MPHJ Technology Investments, LLC v. Sorrell et al

Filing 42

OPINION AND ORDER granting in part and denying in part 13 Motion to Dismiss and 19 Motion to Dismiss for Failure to State a Claim; denying as moot 23 Motion to Seal Exhibit 2 to Declaration of Saul Acevedo. Signed by Judge William K. Sessions III on 6/3/2015. (law)

UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
MPHJ TECHNOLOGY INVESTMENTS,
LLC, inclusive of its
subsidiaries,
Plaintiff,
v.
WILLIAM H. SORRELL, in his
official capacity as
Attorney General of the
State of Vermont,
Defendant.

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Case No. 2:14-cv-191

OPINION AND ORDER
This case revolves around the State of Vermont’s enforcement
efforts against Plaintiff MPHJ Technology Investments, LLC
(“MPHJ”) for alleged patent trolling.

The State claims that

MPHJ, through shell subsidiaries, sent false and misleading
letters to various Vermont entities alleging patent infringement
and demanding the purchase of licenses.

In 2013, the State sued

MPHJ in state court under the Vermont Consumer Protection Act, 9
V.S.A. §§ 2451 et seq. (“VCPA”).

That case (the “State Action”)

is currently pending.1
In the instant case, MPHJ seeks to enjoin the State’s
enforcement activities, both present and future, including the
State Action.

1

In addition to challenging the claims brought

MPHJ has twice tried to remove
After the Court’s second remand order,
United States Court of Appeals for the
Circuit has not yet issued a ruling in

the State Action to this Court.
MPHJ appealed the remand to the
Second Circuit. The Second
that appeal.

under the VCPA, MPHJ requests injunctive and declaratory relief
with respect to the recently-enacted Bad Faith Assertions of
Patent Infringement Act, 9 V.S.A. § 4195-4199 (“BFAPIA”).

The

State has not taken any enforcement action under the BFAPIA.
MPHJ further accuses the State of selective prosecution and a
taking with regard to its patent rights.
Now before the Court is a motion to dismiss filed by the
Defendant, Vermont Attorney General William Sorrell.

ECF No. 19.

The Attorney General argues that this case should be dismissed in
its entirety on the basis of Younger abstention; that MPHJ lacks
standing; that the claims are not ripe; that MPHJ has failed to
state a claim for selective prosecution; and that any claim for
damages, fees, or costs is barred by sovereign immunity.

For the

reasons set forth below, the motion to dismiss is granted in part
and denied in part.
Factual and Procedural Background
MPHJ owns several patents relating to networked scanning
systems.

It contends that its patents are of the type that

manufacturers of system components (such as servers, scanners,
and desktops) will not be held liable for infringement, and that
only end-users will be clear infringers.

MPHJ also claims that

infringement by end-users can be reasonably suspected, but not
confirmed, through public records.
written inquiry is required.
2

To confirm infringement, a

MPHJ (or its subsidiaries) allegedly sent letters of inquiry
to a series of Vermont businesses.

The first such letter would

inform the suspected infringer that it had been identified as a
user of patented technology, and required a response either
confirming or denying infringement.

ECF No. 18-6.2

If MPHJ did

not receive a response to the first letter, a law firm hired by
MPHJ would send a second letter notifying the potential infringer
that the matter had been referred to counsel “to work out a
license with you,” or to determine “whether additional steps
might be required.”

ECF No. 18-7 at 2.

If still no response, a

third letter would issue from the law firm threatening legal
action.

ECF No. 18-8.

The State of Vermont, through the Attorney General’s office,
undertook an investigation of MPHJ’s communications with Vermont
businesses.

Ultimately, the State filed suit against MPHJ

alleging violations of the VCPA.

In support of its claims of

unlawful trolling, the State alleged that no court had ruled on
the validity of MPHJ’s patents, that MPHJ did not possess
exclusive licenses, and that the targeted businesses in Vermont
were largely outside the geographic regions where enforcement of
the patents was permitted.

The State also alleged that although

2

The letter described a likely-infringing system as “an office
local area network (‘LAN’) which is in communication with a server,
employee computers having email software such as Outlook or Lotus, and
a third-party scanner (or multi-function printer with scanning
functionality) which permits the scanning of a document directly to
employee email address as a pdf attachment.” Id at 2.

3

MPHJ had threatened litigation, it had not retained local counsel
or filed a single suit.

Accordingly, the State’s pleading

accused MPHJ of sending the letters of inquiry in bad faith.
MPHJ now brings this federal suit against Attorney General
Sorrell arguing, among other things, violations of its First
Amendment rights.

The First Amended Complaint consists of three

Counts, each of which is divided into subparts.

Count I focuses

on MPHJ’s intent to send letters in the future.

In Count I-A,

MPHJ claims that the BFAPIA is invalid or preempted under federal
law, and seeks declaratory and injunctive relief barring any
enforcement efforts under that statute.
the VCPA is invalid or preempted.

