State of VERMONT, Plaintiff-Appellee v. MPHJ TECHNOLOGY INVESTMENTS, LLC, Defendant-Appellant.
No. 2015-1310.
United States Court of Appeals, Federal Circuit.
Sept. 28, 2015.
803 F.3d 635
The claims here are even more clearly indefinite than those in Teva. Here, Dr. Hsiao‘s chosen method was not even an established method but rather one developed for this particular case. As we held in Interval Licensing, a claim term is indefinite if it “leave[s] the skilled artisan to consult the ‘unpredictable vagaries of any one person‘s opinion.‘” 766 F.3d at 1374 (quoting Datamize, LLC v. Plumtree Software, Inc., 417 F.3d 1342, 1350 (Fed.Cir. 2005)).10 The claims here are invalid as indefinite, and the award of supplemental damages must be reversed. Under these circumstances, we need not address the cross-appeal as to enhanced damages.
APPEAL NO. 2014-1431 REVERSED
APPEAL NO. 2014-1462 DISMISSED AS MOOT
COSTS
Costs to NOVA.
William Bryan Farney, Farney Daniels PC, Georgetown, TX, argued for defendant-appellant. Also represented by Steven R. Daniels; David P. Swenson, Minneapolis, MN.
Before PROST, Chief Judge, NEWMAN, and O‘MALLEY, Circuit Judges.
O‘MALLEY, Circuit Judge.
On May 8, 2013, Plaintiff-Appellee State of Vermont (“Vermont” or “the State“) filed a state court action against Defendant-Appellant MPHJ Technology Investments LLC (“MPHJ“) alleging violations of the Vermont Consumer Protection Act,
I. BACKGROUND
MPHJ is a non-practicing entity incorporated in Delaware that acts through a variety of shell corporations incorporated in many states. Beginning in September 2012, businesses in Vermont began to receive a series of letters from one or more of the MPHJ shell corporations. These letters alleged potential infringement of MPHJ‘s patents and requested that the
MPHJ‘s letters to each Vermont business followed a similar format and involved the same sequence of events. The first letter a business would receive stated, “We have identified your company as one that appears to be using the patented technology,” and gave a list of questions that the company needs to investigate regarding its computer server to determine if it is infringing. Exhibit A to Consumer Protection Complaint at 1, Vermont v. MPHJ Tech. Invs., LLC, No. 2:14-cv-00192, 2015 U.S. Dist. LEXIS 3309 (D.Vt. Jan. 9, 2015), ECF No. 1. The letter explained that these questions were based on “[o]ur research, which includes review of several marketplace trends and surveys,” and that “you should enter into a license agreement with us at this time.” Id. at 3-4. It further stated that “we have had a positive response from the business community to our licensing program.” Id.
The second and third letters were sent from the law firm of Farney Daniels PC, MPHJ‘s counsel. They would routinely arrive a few weeks after the first letter and second letter, respectively, if MPHJ did not hear back from the recipient. Both stated that the recipient‘s non-response to the previous letters was taken as an admission of infringement. And, both implied that litigation would commence if the recipient did not enter into a license agreement. See Exhibit B to Consumer Protection Compl. at 1, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv-00192), ECF No. 1.
In response to complaints from the Vermont business community about these letters, the State filed its original complaint against MPHJ on May 8, 2013 in state court. The original complaint asserted a single cause of action under the Vermont Consumer Protection Act,
(1) A permanent injunction prohibiting Defendant from engaging in any business activity in, into or from Vermont that violates Vermont law.
(2) A permanent injunction requiring Defendant to stop threatening Vermont businesses with patent-infringement lawsuits.
Id.
A. First Removal
MPHJ timely filed a motion to remove the case to the United States District Court for the District of Vermont on June 7, 2013 (“the first removal“). MPHJ claimed that the court had diversity jurisdiction and that the court had federal
On April 14, 2014, the district court issued an order remanding the case to state court, without deciding the other pending motions, including the State‘s motion to clarify or amend the complaint. Vermont v. MPHJ Tech. Invs., LLC, No. 2:13-cv-170, 2014 WL 1494009, at *1, 2014 U.S. Dist. LEXIS 52132, at *2 (D.Vt. Apr. 14, 2014). The court concluded that it did not have subject matter jurisdiction. The court stated that, under the test set out in Gunn v. Minton, 568 U.S. 251, 133 S.Ct. 1059, 1065, 185 L.Ed.2d 72 (2013), federal patent law issues were not “necessarily raised” on the face of the State‘s complaint because the claims in the original complaint did not challenge the validity of the patents nor require any determination of actual infringement. MPHJ, 2014 WL 1494009, at *6, 2014 U.S. Dist. LEXIS 52132, at *17. The court also concluded that the original complaint did not raise a “substantial” federal question under Gunn, as any possible federal question would at best involve “application of existing patent law to the facts of this case,” with no wide-reaching determinations about patent law itself. Id. at *8-9, 2014 U.S. Dist. LEXIS 52132 at *27. The court also determined that there was no diversity jurisdiction. Id. at *9, 2014 U.S. Dist. LEXIS 52132 at *29.
