters allegedly containing
threatening false and misleading statements to Vermont
businesses and non-profit organizations.
The Vermont Attorney
General originally filed this case in Washington Superior Court
on May 8, 2013, seeking civil penalties and other relief under
state law.
MPHJ removed the case to this Court on June 7, 2013,
asserting federal question and diversity jurisdiction.
State now moves to remand the case back to state court.
The
MPHJ
also seeks to dismiss the case for lack of personal jurisdiction
on the grounds that the exercise of personal jurisdiction over
Defendant would not comport with the notions of fair play and
1
substantial justice and has also moved for Rule 11 sanctions.
After a motions hearing on February 25, 2014, the State filed a
conditional motion to clarify or amend its complaint.
subsequently moved for summary judgment.
MPHJ
For the reasons stated
below, the Court grants the State’s motion to remand, ECF No. 9.
Because the Court does not have subject matter jurisdiction, the
remaining motions are remanded to the state court for further
resolution.
I. Factual and Procedural Background
The State brought this action under the VCPA, Vt. Stat.
Ann. tit. 9 §§ 2451 et seq., on the grounds that MPHJ engaged in
unfair and deceptive business practices in Vermont.
ECF No. 6.
Compl. ¶ 1,
MPHJ is a limited liability company (“LLC”) that
operates in Vermont through forty wholly-owned shell subsidiary
companies (“Shell LLCs”).
¶¶ 2-3.
MPHJ and its shell LLCs have
addresses in Delaware, but are “managed” by a Texas attorney,
Jay Mac Rust, who is the contact and signatory on all of the
license agreements between MPHJ and its Shell LLCs.
¶¶ 4-5.
MPHJ owns several patents relating to email scanning1 that were
filed in 1998 and issued in 2001.
patents was made until 2012.
No attempt to enforce the
Furthermore, MPHJ had engaged in
1
The content of the patents themselves are not relevant to the State’s
claims, but MPHJ describes them as covering any system by which a
document is scanned directly to email.
2
no litigation regarding its patents prior to the State’s filing
of this lawsuit.
¶¶ 19-20.
The State bases its claims on a series of allegedly unfair
and deceptive letters sent or authorized by Defendant throughout
Vermont.
¶ 9.
The unlawful acts are alleged as follows.
In
September 2012, MPHJ’s Shell LLCs began sending a series of
three letters to numerous small businesses and non-profit
organizations operating around Vermont.
¶¶ 14-16.
These
letters are identical in content with the exception of the
addressee and the source Shell LLC.
The first letter (“Letter
#1”) begins by stating, “We have identified your company as one
that appears to be using the patented technology” owned by the
Shell LLC.
¶ 22.
It then requests that the recipient either
purchase a license from the Shell LLC or confirm that it is not
infringing the patents.
¶ 17.
Letter #1 further notes that the
Shell LLC has “had a positive response from the business
community to [its] licensing program,” that most contacted
businesses “are interested in operating lawfully and taking a
license promptly,” and that many “have responded to this
licensing program in such a manner.”
¶ 23.
Letter #1 states
that the fair negotiated price for a license is between $900 and
$1200 per employee.
Id.
The letter concludes by directing that
the recipient respond within two weeks of the date of the
letter.
Id.
3
The second and third letters (“Letter #2” and “Letter #3”)
are sent by a Texas law firm, Farney Daniels LLP (Defendant’s
counsel in this action), on behalf of the Shell LLC that sent
Letter #1.
¶ 27.
Both letters state that because the recipient
has not responded to explain that it has not infringed upon the
patents, the Shell LLC reasonably can only assume that the
recipient is using infringing technology and requires a license.
¶ 28.
Letter #3 says that if the recipient does not respond
within two weeks, “our client will be forced to file a Complaint
against you for patent infringement in Federal District Court
where it will pursue all of the remedies and royalties to which
it is entitled” and encourages the recipient to retain patent
counsel.
¶ 31.
Letter #3 (and sometimes Letter #2) also
attaches a draft complaint against the receiving business naming
the Shell LLC as plaintiff.
¶ 32.
Some Vermont businesses have
claimed that they never received Letter #1 or #2, and only
received Letter #3 referring to the prior (unreceived) letters
and threatening legal action.