Count I-B alleges that

Count I-C contends that

Vermont’s long arm statute is invalid as applied to MPHJ.

Count

I-D attacks the VPCA and the BFAPIA under the Dormant Commerce
Clause, while Count I-E seeks a declaration that patent
enforcement would not be baseless.

Count I-F asks for costs and

attorney’s fees under 42 U.S.C. § 1988 on the basis of Defendant
Sorrell’s allegedly unconstitutional conduct.
Count II focuses on the State’s enforcement against MPHJ’s
prior letters, and seeks to enjoin the State from enforcing
compliance with the BFAPIA as a remedy.

This Count is again

broken into five supbarts, alleging preemption and
unconstitutionality and requesting fees and costs.

Count III

alleges a taking in the form of interference with MPHJ’s patent

4

rights.
The Attorney General has moved to dismiss, arguing that
because of the ongoing State Action this Court should abstain
from hearing MPHJ’s claims.
U.S. 37 (1971).

See generally Younger v. Harris, 401

As mentioned above, the Attorney General further

argues lack of standing, failure to state a claim, and sovereign
immunity.

Also before the Court are MPHJ’s motion for a

preliminary injunction and motion to seal an exhibit.3
Discussion
I.

Younger Abstention
A.

Background

The Attorney General first argues for abstention under
Younger v. Harris.

In Younger, the Supreme Court held that a

federal court may not enjoin a pending state criminal proceeding
in the absence of special circumstances suggesting bad faith,
harassment, or irreparable injury that is both serious and
immediate.

401 U.S. at 54; Gibson v. Berryhill, 411 U.S. 564,

573–74 (1973).

“Younger abstention has been extended to civil

proceedings and state administrative proceedings, so long as the
state court has a means of reviewing constitutional claims.”
Cecos International, Inc. v. Jorling, 895 F.2d 66, 70 (2d Cir.
1990) (citations omitted).

The doctrine applies to cases seeking

3

The preliminary injunction motion will be addressed in a
separate Opinion and Order.

5

both injunctive and declaratory relief.

See Kirschner v.

Klemons, 225 F.3d 227, 235 (2d Cir. 2000).
The Second Circuit previously set forth a test for
abstention under Younger, requiring (1) a pending state
proceeding (2) that implicates an important state interest, and
(3) that “the state proceeding affords the federal plaintiff an
adequate opportunity for judicial review of his or her federal
constitutional claims.”

Spargo v. New York State Comm'n on

Judicial Conduct, 351 F.3d 65, 74 (2d Cir. 2003).

This three-

part test was derived from the Supreme Court’s opinion in
Middlesex Cty. Ethics Comm. v. Garden State Bar Ass’n, 457 U.S.
423 (1982) (“Middlesex”).
The Supreme Court recently held, however, that Younger
abstention is limited to three classes of parallel proceedings:
(1) “pending state criminal proceeding[s]”; (2) “particular state
civil proceedings that are akin to criminal prosecutions”; and
(3) civil proceedings “that implicate a State’s interest in
enforcing the orders and judgments of its courts.”

Sprint

Commc’ns, Inc. v. Jacobs, 134 S. Ct. 584, 588 (2013); see id. at
591 (“We have not applied Younger outside these three
‘exceptional’ categories, and today hold . . . that they define
Younger’s scope.”).

In fashioning these categories, Sprint

described the Supreme Court’s previous applications of Younger to
state civil proceedings as follows:
6

Our decisions applying Younger to instances of civil
enforcement have generally concerned state proceedings
akin to a criminal prosecution in important respects.
Such enforcement actions are characteristically
initiated to sanction the federal plaintiff, i.e., the
party challenging the state action, for some wrongful
act. In cases of this genre, a state actor is
routinely a party to the state proceeding and often
initiates the action. Investigations are commonly
involved, often culminating in the filing of a formal
complaint or charges.
134 S. Ct. at 584 (internal citations and quotation marks
omitted).
B.

VCPA Claims

Here, the Court finds that the State’s enforcement of the
VCPA meets the Sprint criteria, and is consistent with the
Supreme Court’s prior applications of Younger.

The State Action

seeks to impose civil penalties as sanctions for wrongful acts
involving alleged violations of Vermont’s consumer protection
law.

Moreover, the State initiated the action after conducting

an investigation, thereby echoing the description of a proper
abstention scenario set forth in Sprint.
Sprint also noted that while the Middlesex factors are not
dispositive, they may be considered.

Id. at 593.

Here, the

first two Middlesex factors are satisfied since there is a
pending state proceeding that implicates the important state
interest of enforcing its consumer protection laws.