On May 13, 2014, MPHJ filed a notice of appeal of the remand decision to this court and petitioned this court for a writ of mandamus, claiming that the district court abused its discretion. Upon return to the state court, the State filed its amended complaint on May 7, 2014. During a subsequent motions hearing, the state court indicated that, because MPHJ had not yet answered, the State was entitled to amend its complaint as a matter of right under state court rules. Exhibit 1 of Vermont‘s Mot. to Expedite Proceedings at 37-38, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv-00192), ECF No. 3. Despite having acknowledged that, however, the state court ultimately granted the State‘s motion to amend at the same time it denied MPHJ‘s motion to dismiss for lack of personal jurisdiction. Exhibit 3-12 to MPHJ‘s Notice of Removal at 2, 6, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv-00192), ECF No. 1. On August 11, 2014, this court held that it did not have jurisdiction over either the appeal or the mandamus petition by virtue of
B. Second Removal
MPHJ filed an answer and counterclaims to the State‘s amended complaint on
In its answer, MPHJ asserted that the BFAPIA was preempted by federal law because it permitted the State to bar MPHJ‘s infringement assertions without a showing of objective baselessness, contrary to our precedent in Globetrotter Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367 (Fed.Cir.2004). MPHJ also asserted six counterclaims. It sought a declaratory judgment that the BFAPIA is invalid or preempted by the First, Fifth, and Fourteenth Amendments (counterclaim 1), or by
On the same day that MPHJ filed its answer and counterclaims, it filed a second notice of removal (“the second removal“) to federal court under
The district court issued an opinion on the second notice of removal on January 12, 2015. The court found that the State‘s amended complaint never “revived” MPHJ‘s right to remove in the first place. MPHJ, 2015 WL 150113, at *4-5, 2015 U.S. Dist. LEXIS 3309, at *12. According to the court, the State‘s request for injunctive relief, “read in the context of the State‘s pleading,” made clear that the State did not seek relief under the BFAPIA. Id. at *5, 2015 U.S. Dist. LEXIS 3309 at *13. The district court further found that, even if the passage of the
The district court further concluded that the removal, even if timely, failed to meet the requirements of
II. JURISDICTION
The parties dispute our jurisdiction over this appeal. The State asserts that we have none and asks that we dismiss the appeal. MPHJ argues that we do have jurisdiction over this appeal and correctly points out that, even if we disagreed with that contention, the appropriate remedy would be a transfer to the Second Circuit, not dismissal.
Counterclaim 5 seeks a declaratory judgment that the VCPA is invalid or preempted as applied under the First, Fifth, and Fourteenth Amendments, the Supremacy and Patent Clauses of the Constitution, and
Before the passage of the AIA, it was also well established that only complaints filed by one seeking to prevent enforcement of state law would give rise to federal jurisdiction under either
The AIA amended
The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent ... cases.
and now, post-AIA, reads:
The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents....
(a) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction—
(1) of an appeal from a final decision of a district court of the United States ... if the jurisdiction of that court was based, in whole or in part, on section 1338 of this title ...;
to:
(a) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction—
(1) of an appeal from a final decision of a district court of the United States ... in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents....
The AIA also added
(a) In general. A civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents ... may be removed to [federal] district court....