¶ 29.
The Complaint alleges that these letters were false,
deceptive, and misleading in violation of the VCPA because (1)
Defendant did no due diligence to confirm whether the recipients
were likely infringers; (2) Defendant targeted small businesses
in commercial fields unrelated to patent law; (3) Defendant had
not actually received a positive response regarding its
4
licensing program; (4) only a very small fraction of recipient
businesses had purchased licenses (rather than “many” or “most”
as indicated in the letters); (5) as of the time of the
complaint, neither Defendant nor any of its Shell LLCs had filed
a single lawsuit in Vermont or any state, even though over 130
days had passed since the supposed two week deadline; (6) as of
the time of the letters, Defendant had not retained local
Vermont counsel; (7) each Shell LLC claimed to possess an
exclusive license, but given the overlapping geographic
assignments, the Shell LLCs did not actually possess exclusive
licenses; and (8) the Shell LLCs often targeted businesses
outside the geographic regions in which they were legally
permitted to enforce the patents.
Based upon these alleged
misrepresentations and falsities, the State contends that
Defendant sent the letters in bad faith.
¶ 54.
The State’s Complaint therefore claims that Defendant
engaged in unfair trade practices in violation of Vt. Stat. Ann.
ch. 9 § 2453(a) by falsely threatening litigation where
Defendant was neither prepared or likely to bring such
litigation, implying that pre-suit investigation had been
performed, targeting businesses too small to have the resources
to fight such litigation, and providing no independent proof of
infringement in the letters, thereby shifting the burden to the
recipients.
¶ 56.
The Complaint also alleges that Defendant
5
engaged in deceptive trade practices by including deceptive
statements in the letters that would lead consumers to believe
that they would be sued if they did not respond or pay for
licenses, that the Shell LLCs were the exclusive licensees
entitled to enforce the patents, and that the program had
received a positive response from the business community and
that many or most businesses were interested in purchasing such
a license.
¶ 57.
The Complaint requests relief in the form of a permanent
injunction prohibiting Defendant from engaging in further
unlawful business activity in Vermont and from sending letters
threatening Vermont businesses with patent-infringement
lawsuits, full restitution to businesses that suffered damages
due to the unlawful acts, civil penalties of up to $10,000 per
violation of the VCPA, costs and fees to the State of Vermont,
and any other relief deemed appropriate by the Court.
On or around June 7, 2013, MPHJ removed the case to this
Court, asserting federal question under 28 U.S.C. § 1331 and
diversity jurisdiction under 28 U.S.C. § 1332(a).
MPHJ
maintains that federal “arising under” jurisdiction is
established because the validity, infringement, and enforcement
of the patents referenced in the letters fall within the
original and exclusive jurisdiction of the federal courts.
28 U.S.C. § 1338.
MPHJ also asserts that subject matter
6
See
jurisdiction can be sustained on diversity grounds based on the
theory that the State brought the suit on behalf of Vermont
businesses, thereby making them the real party in interest for
purposes of diversity jurisdiction.
There are several motions pending before the Court.
The
State has moved to remand the case to state court on the grounds
that the complaint does not raise a claim arising under federal
law and that the State is not a citizen for purposes of
diversity jurisdiction.
MPHJ has moved to dismiss the case for
lack of personal jurisdiction and requested that the Court
decide the issue of personal jurisdiction before turning to the
question of subject matter jurisdiction, ECF No. 16.
In
response, the State has moved to stay briefing and decision on
MPHJ’s motion to dismiss until the motion to remand has been
decided, ECF No. 20.
MPHJ has also filed a motion for sanctions
under Fed. R. Civ. P. 11 and 28 U.S.C. § 1927, ECF No. 38.
After a hearing on the pending motions on February 25, 2014, the
State also filed a conditional motion to clarify and/or amend
the complaint.
Finally, MPHJ has moved for summary judgment
under Rules 12(d) and 56.
II.
DISCUSSION
The Court’s jurisdiction has been challenged for lack of
subject matter jurisdiction (by the State) and for lack of
personal jurisdiction over MPHJ (by MPHJ).