Indeed,

courts have widely held that state actions to enforce consumer
protection statutes are eligible for abstention under Younger.
7

See, e.g., Cedar Rapids Cellular Tel., L.P. v. Miller, 280 F.3d
874, 880 (8th Cir. 2002); Williams v. State of Washington, 554
F.2d 369, 370 (9th Cir. 1977); In re Standard and Poor’s Rating
Agency Litig., 23 F. Supp. 2d 378, 409 (S.D.N.Y. 2014); Bologna
v. Allstate Ins. Co., 138 F. Supp. 2d 310, 327 (E.D.N.Y. 2001).
With respect to the third Middlesex factor, the state courts will
provide MPHJ ample opportunity to present its federal
constitutional claims.

See Spargo, 351 F.3d at 77 ((“[I]n

conducting the Younger inquiry, considerations of comity
‘preclude[ ] any presumption that the state courts will not
safeguard federal constitutional rights.’”) (quoting Middlesex,
457 U.S. at 431)).

The Court will therefore abstain from hearing

MPHJ’s current claims regarding the VCPA or enforcement thereof.
C.

BFAPIA Claims

MPHJ’s First Amended Complaint also presents challenges to
the BFAPIA.

This Court has previously found that the State

Action has nothing to do with the BFAPIA.

As there has been no

civil enforcement action under the BFAPIA, abstention with
respect to that statute is unwarranted.

See, e.g., Sprint, 134

S. Ct. at 593 (Younger abstention does not extend to “all
parallel state and federal proceedings”).

Although MPHJ has

argued in the past that the State Action, as amended,
incorporates the BFAPIA, this Court will only abstain with
respect to matters that it has found are being actually asserted
8

by the Attorney General’s office in state court.
D.

MPHJ’s Arguments Against Abstention

MPHJ argues that Younger cannot apply to Count I of its
First Amended Complaint, which pertains only to its intent to
send letters in the future.

The State Action, however, seeks

injunctive and declaratory relief with regard to VCPA violations
both past and future.
No. 7 at 9).

See Vermont v. MPHJ, No. 2:14-cv-192 (ECF

It is therefore appropriate under Younger to leave

those questions to the state courts.
MPHJ concedes that Younger may reach the Attorney General’s
enforcement efforts with regard to past letters, and in turn,
MPHJ’s as-applied challenge to the VCPA.

Nonetheless, MPHJ

argues for application of various exceptions to the Younger
doctrine.

Citing Sprint, MPHJ first contends that the State

Action under the VCPA is not “akin to criminal prosecutions.”
Id.

As discussed above, Sprint set forth the characteristics of

a proceeding that might qualify as “akin” to a criminal case, and
the State Action conforms with those characteristics.

Indeed,

“[t]he presumption against federal jurisdiction is especially
strong in cases of this sort, involving States seeking to
vindicate quasi-sovereign interests in enforcing state laws and
protecting their own citizens from deceptive trade practices and
the like.”

In re Standard & Poor’s Rating Agency Litig., 23 F.

Supp. 2d at 385.
9

MPHJ next contends that the State Action does not involve
important state interests, but instead concerns enforcement of an
exclusively federal matter: patent rights.

This Court was faced

with a similar argument in its first remand order, and concluded
that “[t]he [State Action] 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.”

Vermont v. MPHJ Tech.

Inv., LLC, 2014 WL 1494009, at *4 (D. Vt. Apr. 15, 2014).

This

conclusion carries over to the Younger analysis, as Vermont is
seeking to protect its consumers and is not challenging MPHJ’s
patents.
MPHJ also asks the Court to consider irreparable harm if the
State is allowed to enforce an unconstitutional statute.

MPHJ

has brought constitutional and preemption challenges to the VCPA
in the State Action.

The state courts can resolve those issues

and provide remedies as appropriate.

See Middlesex, 457 U.S. at

431 (“Minimal respect for the state processes, of course,
precludes any presumption that the state courts will not
safeguard federal constitutional rights.”).
MPHJ further urges the Court to apply a bad faith exception.
“Despite the strong policy in favor of abstention, a federal
court may nevertheless intervene in a state proceeding upon a
showing of ‘bad faith, harassment or any other unusual
circumstance that would call for equitable relief.’”

10

Diamond “D”

Constr. Corp. v. McGowan, 282 F.3d 191, 198 (2d Cir. 2002)
(“Diamond ‘D’”) (quoting Younger, 401 U.S. at 54).

“Generally,

for such a showing to be made,” a plaintiff must demonstrate that
the party bringing the state action had “no reasonable
expectation of obtaining a favorable outcome.”
Fliegner, 18 F.3d 96, 103 (2d Cir. 1994).

Cullen v.

The Second Circuit has

also noted that bad faith may include retaliation or an intent to
“deter constitutionally protected conduct.”

Diamond “D”, 282

F.3d at 199 (quoting Cullen, 18 F.3d at 103–04).
The bad faith exception will not apply if the enforcement
effort, while unconstitutional, is legitimate.
A state proceeding that is legitimate in its purposes,
but unconstitutional in its execution – even when the
violations of constitutional rights are egregious –
will not warrant the application of the bad faith
exception. To invoke this exception, the federal
plaintiff must show that the state proceeding was
initiated with and is animated by a retaliatory,
harassing, or other illegitimate motive.
Id.; see also Younger, 401 U.S. at 54 (“the possible
unconstitutionality of a statute ‘on its face’ does not itself
justify an injunction against good-faith attempts to enforce
it”).