These changes are commonly referred to as the “Holmes Group fix.” See, e.g., MPHJ, 2015 WL 150113, at *4, 2015 U.S. Dist. LEXIS 3309 (citing Andrews v. Daughtry, 994 F.Supp.2d 728, 731-32 (M.D.N.C.2014) (citing Joe Matal, A Guide to the Legislative History of the America Invents Act: Part II of II, 21 FED. CIR. B.J. 539, 539 (2012))). See generally Paul M. Schoenhard, Gaps, Conflicts and Ambiguities in the Federal Courts’ Post-AIA Patent Jurisdiction, INTELL. PROP. & TECH. L.J., July 2013, at 20-23. In other words,
Turning to counterclaim 5, we first assess whether it is a compulsory counterclaim. Under Second Circuit law:
Whether a counterclaim is compulsory or permissive turns on whether the counterclaim arises out of the transaction or occurrence that is the subject matter of the opposing party‘s claim, and this Circuit has long considered this standard met when there is a logical relationship between the counterclaim and the main claim.
Jones v. Ford Motor Credit Co., 358 F.3d 205, 209 (2d Cir.2004) (internal citations and quotation marks omitted). The “logical relationship” test does not require “an absolute identity of factual backgrounds,” but the “essential facts of the claims [must be] so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.” Id. (internal citations and quotation marks omitted); see also id. at 210 (“The essential facts for proving the counterclaims and the ECOA claim are not so closely related that resolving both sets of issues in one lawsuit would yield judicial efficiency.“).2
Counterclaim 5 meets the requirements of the “logical relationship” test. The State‘s claims are premised on the alleged unlawful nature of MPHJ‘s patent infringement inquiry letters under the VCPA. According to the State‘s amended complaint, the essential facts involved in proving whether MPHJ violated the VCPA include whether MPHJ in fact “[s]tat[ed] that litigation would be brought against the recipients, when Defendant was neither prepared nor likely to bring litigation,” “[t]arget[ed] small businesses that were unlikely to have the resources to fight patent-litigation, or even pay patent counsel,” and “[s]en[t] letters that threatened patent-infringement litigation with no independent evidence that the recipients were infringing its patents,” among a series of other allegations. First Amended Consumer Protection Compl. at 8, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv-00192), ECF No. 7. In counterclaim 5, MPHJ asserts that the VCPA would be preempted on the basis of the same essential facts. For example, MPHJ asserts that, “[u]nder at least some circumstances, federal law permits a patent owner to threaten suit even if the patent owner does not intend to bring suit.” MPHJ‘s Answer and Counterclaims at 26, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv-00192), ECF No. 20. MPHJ further contends that, “[u]nder federal law, a patent owner may communicate an intention to bring suit for infringement without having conducted, or completed, such investigation as is necessary to satisfy
Second, we must determine whether counterclaim 5 “aris[es] under” the federal patent laws, as
An action “aris[es] under” federal law: (1) where “federal law creates the cause of action asserted,” and (2) in a “special and small category of cases” in which arising under jurisdiction still lies.” Gunn, 133 S.Ct. at 1064. For this second category of cases, “federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” Id. at 1065. “Arising under” is interpreted identically and interchangeably under
Because counterclaim 5 is not a cause of action created by the federal patent laws, we ask whether it falls into the “special and small category of cases” in Gunn. Gunn, 133 S.Ct. at 1064. Resolution of a federal question is clearly “necessary” to MPHJ‘s counterclaim, as proving preemption of the VCPA by federal patent laws would necessarily require proving that the patent laws preclude enforcement of the VCPA as applied. Thus, MPHJ‘s right to relief on the counterclaim depends on an issue of federal law. The federal issue is also “actually disputed.” Indeed, the federal issue here “is the central point of dispute.” Id. at 1065.
Under Gunn, the “substantiality” inquiry looks to “the importance of the issue to the federal system as a whole” and not the significance “to the particular parties in the immediate suit.” Id. at 1066 (citing Grable & Sons Metal Prods., Inc. v. Darue Eng‘g & Mfg., 545 U.S. 308, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005)). In other words, we focus on the broader significance of the federal issue and ask ourselves whether allowing state courts to resolve these cases undermines “the development of a uniform body of [patent] law.” Id. at 1066-67 (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989)). Counterclaim 5 also passes this test. Whether federal patent laws preempt or invalidate the VCPA as applied has considerable significance beyond the current case. A hypothetical finding that the VCPA is not invalid or preempted in state court would affect the development of a uniform body of patent law, as such a decision would be binding in Vermont, but would not be in other states with similar laws or in federal court. The facts of this case are fundamentally unlike Gunn, in which the Court recognized that the federal issue was a “backward-looking ... legal malpractice claim” that would be unlikely to have any “preclusive effect” on future patent litigation and was, therefore, not substantial. Id. at 1067. As an “as applied” challenge, counterclaim 5 depends to a certain extent on the specific facts of this case, but the resolution of this case would assist in delineating the metes and bounds of patent law and clarifying the rights and privileges afforded to patentees in pursuing patent infringement claims.