7
The Court has the
discretion to consider these jurisdictional issues in the order
of its choosing.2
Because the Court determines that it does not
have subject matter jurisdiction to hear this case, it does not
reach the issue of personal jurisdiction.
A. Motion to Remand
The State has moved to remand this case to state court on
the grounds that the Court lacks subject matter jurisdiction.
Any case filed in state court that “originally could have been
filed in federal court” may be removed.
MyInfoGuard, LLC v.
Sorrell, Nos. 2:12-cv-074, 2:12-cv-102, 2012 WL 5469913, *3 (D.
Vt. Nov. 9, 2012) (quoting Marcus v. AT & T Corp., 138 F.3d 46,
51 (2d Cir. 1998)).
As the removing party, MPHJ “bears the
burden of establishing jurisdiction.”
Galeno, 472 F.3d 53, 57 (2d Cir. 2006).
Blockbuster, Inc. v.
Defendant MPHJ removed
this case to federal court by asserting subject matter
jurisdiction under both federal “arising under” jurisdiction, 28
2
MPHJ has asked the Court to decide the motion to dismiss for lack of
personal jurisdiction before the motion to remand (presumably on the
assumption that the Court would dismiss the case based on the former).
The Supreme Court has indicated that courts have discretion to decide
personal jurisdiction before subject matter jurisdiction as “there is
no unyielding jurisdictional hierarchy.” Ruhrgas AG v. Marathon Oil
Co., 526 U.S. 574, 578 (1999). In Ruhrgas, the Supreme Court found it
may be appropriate to determine personal jurisdiction first where the
personal jurisdiction inquiry presents no complex questions and
subject matter jurisdiction raises a “difficult and novel” question.
Id. at 588. In this case, both jurisdictional analyses are arguably
equally complex and the Court finds it appropriate to consider subject
matter jurisdiction first. See id. at 587-88 (finding that “in most
instances . . . expedition and sensitivity to state courts’ coequal
stature should impel the federal court to dispose of [subject matter
jurisdiction] first”).
8
U.S.C. § 1331, and diversity jurisdiction, 28 U.S.C. § 1332(a).
In its motion to remand, the State contends that neither type of
subject matter jurisdiction is established here.
First, the
State argues that the Court lacks federal question jurisdiction
because the consumer fraud claims are based solely in state law
and are unrelated to the validity of MPHJ’s patents.
As a
result, there are no federal patent law questions on the face of
the complaint.
Second, the State submits that diversity
jurisdiction cannot be established because the State of Vermont
is the real party in interest, thereby destroying diversity.
The two grounds for federal jurisdiction will be addressed
individually below.
i. Federal Question Jurisdiction
MPHJ contends that removal of this case is properly
supported by federal question jurisdiction.
Federal district
courts have “original jurisdiction” over “all civil actions
arising under the Constitution, laws, or treaties of the United
States.”
28 U.S.C. § 1331.
A case “arises under” federal law
within the meaning of § 1331 where the “well-pleaded complaint
establishes either that federal law creates the cause of action
or that the plaintiff’s right to relief necessarily depends on
resolution of a substantial question of federal law.”
Franchise
Tax Bd. of Cal. v. Construction Laborers Vacation Trust for
Southern Cal., 463 U.S. 1, 27-28 (1983).
9
MPHJ argues that the Complaint presents a federal question
because it regards the validity, infringement, and enforcement
of patents, which fall within the original and exclusive
jurisdiction of the federal district courts.
28 U.S.C. § 1338
(establishing that federal district courts have original and
exclusive jurisdiction over cases “arising under” federal patent
law).
While federal patent jurisdiction is exclusive, it is
still subject to the jurisdictional requirements elucidated by
Franchise Tax Bd.; that is, “[t]he Federal courts have exclusive
jurisdiction of all cases arising under the patent laws, but not
of all questions in which a patent may be the subject-matter of
the controversy.”
New Marshall Engine Co. v. Marshall Engine
Co., 223 U.S. 473, 478 (1912).
Thus, as with all federal
question inquiries, there are two ways to establish federal
question jurisdiction “arising under” the patent laws: (1) by
showing that federal patent law created the cause of action; or
(2) by showing that “the plaintiff’s right to relief necessarily
depends on resolution of a substantial question of federal
patent law, in that patent law is a necessary element of one of
the well-pleaded claims.”