Indeed, the subjective bad faith of the prosecuting

authority is the gravamen of such an exception.

Kern v. Clark,

331 F.3d 9, 12 (2d Cir. 2003).
MPHJ contends that the State’s enforcement efforts are
intended to deter constitutionally protected conduct in the form
of its First Amendment right to send letters of inquiry.
11

MPHJ

also argues that the State has no reasonable expectation of
success because it has failed to allege bad faith patent
enforcement under Globetrotter Software, Inc. v. Elan Computer
Group, Inc., 362 F.3d 1367, 1374 (Fed. Cir. 2004)
(“Globetrotter”).

A review of the State’s pleading, however,

indicates that it has in fact alleged bad faith under the VCPA.
Vermont v. MPHJ, No. 14-cv-192 (ECF No. 7 at 7).
The Attorney General’s State Action to enforce the VCPA
appears to be a “straightforward application” of Vermont’s
consumer protection statute, with no showing of “malevolent
intent.”

Diamond “D”, 282 F.3d

at 199-201.

The

constitutionality of the statute being enforced can be determined
by the state courts, and the State has alleged bad faith.

To the

extent that MPHJ asserts allegations of malice or retaliation by
the State, those claims lack supporting facts.4

This Court

therefore finds that the bad faith exception does not apply.
Compare Cullen, 18 F.3d at 104 (applying bad faith exception
where parties had a “past history of personal conflict” and
school board’s action was “strictly ad hominem”), with Schlagler
v. Phillips, 166 F.3d 439, 441 (2d Cir. 1999) (declining to apply
bad faith exception where prosecutor had no malice toward

4

MPHJ cites an interview given by Attorney General Sorrell in
which he discusses the State’s efforts to battle patent trolling
generally. ECF No. 22-14. Although Sorrell mentions MPHJ, there is
no suggestion of either bad faith or retaliatory animus on the part of
the Attorney General or his office.

12

defendant).
The unusual or extraordinary circumstances exception
recognizes that “[t]here may . . . be extraordinary circumstances
in which the necessary irreparable injury [warranting equitable
intervention] can be shown even in the absence of the usual
prerequisites of bad faith and harassment.”
53.

Younger, 401 U.S. at

The Second Circuit has identified two predicates for

application of this exception: “(1) that there be no state remedy
available to meaningfully, timely, and adequately remedy the
alleged constitutional violation; and (2) that a finding be made
that the litigant will suffer ‘great and immediate’ harm if the
federal court does not intervene.”

Diamond “D”, 282 F.3d at 201.

Again, with respect to the VCPA claims, the state courts can
fully address any constitutional questions and remedy any
violations as appropriate.

MPHJ will not suffer great and

immediate harm if this Court fails to intervene.
E.

Scope of Abstention

In sum, the Court will abstain from hearing those portions
of MPHJ’s First Amended Complaint that directly overlap with the
State Action, including challenges to the VCPA.

MPHJ’s challenge

to the state court’s assertion of personal jurisdiction under the
Vermont long arm statute is also a matter that is strictly for
the state court to determine.

This Court’s abstention does not

include MPHJ’s claims for money damages.

13

Rivers v. McLeod, 252

F.3d 99, 101–02 (2d Cir. 2001) (“[T]he Younger doctrine is
inappropriate where the litigant seeks money damages for an
alleged violation of § 1983 . . . .”); Bobrowsky v. Yonkers
Courthouse, 777 F. Supp. 2d 692, 709 (S.D.N.Y. 2011).

Nor does

the Court’s abstention extend to MPHJ’s claims under the BFAPIA,
for selective prosecution, or its takings claim, as those claims
are not a part of the State Action.5
II.

Standing
The Attorney General further argues that because his office

has made no effort to enforce the BFAPIA and has not threatened
such enforcement, MPHJ lacks standing to challenge that statute.
In order to have standing under Article III, a plaintiff must (1)
“have suffered an ‘injury in fact’ — an invasion of a legally
protected interest which is (a) concrete and particularized, and
(b) actual or imminent, not conjectural or hypothetical,” and (2)
the injury be “fairly trace[able] to the challenged action of the
defendant.”

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61

(1992) (internal quotation marks and citations omitted).

The

Attorney General focuses upon the third element, arguing that
MPHJ cannot demonstrate an injury traceable to the BFAPIA.
It is undisputed that the State has not taken any action
against MPHJ under the BFAPIA.

It is also undisputed that MPHJ

5

MPHJ’s takings and selective prosecution claims face other
impediments as discussed below.

14

stopped sending letters to Vermont in February 2013, prior to the
passage of the BFAPIA.

