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Fed. Cir. Sends MPHJ 'Scanner Troll' Case Back to Vermont

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By Mark Wilson, Esq. on August 14, 2014 5:45 PM

The Federal Circuit on Monday rejected a plea by a well-known patent troll to remain in federal court. MPHJ Technology purported to own the patents to scan-to-email technology. It sent demand letters to small businesses that use scan-to-email in their copy machines (which is to say, all of them) asking for license fees in the amount of $1,000 per employee, Ars Technica reported last year.

The State of Vermont had it up to here with MPHJ demanding license fees from Vermont corporations and nonprofits, so it filed a lawsuit in state court, alleging unfair and deceptive trade practices.

A Shell Game

The complaint itself handily exposes MPHJ as a rent-extracting non-entity (the complaint recites the names of 40 supposed subsidiaries of MPHJ, then concludes, "Each of the Shell LLCs is a Delaware Limited Liability Company that claims to be located at 40 East Main Street, #19, Newark, Delaware, 19711, a UPS Store"). Vermont claimed that MPHJ threatened businesses with lawsuits in order to extract license fees from them, even though it never actually intended to file any lawsuits.

Vermont state court is absolutely the last place MPHJ wanted to be, so it removed the case to federal district court, claiming diversity jurisdiction as well as federal question jurisdiction, the latter predicated on MPHJ's patent infringement claim as a defense to the consumer fraud allegations. Vermont moved to remand back to state court. The district court agreed, and so did the Federal Circuit.

No Jurisdiction

The Federal Circuit held that it was without jurisdiction to review the district court's order. The district court remanded the case to state court because there was no federal question; MPHJ's patent infringement claim was a defense, and "a defense cannot provide basis for federal subject matter jurisdiction."

Incredibly, MPHJ also requested sanctions -- yes, sanctions -- against Vermont because it alleged the state's complaint was frivolous. (No, that's not MPHJ trying out new comedy material on the road; they're serious.) The court here did not indulge that or any other one of MPHJ's numerous merits claims. The Federal Circuit plainly didn't have jurisdiction, as the district court's remand decision was not reviewable.

It's odd that MPHJ would want to remove to federal court, other than potential problems litigating in the home team's stadium. Going to federal court, and raising patent infringement as a defense, runs the risk of a court actually ruling on the merits of MPHJ's purported patents, which are tenuous, indeed. As the EFF points out, MPHJ's tactic was always to send demand letters and extract fees; they never really wanted to go to court. Now, they're going back to Vermont and facing the potential of having to pay $10,000 per incident in statutory fines for allegedly violating Vermont's Consumer Protection Act.

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