Christianson v. Colt Indus. Operating
Corp., 486 U.S. 800, 809 (1988).
The State’s complaint here is premised solely on Vermont
state law, not federal patent law, and none of the claims for
relief concern the validity of MPHJ’s patents.
10
Therefore,
federal patent law did not “create” the cause of action such to
satisfy the first type of “arising under” jurisdiction.
See
ClearPay, Inc. v. Abecassis , 602 F.3d 1364, 1367 (Fed. Cir.
2010) (finding federal patent law did not “create the cause of
action” where complaint was entirely devoted to state law causes
of action).
Instead, for federal jurisdiction to exist here,
the State’s right to relief must “necessarily depend[] on
resolution of a substantial question of federal patent law.”
Christianson, 486 U.S. at 808–09.
The Christianson standard may be satisfied by a complaint
containing only state law claims (as is the case here); however,
this is a “special and small category” with imprecise
boundaries.
Gunn v. Minton, 133 S. Ct. 1059, 1064 (2013).
In
such cases, the Court must ask whether the federal patent law
issue is “(1) necessarily raised, (2) actually disputed, (3)
substantial, and (4) capable of resolution in federal court
without disrupting the federal-state balance approved by
Congress.”
Gunn, 133 S. Ct. at 1065.
Where all of these
requirements are met, federal jurisdiction is proper because
there is a “serious federal interest in claiming the advantages
thought to be inherent in a federal forum.”
Grable & Sons Metal
Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 313-14 (2005).
In this case, federal question jurisdiction cannot be
established under Gunn because, on the face of the State’s well11
pleaded complaint, patent law issues are not “necessarily
raised” nor are they sufficiently “substantial” to support a
finding of federal jurisdiction.
1. Federal Patent Law Issues Are Not “Necessarily
Raised” On the Face of the State’s Complaint.
Under the well-pleaded complaint rule, the determination of
whether a claim arises under patent law depends on what
“necessarily appears in the plaintiff’s [complaint], unaided by
anything alleged in anticipation or avoidance of defenses which
it is thought the defendant may interpose.”
Christianson, 486
U.S. at 809 (quoting Franchise Tax Bd., 463 U.S. at 10).
A
patent law issue is “necessarily raised” when “at least one of
the plaintiff’s claims must necessarily turn on an issue of
federal patent law.”
Christianson).
ClearPay, 602 F.3d at 1369 (applying
It is “not enough that patent law issues are in
the air” for purposes of arising under jurisdiction; instead, “a
claim supported by alternative theories in the complaint may not
form the basis for § 1338(a) jurisdiction unless patent law is
essential to each of those theories.”
Christianson, 486 U.S. at
810.
For example, in ClearPay, the Federal Circuit found that no
questions of federal patent law were necessarily raised even
where questions of patent infringement were addressed and could
arise in the course of litigation, because for each asserted
12
claim (there, several state common law and statutory claims)
there was “at least one theory of relief that would not require
the resolution of a patent law issue.”
602 F.3d at 1368.
While ClearPay and Christianson regarded the § 1338(a)
jurisdiction of the Federal Circuit over claims “arising under”
federal patent law rather than federal question jurisdiction
under § 1331, the federal courts “have interpreted the phrase
‘arising under’ in both sections identically, applying [] § 1331
and § 1338(a) precedents interchangeably.”
Gunn, 133 S. Ct. at
1064 (noting that); see also Discovision Assocs. v. Fuji Photo
Film Co., Ltd., No. 07 Civ. 6348, 2007 WL 5161825, *6 (S.D.N.Y.
Oct. 29, 2007) (remanding because “at least one arguable theory
exists to support Plaintiff’s claim that does not rely on
resolution of a federal patent question”); Ciprofloxacin
Hydrochloride Antitrust Litig., 166 F. Supp. 2d 740, 748
(E.D.N.Y. 2001) (remanding where plaintiffs’ “allegations make[]
plain that plaintiffs have asserted at least one theory by which
they may establish state antitrust violations without resorting
to a determination of patent law”); Altman v. Bayer Corp., 125
F. Supp. 2d 666, 674-75 (S.D.N.Y. 2000) (remanding where
plaintiff alleged that defendants “acted with impure heart” in
bringing patent litigation because plaintiffs could prevail
without resolution of any substantial question of patent law);
Aetna U.S. Healthcare, Inc. v. Hoechst Aktiengesellschaft, 54 F.