The Attorney General therefore contends

that there is currently nothing to enforce under the BFAPIA, and
that any suggestion of potential enforcement is speculative and
“conjectural.”

Lujan, 504 U.S. at 560-61.

MPHJ responds that when a constitutional injury is alleged,
and specifically an injury under the First Amendment, that injury
is established by a credible threat of prosecution.

See Susan B.

Anthony List v. Driehaus, 134 S. Ct 2334, 2342 (2014).

Driehaus,

citing Babbitt v. Farm Workers, 442 U.S. 289, 298 (1979), set
forth three factors supporting its finding of a credible threat:
(1) the plaintiffs alleged an intention to engage in a course of
conduct arguably involving a constitutional interest; (2) the
plaintiffs’ conduct was arguably proscribed by the challenged
statute; and (3) the threat of future enforcement was
substantial.

134 S. Ct. at 2344-45; see also Virginia v. Am.

Booksellers Ass’n, 484 U.S. 383, 393 (1988) (concluding that
standing is met where “plaintiffs have alleged an actual and
well-founded fear that the law will be enforced against them”).
MPHJ meets the first factor, as it has made plain its
intention to send enforcement letters in the future.
of such a letter is attached to its pleadings.

An example

ECF No. 18-13.

The parties dispute whether the proposed letters would be
proscribed, with the Attorney General contending that the sample

15

letter does not threaten a lawsuit, is materially different from
those sent by MPHJ and its subsidiaries previously, and would not
violate the BFAPIA.

MPHJ notes that, as with the letters sent

prior to passage of the BFAPIA, the proposed letters would be
followed by letters from legal counsel threatening further
action.

Such follow-up letters are not merely hypothetical or

conjectural, but would be consistent with MPHJ’s past practices.
With regard to the third factor, the question concerns the
level of threat.

The Second Circuit has explained that the

“credible threat of prosecution” standard is a “more permissive”
standard for imminence than “certainly impending,” or perhaps
even “substantial risk.”
Cir. 2013).

Hedges v. Obama, 724 F.3d 170, 196 (2d

To satisfy that standard, a plaintiff need not

demonstrate that a prosecution is about to occur, but merely that
the plaintiff’s “‘fear of [civil] prosecution . . . is not
imaginary or wholly speculative.’” Id. (quoting Babbitt, 442 U.S.
at 302).
Here, MPHJ has come forward with evidence of an interview in
which the Attorney General discussed a new piece of legislation,
the BFAPIA, intended to deter patent trolling in Vermont.

In the

course of that interview, the Attorney General mentioned MPHJ
specifically.

He explained that his office’s suit against MPHJ

was brought under the VCPA, but that the BFAPIA is now “another
arrow in the quiver for my office to protect Vermont businesses.”

16

ECF No. 22-14 at 3.

Given the Attorney General’s statements,

future enforcement under the BFAPIA seems neither conjectural nor
hypothetical.6
Furthermore, the lack of a specific threat to enforce the
BFAPIA does not deny MPHJ standing.

In Vermont Right to Life

Committee v. Sorrell, 221 F.3d 376, 383 (2d Cir. 2000), state
officials tried to preclude a pre-enforcement challenge to a
campaign finance law because the State reportedly had no
intention to enforce the statute against the plaintiff.

The

Second Circuit rejected the State’s position, concluding that
“there is nothing to prevent the State from changing its mind.”
Id.

More recently, the Second Circuit explained that the Supreme

Court’s approach in these cases is “forgiving” because it
presumes the government will enforce the law.
at 197.

Hedges, 724 F.3d

The Court therefore finds that MPHJ has shown a credible

threat of enforcement, and that it has standing to challenge the
BFAPIA.
III. Ripeness
The Attorney General further argues that even if MPHJ can
show standing, its claims are not ripe or otherwise justiciable.

6

As to the question of whether the Attorney General’s interview
is properly before the Court on the motion to dismiss, the Supreme
Court has acknowledged a district court’s right to request
supplementation of the record on the question of standing. Warth v.
Seldin, 422 U.S. 490, 501–502 (1975) (explaining that a court may
“allow or [r]equire” a plaintiff to supplement the record to show
standing).

17

The standards for standing and ripeness are quite similar.

See

New York Civil Liberties Union v. Grandeau, 528 F.3d 122, 130 n.8
(2d Cir. 2008) (“Standing and ripeness are closely related
doctrines that overlap most notably in the shared requirement
that the plaintiff’s injury be imminent rather than conjectural
or hypothetical.”) (internal quotation marks and alterations
omitted).

“‘If a plaintiff has not yet suffered a concrete

injury-in-fact, he or she lacks standing, even though it is
possible that in the future such an injury will occur.

Yet such

a suit could also be said to suffer from a lack of ripeness
because the circumstances have not yet developed to the point
where the court can be assured that a live controversy exists.’”
Brennan v. Nassau Cnty., 352 F.3d 60, 65 n.9 (2d Cir. 2003) (per
curiam) (quoting 15 James Wm. Moore, Moore’s Federal Practice §
101.71 (3d ed. 2003)).