Finally, we find that the last prong of the Gunn test, “capable of resolution in federal court without disrupting the federal-state balance,” is satisfied. Gunn, 133 S.Ct. at 1065; see Grable, 545 U.S. at 310, 125 S.Ct. 2363. Allowing a state court to resolve a patent law preemption question risks “inconsistent judgments between state and federal courts.” Jang, 767 F.3d at 1337 (quoting Forrester Envtl. Servs., Inc. v. Wheelabrator Techs., Inc., 715 F.3d 1329, 1334 (Fed.Cir.2013)).
III. DISCUSSION
A. Standard of Review
When analyzing “a procedural issue not unique to patent law,” we apply the law of the applicable regional circuit, here the Second Circuit. Versata Software, Inc. v. Callidus Software, Inc., 780 F.3d 1134, 1136 (Fed. Cir.2015). The Second Circuit reviews a district court‘s removal determination, and a district court‘s analysis of subject matter jurisdiction, de novo. Isaacson v. Dow Chem. Co., 517 F.3d 129, 135 (2d Cir.2008). Where, as here, the defendant asserts federal jurisdiction in a removal petition, the defendant has the burden of establishing that removal is proper. Veneruso v. Mount Vernon Neighborhood Health Ctr., 933 F.Supp.2d 613, 618 (S.D.N.Y.2013) (citing United Food & Commercial Workers Union v. CenterMark Props. Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir.1994)), aff‘d, 586 Fed.Appx. 604 (2d Cir.2014).
B. No Basis for Removal
On appeal, the parties dispute whether: (1) MPHJ‘s second removal was timely and (2) the requirements for removal under
At this stage in the proceedings, we do not consider whether the action was removable under the original complaint. As we explained in our decision on appeal of the first remand, a remand order to a state court under
We are left to decide, therefore, if the previously non-removable action became removable under
MPHJ‘s Notice of Removal clearly bases removal under
The parties dispute, however, whether the amended complaint either implicates
(1) A permanent injunction prohibiting Defendant from engaging in any business activity in, into or from Vermont that violates Vermont law.
The issue is, thus, whether the phrase “Vermont law” encompasses not only the VCPA, but also the BFAPIA. The State has consistently argued that the BFAPIA is not part of its amended complaint, just as it was not part of its original complaint. In its motion to remand, it stated that it “did not add or change any allegations or change its claim. The amendment removed a single phrase in the request for relief.” Vermont‘s Mot. to Remand at 6, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv-00192), ECF No. 22-1. According to the State, the amended complaint “merely alleges that MPHJ‘s actions—sending unfair and deceptive licensing solicitations into Vermont—violate Vermont‘s consumer protection statute.” Id. at 13.
MPHJ, on the other hand, maintains that the amended complaint includes the BFAPIA—i.e., a provision of Vermont law—and that the State cannot now “disavow that its suit seeks this relief.” MPHJ‘s Resp. in Opp‘n to Mot. to Remand at 16 n. 31, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv-00192), ECF No. 26. The state legislature passed the BFAPIA between the time of the filing of the original complaint and the State‘s motion to amend the complaint. MPHJ argues that, therefore, although the amendment to the State‘s complaint did not add any new text, it implicitly added new meaning to the phrase “Vermont law.”