13
Supp. 2d 1042, 1053 (D. Kan. 1999) (finding that patent law was
not necessarily raised because any question of patent validity
was “merely tangential” to claim that defendant had an ill
motive); In Re Cardizem CD Antitrust Litig., 90 F. Supp. 2d 819
(E.D. Mich. 1999) (finding no federal jurisdiction over state
law claims even where arose from instigation of patent
litigation).
Applying Christianson to this case, the State’s complaint
does not “necessarily raise” federal issues because its claims
do not depend on any determination of federal patent law.
The
State’s claims do not challenge the validity or scope of MPHJ’s
patents nor do they require any determination of whether
infringement has actually occurred.
Instead, the State is
targeting bad faith conduct irrespective of whether the letter
recipients were patent infringers or not, on the basis that
MPHJ’s bad faith conduct would be unlawful even MPHJ’s patents
were valid and the conduct was directed toward actual patent
infringers.
See Tamoxifen, 222 F. Supp. 2d at 232 (opining that
where “defendants are alleged to have engaged in sham patent
infringement litigation for the purpose of delaying generic drug
competition[, p]roof of sham litigation would certainly seem to
be outside the scope of protected activity under a valid
patent”).
As the State maintains in its motion to remand, this
case is about consumer protection, not about patents.
14
To the extent that federal patent law is implicated at all,
it is in MPHJ’s anticipated defenses, which cannot provide the
basis for federal question jurisdiction.
See Merrell Dow Pharm.
Inc. v. Thompson, 478 U.S. 804, 808 (1986) (finding that a
defense that raises a federal question is inadequate to confer
federal jurisdiction); In re Ciprofloxacin, 166 F. Supp. 2d at
748 (finding “defendants’ assertion that their patent law rights
provides a viable defense to plaintiff’s state law” to be “an
insufficient basis” for federal question jurisdiction).
Instead, the State’s complaint brings claims solely under state
law for unfair and deceptive practices and its claims are
premised on multiple theories that do not implicate federal
patent law.
The State supports its unfair trade practices claim by
noting that MPHJ implied that it had done a pre-suit
investigation where it had done none and stated that litigation
would be brought when it “was neither prepared nor [was it]
likely to bring litigation.”
Compl. ¶ 56.
The State would not
have to address any patent law questions to argue before a jury
that MPHJ was unprepared to bring litigation in Vermont at the
time it sent the threatening letters—for example, the State
could introduce evidence that MPHJ had not retained local
counsel and that it had never actually brought patent
enforcement litigation.
Thus, “at least one arguable theory
15
exists to support Plaintiff’s claim that does not rely on
resolution of a federal patent question.”
2007 WL 5161825, at *6.3
Discovision Assocs.,
The same is true of the State’s
deceptive trade practices claim, which rests on MPHJ’s allegedly
deceptive statements that it would sue target businesses if they
did not respond in two weeks, that many or most businesses were
interested in purchasing licenses, and that the licensing
program had received a positive response from the business
community.
Compl. ¶ 57.
To prevail on this claim, the State
could show that very few companies had actually purchased
licenses and that it the program had not been received
positively—again, without ever raising any questions of patent
law.
The facts of this case contrast deeply with cases where
courts found remand inappropriate because “plaintiffs [could]
not succeed on their claims without proving the invalidity or
enforceability” of the patents in question.
In re Tamoxifen
Citrate Antitrust Litig., 222 F. Supp. 2d 326, 331 (E.D.N.Y.
2002); see also Hunter Douglas, Inc. v. Harmonic Design, Inc.,
153 F.3d 1318, 1329 (Fed. Cir. 1998) (finding federal question
3
MPHJ argues in its Opposition that the sending of such letters is protected
by the First Amendment and federal patent law. See, e.g., Globetrotter
Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367, 1374 (Fed. Cir.
