Vermont v. MPHJ Tech. Invs., LLC

Addressing jurisdictional issues, the U.S. Court of Appeals for the Federal Circuit relied on post-AIA 35 U.S.C. § 1295(a)(1) to exercise, for the first time, jurisdiction over an appeal in which only a counterclaim arose under the patent laws. Vermont v. MPHJ Tech. Invs., LLC, Case No. 15-1310 (Fed. Cir., Sep. 28, 2015) (O’Malley, J.).

Defendant MPHJ is a non-practicing entity that owns several patents. In 2013, MPHJ began a licensing campaign in which it sent demand letters threatening litigation to Vermont businesses. Alleging that MPHJ’s demand-letter campaign violated the Vermont Consumer Protection Act (VCPA), the State of Vermont filed suit in state court. The State sought, among other forms of relief, a permanent injunction prohibiting the defendant from engaging in any business activity in, into, or from, Vermont that violates Vermont law.

MPHJ’s first attempt to remove the case to federal court was unsuccessful, with the district court remanding the case back to state court. MPHJ filed an answer and counterclaims in the state court action, premised in part on the assertion that Vermont was seeking an injunction that extended beyond the VCPA to a second statute, the Vermont Bad Faith Assertions of Patent Infringement Act (BFAPIA). MPHJ’s counterclaims sought declaratory judgment that the BFAPIA was invalid or preempted, that its patents were valid and infringed, that the VCPA was invalid or preempted and that it did not violate the VCPA. Along with its counterclaims, MPHJ filed a second notice of removal premised, in relevant part, on the notion that the BFAPIA triggered federal jurisdiction under 28 U.S.C. § 1442(a)(2). The district court remanded, finding that the complaint did not require compliance with the BFAPIA. MPHJ appealed to the Federal Circuit. Agreeing with the district court’s assessment, the Federal Circuit held that there was no basis for removal to federal court under 28 U.S.C. § 1442(a)(2) and affirmed the remand.

Notably, the Federal Circuit relied on the America Invents Act (AIA) amendment to 35 U.S.C. § 1295(a)(1) to exercise jurisdiction over the case. The AIA amendment expanded the Federal Circuit’s jurisdiction to cases in which a compulsory counterclaim arises under the patent laws. As mentioned above, one of MPHJ’s counterclaims challenged the VCPA as preempted by federal patent law. Applying U.S. Court of Appeals for the Second Circuit law, the Federal Circuit determined that the counterclaim was compulsory. Then, the Federal Circuit determined that the counterclaim fell into the “special and small category of cases” in which a state law claim gives rise to federal jurisdiction because a federal issue is necessarily raised, actually disputed, substantial and capable of resolution in federal court without disrupting the federal-state balance approved by Congress. (See Gunn v. Minton, IP Update, Vol. 16, No. 2.)

Practice Note: Barring diversity jurisdiction, typical licensing cases involving state-law breach of contract claims still need to be brought in state court under Gunn. Under post-AIA law, however, defendants who counterclaim for infringement will now be able to remove such cases to federal court. It is still unclear how this statutory change will affect legal malpractice claims against patent attorneys. SeeNeuroRepair, Inc. v. Nath Law Group (IP Update, Vol. 18, No. 2).