The district court found MPHJ‘s interpretation of the amended complaint unpersuasive. Specifically, the court found that the State made explicit efforts to limit its reach to MPHJ‘s purported violations of the VCPA. The title of the amended complaint, “First Amended Consumer Protection Complaint,” tracks the title of the original complaint, “Consumer Protection Complaint,” which neither party disputes concerned only the VCPA. First Amended Consumer Protection Compl., MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv-00192), ECF No. 7. The first sentence states that the Vermont Attorney General “brings this suit under the Vermont Consumer Protection Act.” Id. at 1. The sole allegations in the amended complaint are that MPHJ violated the VCPA. Importantly, the BFAPIA does not appear at all on the face of the complaint. Thus, the district court found that the amended complaint did not “revive” MPHJ‘s ability to remove the case. MPHJ, 2015 WL 150113, at *5, 2015 U.S. Dist. LEXIS 3309, at *13. Notwithstanding this finding, however, the district court proceeded to analyze the removal under
On appeal, the parties reiterate their positions with respect to the BFAPIA. MPHJ assigns significance to Vermont‘s decision not to limit its injunction explicitly to compliance with the VCPA. Since March 7, 2014, the date on which Vermont sought leave to amend its complaint, was after the date the BFAPIA became effective, July 1, 2013, MPHJ argues that “the Amended Complaint indisputably [seeks] to compel MPHJ to comply with the BFAPIA.” Appellant Br. 11. MPHJ also argues that Vermont Attorney General William Sorrell
The State opposes MPHJ‘s characterization of the amended complaint as seeking relief under the BFAPIA. First, the State correctly points out that the amended complaint never mentions that statute by name. Appellee Br. 7. Second, the State says its deletion from the original complaint narrowed its request for relief, not broadened it. Id. at 30. Third, the State argues that it did not assert a claim against MPHJ under the BFAPIA because the conduct the State challenges pre-dated the statute: “[t]hat statute was passed in May 2013, after MPHJ stopped sending the letters described in the State‘s complaints, and after the State filed this action.” Id. at 27.
We resolve this issue based on the State‘s concession at oral argument and our own understanding of the amended complaint. Counsel for the State conceded at oral argument that the BFAPIA is not—and never was—part of the State‘s amended complaint. Indeed, when asked whether counsel would stipulate that the amended complaint does not cover the BFAPIA, counsel responded:
A: We have asserted that repeatedly in filings in multiple courts, that we are seeking, we are not asserting a claim under the new statute and we are not seeking relief under that statute.
Q: You mean not seeking an injunction that would require them to comply with that statute?
A: No, we‘re not, your Honor.
Oral Argument at 14:30-15:45, available at http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2015-1310.mp3. We hold the State to its concession at oral argument; it has expressly disavowed any request to enjoin MPHJ‘s conduct under the BFAPIA.
Even if the State had not conceded at oral argument that the injunction does not include a request for an injunction under the BFAPIA, we are not persuaded that MPHJ‘s reading of the amended complaint is a fair one. We begin with the language of the amended complaint, which never mentions the BFAPIA on its face. Rather, as the State explained, the amended complaint is identical to the original complaint except that the State‘s original request for an injunction requiring MPHJ to stop threatening Vermont businesses with patent infringement lawsuits has been deleted. As the district court pointed out, the amended complaint is entitled “First Amended Consumer Protection Complaint,” and the first sentence states that the suit was brought “under the Vermont Consumer Protection Act.” And under “III. Statutory Framework” of the amended complaint, the only statute listed is the VCPA. “V. Cause of Action: Unfair and Deceptive Trade Practices” likewise mentions only the VCPA. The language of “Unfair and Deceptive Trade Practices” comes directly from
This interpretation finds further support in the record evidence regarding the par-
Finally, although MPHJ relies on a Law 360 article featuring an interview with Vermont Attorney General William Sorrell, which it originally included as an exhibit to its notice of removal, that article supports the State‘s position. In that interview, which was published two months after the State filed its conditional motion to amend, Sorrell was asked whether the lawsuit against MPHJ was filed under the VCPA:
Q: So the case against MPHJ was filed under the then existing consumer protection law?
A: Yes.
Exhibit 3-9 to Notice of Removal at 170, MPHJ, No. 2:14-cv-00192, 2015 U.S. Dist. LEXIS 3309, ECF No. 1-12. And, when asked about how the BFAPIA would be enforced, Sorrell‘s response revealed that he did not think lawsuits had been filed yet under the BFAPIA:
Q: Concerning Vermont‘s new consumer protection law, has thought been given to what analysis would be required to determine which accused products are covered by the claims of the asserted patents?
A: ... I think when the first lawsuits are filed under the new Vermont statute, I‘m sure there will be more flesh added to the bones of the statute through those cases....
Id. at 171. In these circumstances, we see no reason to disturb the district court‘s finding that the State is not seeking an injunction that requires MPHJ‘s compliance with the BFAPIA. Given this conclusion, if the State prevails on the merits in state court, it may not seek an injunction requiring MPHJ to comply with the BFAPIA based on the amended complaint. Because MPHJ relies on the BFAPIA as its basis for removal under
IV. CONCLUSION
For the foregoing reasons, we hold that there is no basis for removal to federal court under
AFFIRMED.
KATHLEEN M. O‘MALLEY
UNITED STATES CIRCUIT JUDGE