The Second Circuit has ruled that when

considering pre-enforcement First Amendment claims, the rules for
ripeness are “somewhat relaxed.”

Nat’l Org. for Marriage, Inc.

v. Walsh, 714 F.3d 682, 689 (2d Cir. 2013).
The Attorney General argues that MPHJ’s claims are not
ripe because its proposed letter of inquiry does not violate the
BFAPIA.

As discussed above, MPHJ’s practice is to send a series

of letters if it receives no response from a potential infringer.
MPHJ claims that because the follow-up letters would suggest or
explicitly threaten litigation, they arguably violate the BFAPIA.

18

The Attorney General also submits that MPHJ has not
adequately alleged a reasonable suspicion of infringement
activity in Vermont.

To rebut this contention, MPHJ has

submitted a declaration from information technology specialist
Saul Acevedo.

ECF No. 22-16.

Mr. Acevedo attests that, based

upon his expertise, several companies in Vermont are infringing
upon MPHJ patents.

Under the “somewhat relaxed” ripeness

standard in a case such as this, the Court finds that Mr.
Acevedo’s declaration makes the showing required for ripeness.
Walsh, 714 F.3d at 689.
MPHJ’s takings claims, however, requires more.

In

Williamson County Regional Planning Commission v. Hamilton Bank
of Johnson City, the Supreme Court held that a takings claim
brought in federal court is not ripe until the party seeking
compensation pursues the procedures provided under state law.
473 U.S. 172 (1985).

The Supreme Court reasoned that since the

Fifth Amendment does not require that just compensation “be paid
in advance of, or contemporaneously with, the taking,” the
State’s action is not “complete” until the party seeking
compensation has exhausted any available “reasonable and adequate
provision[s] for obtaining compensation after the taking.”

Id.

at 195; see also Island Park, LLC v. CSX Transp., 559 F.3d 96,
109 (2d Cir. 2009) (“[a] takings claim is not ripe if a remedy
potentially is available under the state constitution’s

19

provision”).7
The Second Circuit has determined that “Vermont has an
adequate procedure that [plaintiff] must use – a suit in state
court – before it asserts a section 1983 claim based upon a
regulatory taking.”

Southview Assocs., Ltd. v. Bongartz, 980

F.2d 84, 100 (2d Cir. 1992).8

Indeed, under the Vermont

Constitution, “whenever any person’s property is taken for the
use of the public, the owner ought to receive an equivalent in
money.”

Vt. Const. ch. 1 art. 2.

Therefore, if MPHJ’s First

Amendment rights are being chilled, and it believes that chilling
constitutes a taking, a remedy should first be sought in the
state court.
Also, the Court will not adjudicate the question of personal
jurisdiction with regard to BFAPIA enforcement.

Personal

jurisdiction is “fact specific and must necessarily be tailored
to the circumstances of each case.”

Metropolitan Life Ins. Co.

v. Robertson-Ceco Corp., 84 F.3d 560, 570 (2d Cir. 1996).

If and

when the State decides to enforce the BFAPIA, MPHJ’s contacts
7

Even a facial challenge alleging a violation of the Takings
Clause faces an “uphill battle,” since it is difficult to assess
economic harm by the mere enactment of legislation. Suitum v. Tahoe
Regional Planning Agency, 520 U.S. 725, 736 n.10 (1997).
8

Moreover, to the extent that MPHJ is seeking damages under the
Takings Clause, its claim against the Attorney General in his official
capacity is barred by the Eleventh Amendment. See Hutto v. South
Carolina Retirement Sys., 773 F.3d 536, 553 (4th Cir. 2014) (“[W]e
note that every other court of appeals to have decided the question
has held that the Takings Clause does not override the Eleventh
Amendment.”).

20

with the State of Vermont will be determined at that time.

To

consider contacts before they occur would require a fact-specific
analysis of the hypothetical.

The Court declines to engage in

such an exercise.
The Court therefore finds that MPHJ’s claims under the
BFAPIA are ripe, while its takings and personal jurisdiction
claims are not.

Those claims are therefore dismissed without

prejudice.
IV.

Failure to State a Claim: the BFAPIA
A.

As-Applied and Facial Challenges

MPHJ alleges that the BFAPIA, both facially and as-applied,
is invalid or preempted under the First, Fifth, and Fourteenth
Amendments, the Supremacy Clause, the Patent Clause, and the
Dormant Commerce Clause.

The State moves to dismiss, arguing

that MPHJ has failed to state a claim.

The State’s first

argument is that MPHJ cannot bring an as-applied challenge to the
BFAPIA pre-enforcement.

For reasons set forth above with respect

to standing and ripeness, the Court finds that MPHJ has shown a
sufficient threat of enforcement to survive the motion to dismiss
with regard to an as-applied challenge.

