Last week, District of Nebraska judge Joseph F. Bataillon entered an order preliminarily enjoining the Nebraska Attorney General (AG) from enforcing a cease and desist order that would prevent or impede the law firm of Farney Daniels from representing patent assertion entity MPHJ Technology Investments, LLC (MPHJ) to license or litigate MPHJ’s U.S. patents with respect to companies in Nebraska.  Judge Bataillon agreed to “revisit the preliminary injunction” if the AG’s continued investigation uncovers evidence that “supports a claim of bad faith” in MPHJ’s enforcement activities against entities operating in Nebraska.

Background.  The case was initiated last summer when Activision TV, Inc. (Activision) filed a complaint for patent infringement against Pinnacle Bancorp, Inc. (Pinnacle), a bank with charters in Nebraska, accusing it of infringing Activision’s patents for digital signage systems.  Thereafter, the Nebraska Attorney General issued a cease and desist order to Farney Daniels, which represents Activision in the litigation, demanding that it “immediately cease and desist the initiation of any and all new patent infringement enforcement efforts within the State of Nebraska pending the outcome of [the AG’s] investigation” into whether the firm and its clients’ “infringement assertions are unsubstantiated and contain false, misleading, or deceptive statements” in violation of the Nebraska Consumer Protection Act and/or the Uniform Deceptive Trade Practices Act.

In response, Activision filed an amended complaint adding the Nebraska Attorney General, the Chief Deputy Attorney General and the Assistant Attorney General as defendants.  The amended complaint requests a declaratory judgment that neither Activision nor its counsel, Farney Daniels, violated Nebraska law in asserting Activision’s patent rights against alleged infringers.  Acitivision also asserts that the cease and desist order violates federal law (42 U.S.C. § 1983) as well as its rights under the First, Fifth and Fourteenth Amendments of the U.S. Constitution.  Specifically, Activision argues that the AG’s actions deprived Activision of its right to retain counsel of its choosing to enforce its federally-granted patent rights against accused infringers.

Activision’s Motion for Preliminary Injunction.  Concurrent with its amended complaint, Activision filed a motion for preliminary injunction requesting the court to enjoin the AG “from taking any steps to enforce the Cease and Desist Order issued to Farney Daniels on July 18, 2013 in any manner that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of U.S. patents owned by Activision with respect to companies based in, or having operations in, Nebraska.”  In response, the AG filed a brief opposing the preliminary injunction and moving to dismiss the amended complaint’s allegations against the AG for lack of subject matter jurisdiction and for failure to state a claim.  Activision thereafter filed a reply brief in support of its motion for preliminary injunction and opposing the motion to dismiss.

After a hearing, the court entered an order, later amended, granting Activision’s motion for preliminary injunction, and ordering that “[t]he law firm of Farney Daniels and the attorneys therein are free to represent their client Activision in this case and any other federal patent case directly or indirectly associated with this case and the Nebraska Attorney General’s cease and desist order is not applicable to those cases.”  The court granted the motion because, during the hearing, the AG “conceded that [the] court has complete and exclusive jurisdiction over patent cases” and that “the cease and desist order is not intended to keep Farney Daniels from representing Activision in this case or a case in any other jurisdiction.”  The AG also “agreed that counsel for Activision can pursue any of the prospective infringers that have already been identified and can file suit against any newly identified potential infringers.”  Finally, the AG agreed that the cease and desist order “only prohibits Farney Daniels law firm from sending out letters to potential new infringers.”

The court later issued a separate opinion resolving the only remaining question of “whether the State of Nebraska can order counsel for Activision TV, Inc. to cease and desist initiation of all new patent infringement enforcement efforts in Nebraska.”  The court concluded that the AG could not, and enjoined the AG from “taking any steps to enforce the cease and desist order issued to Farney Daniels . . . that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of U.S. patents owned by Activision with respect to companies based in, or having operations in, Nebraska.”  However, the judge also ordered that the AG could move to dissolve the injunction if its investigation uncovered evidence of bad faith.

MPHJ’s Motion to Intervene and for a Preliminary Injunction.  MPHJ moved to intervene as a party plaintiff in Activision’s case against the AG.  In its motions papers, MPHJ argued that because the AG’s cease and desist order “was directed to Farney Daniels, and MPHJ is also a client of Farney Daniels, and further, because the Nebraska AG, in its Response to Activision’s Motion for a Preliminary Injunction repeatedly asserts that its [cease and desist] Order was also directed towards patent-related letters sent by Farney Daniels on behalf of MPHJ, MPHJ can satisfy the requirements” for intervention.  MPHJ also filed a proposed complaint in intervention asserting causes of action similar to those asserted by Activision against the AG as well as a motion for a preliminary injunction seeking similar relief to that sought by Activision against the AG.

Thereafter, the AG noticed an interlocutory appeal to the Eigth Circuit of the district court’s injunction barring it from enforcing the cease and desist order against Activision and also filed a motion to stay proceedings pending appeal as well as an opposition to MPHJ’s motion to intervene.

After MPHJ filed its reply in support of its motion to intervene and Activision filed its opposition to the AG’s motion to stay pending appeal, the court issued an order denying the AG’s motion to stay pending appeal as well as the motion to dismiss Activision’s complaint.  The court also granted MPHJ’s motion to intervene.

MPHJ then filed another motion for preliminary injunction, requesting that the court enjoin the AG from “taking any steps to enforce the Cease and Desist Order issued to Farney Daniels . . . that would prevent or impede the Farney Daniels firm from representing MPHJ or its exclusive licensee subsidiaries in connection with the preparation and transmission of patent inquiry, licensing and notice correspondence regarding patents owned by MPHJ to companies based in, or having operations in, Nebraska.”

The AG responded to MPHJ’s first motion for preliminary injunction and also responded to MPHJ’s second motion for preliminary injunction arguing that, while its cease and desist order was not directed at MPHJ, the AG had “formally withdrawn the Order in its entirety, effective immediately . . ..”  Therefore, according to the AG, MPHJ’s original motion for preliminary injunction was “rendered moot.”

The AG also moved to dismiss its appeal of the district court’s grant of Activision’s motion for preliminary injunction, which the Eighth Circuit granted.

Ruling on MPHJ’s Motion for Preliminary Injunction:  For the same reasons it granted Acitvision’s motion, the court entered an order granting MPHJ’s motion for preliminary injunction.  In the order, the court dismissed the AG’s argument of mootness, holding that “[m]aking a voluntary decision to stop the unconstitutional conduct does not create a moot issue.”

On the merits, the court relied upon its previous holding in granting Activision’s motoin for preliminary injunction that “the federal government has preempted to a great extent the area of patent law. Allowing the attorney general to interfere might be harmful to the patent process.”

The court therefore enjoined the AG “from taking any steps to enforce the cease and desist order issued to Farney Daniels on July 18, 2013, in any manner that would prevent or impede the Farney Daniels firm from representing MPHJ in connection with licensing and litigation of U.S. patents owned by MPHJ with respect to companies based in, or having operations in, Nebraska.”  “If, however, at some point during the investigation [the AG discovers] evidence [that] supports a claim of bad faith, the Attorney General is free to revisit this preliminary injunction with the court.”

Take a Way.  While this case does not involve alleged standard-essential patents, it highlights the interest of state regulators in licensing negotiations and patent infringement lawsuits in general.  As our prior post discussed, the Federal Trade Commision is investigating allegations similar to those of the AG.

We will continue to monitor this case for further developments.