2004) (“A patentee that has a good faith belief that its patents are being
infringed violates no protected right when it so notifies infringers.”).
Again, this argument sounds in defense and does not support a finding of
subject matter jurisdiction here. Moreover, the question of whether this
activity would even be protected by a patent law defense would rest on a
showing of good faith, which the State argues is not present here.
16
jurisdiction where a required element of a state claim
“necessarily raised” federal law because all theories
demonstrating the element implicated patent law question).
For
example, in Hunter Douglas, the plaintiffs brought a state law
claim of “injurious falsehood” based on the defendant’s
assertion that they held exclusive patent rights, and charged
that the assertion was false because the patents were invalid
and unenforceable.
153 F.3d at 1329.
The court determined that
it had federal question jurisdiction because a required element
of the state cause of action—falsity—necessarily turned on a
question of patent law, as no other basis for falsity was
provided in the complaint.
Id.
By contrast, the State here is
challenging MPHJ’s bad faith acts, not its ability to protect
its patent rights.
The unfair and deceptive trade claims are
supported by several factual bases that do not require an
assessment of MPHJ’s patent rights.
Because these theories
could provide a basis for the State to prevail on its claims
without any determination of patent law or of the validity of
MPHJ’s patents, there are no federal patent law issues
“necessarily raised” on the face of the State’s complaint, and
this Court does not have federal question jurisdiction.
In its opposition to the State’s motion to remand, MPHJ
puts forth a somewhat tortured interpretation of Christianson to
assert that each factual basis for the State’s VCPA “theory” is
17
a separate claim, and that some of these bases necessarily
implicate federal issues.
MPHJ cites Broder v. Cablevision Sys.
Corp., 418 F.3d 187 (2d Cir. 2005), in support of this argument;
however, Broder does not actually stand for MPHJ’s assertion
that each factual basis comprises a distinct legal claim.
In
Broder, the claim in question was styled as a claim for
deceptive trade practices under state law.
The claim was based
on two separate legal arguments: that the defendant had violated
the federal uniform rates provision, and that it had violated a
state notice provision.
Id. at 194.
The court found that this
was not one claim supported by two alternative theories, but
instead encompassed two distinct legal claims.
Id.
It found
this in part by looking to the relief requested—as part of the
complaint, the Broder plaintiff sought a declaratory judgment
stating that the defendant had violated the federal uniform
rates provision.
Id. at 195.
The court therefore determined
that the federal aspect was a “logically separate claim, rather
than merely a separate theory that is part of the same claim as
the state-law theory,” id. at 194, and concluded that the
plaintiff had brought a claim (violation of the federal rates
provision) that necessarily required resolution of a federal
issue, id. at 195.
MPHJ argues that the State has similarly styled its
complaint as one claim under the VCPA in an effort to hide
18
“logically separate claims” that present “at least one federal
aspect” as in Broder.
Id. at 192.
However, the State’s VCPA
claims are not supported by multiple separate legal claims;
instead, they are supported by multiple factual assertions—for
example, that MPHJ was threatening litigation it was not
actually prepared to bring, that it had not performed any presuit investigation, and that the letters contained false
information.
These are not separate legal claims in the sense
contemplated by Broder as it is not required that the State
prevail on each of these factual theories to obtain the relief
it seeks.
Cf. Broder, 418 F.3d at 195 (because “[o]ne of the
key characteristics of a mere “theory,” as opposed to a distinct
claim, is that a plaintiff may obtain the relief he seeks
without prevailing on it,” plaintiff’s request for declaratory
judgment on federal rates provision violation was a distinct
claim).
MPHJ also argues that the complaint seeks relief—an
injunction prohibiting MPHJ from sending letters threatening
litigation to Vermont businesses—that necessarily raises federal
patent issues because the injunction would prevent MPHJ from
enforcing its patents in the state.
However, the complaint
itself, and the State’s position at the hearing,4 make plain that
4
In addition, after the February 24, 2014, hearing, the State filed a
conditional motion to amend or clarify the complaint to delete its request
for an injunction requiring MPHJ to stop threatening Vermont businesses with
19
the remedy sought is not to prevent MPHJ from lawfully enforcing
its patent rights in the state, but rather to prevent MPHJ from
engaging in activity that violates state law.