See, e.g., Holder v.

Humanitarian Law Project, 561 U.S. 1, 15-16 (2010).
“A pre-enforcement facial challenge to a law is generally
fit for review as of the law’s enactment.”

Alliance of Auto.

Mfrs., Inc. v. Currey, 984 F. Supp. 2d 32, 47 (D. Conn. 2013)
21

(emphasis added) (citing Suitum v. Tahoe Regional Planning
Agency, 520 U.S. 725, 736 n.10 (1997)).

Facial challenges are

largely disfavored, but allowed when a plaintiff asserts a First
Amendment violation.
741–42 (2d Cir. 2010).

Dickerson v. Napolitano, 604 F.3d 732,
The Second Circuit permits such a

challenge “only after concluding that ‘the law is “permeated”
with vagueness, and, perhaps, that it infringes on a
constitutional right and has no mens rea requirement.’”

Id. at

744 (quoting United States v. Rybicki, 354 F.3d 124, 131 (2d Cir.
2003)).
MPHJ claims that the BFAPIA infringes upon a constitutional
right.

MPHJ also alleges that the statute gives too much

discretion to the state court, while failing to put a patent
owner on sufficient notice of what might violate the law.
Finally, MPHJ asserts that the BFAPIA does not include the
pleading and proof requirements set forth in Globetrotter, and is
therefore unlawful in all applications.

While these issues will

undoubtedly be addressed in greater detail in future briefing,
for present purposes the Court need only find that MPHJ has
stated a plausible claim.

MPHJ has alleged sufficient facts to

support a justiciable facial challenge to the BFAPIA, and that
challenge will be allowed to proceed beyond this initial stage.
B.

Dormant Commerce Clause

In Count I(D), MPHJ alleges violations of the Dormant
22

Commerce Clause.

The Commerce Clause provides Congress the

power to regulate commerce between the states.

In addition to

this express grant of power to the federal government, the
Commerce Clause contains a negative implication, known as the
Dormant Commerce Clause, “which limits the power of local
governments to enact laws affecting interstate commerce.”

Town

of Southold v. Town of East Hampton, 477 F.3d 38, 47 (2d Cir.
2007).

The primary concern of the Dormant Commerce Clause is

economic protectionism: “regulatory measures designed to benefit
in-state economic interests by burdening out-of-state
competitors.”

McBurney v. Young, 133 S. Ct. 1709, 1719 (2013)

(internal quotations omitted).
“The Commerce Clause does not invalidate all State
restrictions on commerce.”

Selevan v. New York Thruway Auth.,

584 F.3d 82, 90 (2d Cir. 2009).

In fact, “the states retain

authority under their general police powers to regulate matters
of ‘legitimate local concern,’ even though interstate commerce
may be affected.”

Maine v. Taylor, 477 U.S. 131, 138 (1986).

Regulation of consumer protection is historically a matter of
legitimate local concern.

Florida Lime & Avocado Growers, Inc.

v. Paul, 373 U.S. 132, 135 (1963); Cliff v. Payco General
American Credits, Inc., 363 F.3d 1113, 1125 (11th Cir. 2004).
Under the Dormant Commerce Clause, “[a] regulation that
evinces discriminatory purpose against interstate commerce, or
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unambiguously discriminates in its effect .
is invalid per se.”

.

. almost always

Entergy Nuclear Vt. Yankee, LLC v. Shumlin,

733 F.3d 393, 431 (2d Cir. 2013) (internal quotation marks and
citation omitted).

MPHJ claims that the BFAPIA protects Vermont

businesses from patent infringement claims more favorably than
out of state businesses, and “unlawfully discriminates against
patent owners seeking to enforce their patents against Vermont
infringing businesses.”

ECF No. 18 at 31-32.

MPHJ does not

claim that the BFAPIA discriminates between in-state and out-ofstate patent holders, or that it favors intrastate commerce over
interstate commerce.
Even if facially neutral, a state statute may violate the
Dormant Commerce Clause if “it imposes a burden on interstate
commerce incommensurate with the local benefits secured.”

Nat’l

Elec. Mfrs. Ass’n v. Sorrell, 272 F.3d 104, 108 (2d Cir. 2001).
In such a case, the so-called Pike balancing test guides the
analysis.
(1970).

See Pike v. Bruce Church, Inc., 397 U.S. 137, 142
“For a state statute to run afoul of the Pike standard,

the statute, at a minimum, must impose a burden on interstate
commerce that is qualitatively or quantitatively different from
that imposed on intrastate commerce.”
(citations omitted).

Sorrell, 272 F.3d at 109

Where “no such unequal burden [is] shown, a

reviewing court need not proceed further.”
109.
24

Sorrell, 272 F.3d at

Here, there is no allegation of either a qualitative or
quantitative difference.

Vermont has passed a statute intended

to protect its businesses and citizens from patent trolling by
both in-state and out-of-state patent-holders.

