VermontWe’re going to take a brief time-out from SEP issues here for a short update on a case that’s being watched with interest by many in the patent world — the Vermont Attorney General’s consumer protection action brought last month against MPHJ Technology Investments, the so-called “scanner patent troll.” (For details on the complaint filed by the Vermont AG, see our previous post.)

It’s a somewhat mundane, and not surprising (but still noteworthy) development — This past Friday, MPHJ filed a notice of removal under 28 U.S.C. § 1441, seeking to transfer the case to the U.S. District Court for the District of Vermont, as opposed to the State of Vermont Superior Court (where it was filed by the attorney general).  Apparently, MPHJ likes its chances much better in federal court than in state court.

Generally, removal of a case to federal court under Section 1441 is proper if the federal courts would have had original jurisdiction over the case — e.g., based on diversity of citizenship or if the plaintiff’s claim arises under federal law.  As we’ve noted in other cases like Microsoft v. Motorola, the issue of jurisdiction can be a tricky one.  We haven’t done a deep dive on the law here, but MPHJ’s removal notice does seem to present some interesting issues, and it’s not clear whether MPHJ’s efforts will be successful.

MPHJ first asserts that the Vermont AG’s complaint presents a federal question arising under U.S. patent law, because the action relates to the validity, infringement, and enforcement of patents mentioned in MPHJ’s demand letters.  But as the Supreme Court has noted in cases such as Holmes v. Vornado and more recently in Gunn v. Minton, not all patent-related cases automatically fall within federal district court jurisdiction.  Arguably, a court could resolve at least some of the claims of unfair trade practices brought by Vermont without actually making determinations as to infringement or validity of the MPHJ’s patents (e.g., the claims that certain MPHJ-related entities falsely asserted that they had a right to bring actions for infringement as exclusive licensees for particular regions).  If so, then the district court may not have “arising under” jurisdiction, and removal for this reason would be inappropriate.

MPHJ also claims that the district court has “diversity jurisdiction” over the case, because the defendants are citizens of Delaware and Texas and the amount in controversy exceeds $75,000.  Generally, however, states do not qualify as “citizens” for the purposes of determining diversity jurisdiction — so MPHJ claims that the suit is actually being filed on behalf of several Vermont businesses, who are citizens of Vermont and whose citizenship should be considered in determining jurisdiction.  But there is a great deal of uncertainty about the removability of these types of parens patriae (literally, “parent of the state”) consumer protection lawsuits based on diversity jurisdiction, as this 2012 ABA article notes.  (There are many, many articles on this topic).  Courts are widely split over whether to consider the citizenship of businesses in these types of actions — in fact, the Supreme Court recently agreed to resolve a circuit split on a similar issue related to the Class Action Fairness Act of 2005 (in Mississippi ex. rel. Jim Hood v. AU Optronics Corp.).

[State of Vermont v MPHJ Technology Investments LLC – Notice of Removal]