Furthermore, it
would not be necessary, as in Broder, for the State to
demonstrate that MPHJ’s patents are invalid under federal law in
order to obtain this relief.
Thus, the injunctive relief sought
by the State does not convert its claim into one “arising under”
federal patent law.
MPHJ repeatedly argues that the letters are permitted by
federal patent law and the First Amendment, and that MPHJ was
required by federal law to make an inquiry of a potential patent
infringer as to its potential infringement.
True or not, this
position is irrelevant to the Court’s jurisdictional inquiry.
The federal laws that MPHJ raises are all defenses to its
allegedly unfair and deceptive practices, and anticipated
federal defenses do not support federal question jurisdiction,
even when they are the sole issue in question.
See Caterpillar
Inc. v. Williams, 482 U.S. 386, 393 (1987) (“[I]t is now settled
law that a case may not be removed to federal court on the basis
of a federal defense . . . even if the defense is anticipated in
the plaintiff's complaint, and even if both parties concede that
patent-infringement lawsuits, clarifying that the State did not intend to
“seek relief that would broadly prevent MPHJ from engaging in lawful patentenforcement activities.” Mot. Amend. 2. This proposed clarification is
consistent with the Court’s reading of the original complaint; however,
because the Court lacks subject matter jurisdiction, it will not grant the
motion to amend, but instead allow the motion to proceed in state court.
20
the federal defense is the only question truly at issue.”).
MPHJ also argues that federal jurisdiction is established
because the State seeks remedies that could be preempted by
federal patent law.5
However, “[f]ederal pre-emption is
ordinarily . . . a defense to the plaintiff's suit,” and “[a]s a
defense, it does not appear on the face of a well-pleaded
complaint, and, therefore, does not authorize removal to federal
court.” Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987).
Federal patent law does not appear on the face of the complaint
and the State may prevail on its VCPA claims without reliance on
the resolution of a federal patent question.
As a result,
federal law is not “necessarily raised” on the face of the
complaint, and federal question jurisdiction cannot be
established here.
2. The State’s Complaint Does Not Raise a
Substantial Federal Question
5
It is true that MPHJ may assert federal patent law as a defense to
the State’s claim, as “[f]ederal patent law preempts state-law tort
liability for a patent-holder’s good faith conduct in communications
asserting infringement of its patent and warning about potential
litigation.” Globetrotter Software, 362 F.3d at 1374. State law
claims can only survive such preemption to the extent that they are
based on a showing of “bad faith” on the part of the patent-holder.
Id. While this issue will inevitably be litigated down the line (and
the State argues that MPHJ has shown bad faith and is not entitled to
the preemption defense), the looming prospect of preemption is an
anticipated defense which, as noted above, does not affect the Court’s
jurisdictional inquiry. See Forrester Envtl. Servs., Inc. v.
Wheelabrator Technologies, Inc., 715 F.3d 1329, 1335 (Fed. Cir. 2013)
(finding that anticipated preemption defense “does not authorize
removal to federal court”).
21
Even if the Court were to find that federal questions were
necessarily raised, federal jurisdiction would still be lacking
under a separate Gunn factor: that the necessarily raised
federal issue be a “substantial” one.
Whether a federal issue
is substantial does not turn on the importance to the particular
parties bringing the suit, but instead whether it is important
“to the federal system as a whole.”
Gunn, 133 S. Ct. at 1066.
In determining the substantiality of a federal question, the
Supreme Court has distinguished between cases where the federal
law in question was a “pure issue of law [that would be]
dispositive of the case and controlling in numerous other cases”
and cases where the federal inquiry is “fact-bound and
situation-specific.”
Empire Healthchoice Assur., Inc. v.
McVeigh, 547 U.S. 677, 700 (2006) (distinguishing Grable, 545
U.S. 308).
This case plainly concerns the latter scenario.
The
federal patent issues that MPHJ identifies in its brief—namely,
the evidence necessary to threaten patent litigation—involve the
application of existing patent law to the facts of this case,
and require no determination of patent law that would have
implications reaching beyond the parties to this proceeding.