There is no

suggestion of protectionism, as the State has not acted to favor
Vermont businesses over its competitors.

See Selevan v. N.Y.

Thruway Auth., 584 F.3d 82, 90 (2d Cir. 2009) (“Both an instate
interest and an out-of-state competitor are necessary because
laws that draw distinctions between entities that are not
competitors do not ‘discriminate’ for purposes of the dormant
Commerce Clause.”).

Mere consumer protection does not run afoul

of the Dormant Commerce Clause.

See, e.g., SPGGC v. Blumenthal,

505 F.3d 183, 194 (2d Cir. 2007).

MPHJ’s Dormant Commerce Clause

claim is therefore dismissed.
C.

Selective Prosecution

The Attorney General next moves to dismiss MPHJ’s selective
prosecution claim.

MPHJ alleges that it is being targeted

because it does not manufacture or sell products covered by its
patents.

MPHJ also notes that the BFAPIA differentiates among

types of patent owners, treating entities as such as universities
more favorably.

The Attorney General argues that these facts

fail to state a claim of selective prosecution in violation of
the Equal Protection Clause.
The Equal Protection Clause prohibits “selective adverse
25

treatment of individuals compared with other similarly situated
individuals if ‘such selective treatment was based on
impermissible considerations such as race, religion, intent to
inhibit or punish the exercise of constitutional rights, or
malicious or bad faith intent to injure a person.’”

Bizzarro v.

Miranda, 394 F.3d 82, 86 (2d Cir. 2005) (quoting LeClair v.
Saunders, 627 F.2d 606, 609–10 (2d Cir. 1980).

Additionally, a

plaintiff may assert “a ‘class of one’ selective treatment claim
without asserting membership in a protected class,” but, to be
successful, the plaintiff “must demonstrate, inter alia, that the
defendant [ ] intentionally treated [it] differently from others
similarly situated without any rational basis.”

Price v. City of

New York, 264 F. App’x 66, 68 (2d Cir. 2008) (citing Giordano v.
City of New York, 274 F.3d 740, 751 (2d Cir. 2001)).
MPHJ does not allege that it is part of a protected class or
that it is being punished for exercising constitutional rights.
As discussed above, any allegations of bad faith are unsupported
and not plausibly pled.

MPHJ also fails to allege different

treatment by the State of Vermont as compared to similarly
situated patent holders.

MPHJ has therefore failed to plead a

plausible claim of selective enforcement, and any such claim is
dismissed.
V.

Fees and Costs
The Attorney General’s final argument is that fees and costs
26

under Section 1988 are barred by Vermont’s sovereign immunity, as
applied through the Eleventh Amendment.

In Missouri v. Jenkins,

491 U.S. 274 (1989), the Supreme Court held that the Eleventh
Amendment does not prohibit an award of fees against a state.
This holding was based upon Hutto v. Finney, 437 U.S. 678 (1978),
wherein attorney fees “were held to be ‘costs’ not subject to
Eleventh Amendment strictures.” Jenkins, 491 U.S. at 281, n.3.
The Attorney General’s motion to dismiss MPHJ’s prayer for fees
and costs is therefore denied.
VI.

Motion to Seal
MPHJ has moved the Court to seal an exhibit to the Acevedo

affidavit.

The exhibit in question identifies companies in

Vermont that MPHJ suspects of infringing its patents.

While

Acevedo refers to those businesses as companies 1-6, the exhibit
identifies them by name.

The Attorney General opposes sealing

the exhibit, arguing that MPHJ has failed to meet the legal
standard for sealing an exhibit from public view.
In its reply memorandum, MPHJ offers a compromise approach,
pursuant to which it would replace the current exhibit with an
exhibit that only identifies the potential infringers by number,
as in the Acevedo declaration.

The new exhibit would not need to

be sealed.
The purpose of the exhibit is to demonstrate that MPHJ has
actual, and not merely hypothetical, potential infringers.
27

This

purpose can be served without identifying the companies by name.
The addresses of those companies should also be excluded.
Accordingly, MPHJ may replace the current exhibit with the
proposed exhibit, and the motion to seal is denied as moot.
Conclusion
For the reasons set forth above, the Attorney General’s
motion to dismiss (ECF Nos. 13, 19) is granted in part and denied
in part.

Specifically, claims pertaining to the VCPA and the

state court’s use of Vermont’s long arm statute to assert
personal jurisdiction are dismissed without prejudice on the
basis of abstention.

MPHJ’s takings and personal jurisdiction

claims here are dismissed as unripe.

MPHJ’s Dormant Commerce

Clause and selective prosecution claims are dismissed for failure
to state a claim.

MPHJ’s motion to seal (ECF No. 23) is denied

as moot, and the Clerk of Court shall permit MPHJ to replace ECF
No. 22-18 with a new exhibit.
Dated at Burlington, in the District of Vermont, this 3rd
day of June, 2015.
/s/ William K. Sessions III
William K. Sessions III
District Court Judge

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