MPHJ argues that the State’s claims would impact the
overall functioning of the national patent system because it
would impair pre-suit investigation, create “unprecedented
patent infringement immunity,” and impair sending of notice
22
letters.
This is a gross mischaracterization of the State’s
requested relief.
In fact, the State seeks to enjoin MPHJ’s
unfair and deceptive activities within Vermont—that is, the
Attorney General is targeting MPHJ’s practice of letters that
threaten patent litigation with no intention of actually
bringing such litigation.
Contrary to MPHJ’s assertions, the
State does not argue that MPHJ does not have a right to lawfully
protect its patents and judgment for the State would not
“immunize” infringing entities from MPHJ’s legitimate efforts to
enforce its patents.
Moreover, MPHJ has not demonstrated that this case needs to
be heard in federal court to prevent disruption of the federalstate balance.
The federal issues implicated are all defenses
that may be properly considered and applied by a state court.
See Gunn, 133 S. Ct. at 1067 (explaining that state courts can
apply federal patent law when addressing state-law claims).
As
the decision in this case would have no precedential effect on
federal law—and, indeed, would not even require a determination
of the validity of MPHJ’s patents—it would not have an
unacceptable impact on the federal patent system such to demand
federal jurisdiction.
Because the State's right to relief does not necessarily
depend on resolution of a substantial question of federal patent
23
law, this Court does not have subject matter jurisdiction over
this case under 28 U.S.C. § 1331.
ii. Diversity Jurisdiction
MPHJ also cannot establish federal jurisdiction on
diversity grounds.
28 U.S.C. § 1332(a)(vesting jurisdiction in
federal district courts over suits between “citizens of
different states” where the amount in controversy exceeds
$75,000).
Diversity jurisdiction requires “complete diversity,”
that is, each defendant must be “a citizen of a different state
from each plaintiff.”
Owen Equip. & Erection Co. v. Kroger, 437
U.S. 365, 373 (1978).
The Supreme Court has made clear that a
state is “not a ‘citizen’ for purposes of the diversity
jurisdiction.”
Moore v. Cnty. of Alameda, 411 U.S. 693, 717
(1973); see also MyInfoGuard, 2012 WL 5469913, at *4 (finding
that state is not a citizen for purposes of diversity
jurisdiction).
In its removal action, MPHJ asserted that the
Attorney General filed the suit on behalf of Vermont businesses,
making their citizenship relevant to the diversity jurisdiction
inquiry.
See Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461
(1980) (explaining that courts must “rest [diversity]
jurisdiction only upon the citizenship of real parties to the
controversy”).
MPHJ therefore submits that the State is not the
“real party in interest” relevant to the determination of
diversity jurisdiction.
24
The “party in interest” is determined by looking at the
“essential nature and effect of the proceeding.”
Purdue Pharma
L.P. v. Kentucky, 704 F.3d 208, 218 (2d Cir. 2013) (quotations
omitted).
In this case, the fact that the State brought the
VCPA action on behalf of itself, and not on behalf of private
businesses, is made clear by the relief sought—a statewide
injunction and civil penalties that would be unavailable to
private litigants.
The requested remedies demonstrate that the
State brought the case on behalf of itself and not individual
businesses.
See MyInfoGuard, 2012 WL 5469913, at *5 (“The fact
that the State seeks civil penalties and a statewide injunction
. . . – remedies unavailable to consumers – leaves no doubt that
the State has concrete interests in the litigation; put simply,
the benefits of those remedies flow to the State as a whole.”).
Because the State is the true party in interest, there is no
diversity and subject matter jurisdiction cannot be established
under § 1332(a).
MPHJ apparently concedes this point as it does
not address diversity jurisdiction in its opposition to the
State’s motion to remand.
Because this case could not have been filed in federal
court under either § 1331 or § 1332(a), the Court grants the
State’s motion and remands the case to the Washington Superior
Court.
25
CONCLUSION
For the reasons stated above, the Court grants the State’s
motion to remand this case to the state court.
Because the
Court does not have jurisdiction, the remaining motions are
remanded to the state court for further resolution.
Dated at Burlington, in the District of Vermont, this 14th
day of April, 2014.
/s/ William K. Sessions III
William K. Sessions III
United States District Judge
26
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