Category Archives: Constitution

Details of the “patent troll” Minnesota consent decree

The first-in-the-nation settlement between the Minnesota Attorney General and patent litigant MPHJ Technology Investments has been widely reported, including by  the Washington Post, Bloomberg, Law360, and Ars Technica. But none of these outlets have posted a copy of the settlement agreement and the resulting court order.

The agreement and order can be found here. Captioned as an “Assurance of Discontinuance” (see Minn. Stat. § 8.31), the agreement and order together function as a consent decree.

Although several provisions of the agreement are interesting, perhaps most interesting is a stayed, conditional civil penalty:

MPHJ, including the MPHJ Subsidiaries and affiliates, represents and warrants that it has not received money from any Minnesota resident or entity for a patent license or an alleged infringement of a patent or patent rights. If, contrary to this representation and warranty, the State discovers Minnesota residents or Minnesota entities did pay MPHJ money for a patent license or for an alleged infringement of a patent or patent rights, then as penalty for violation of this Paragraph 4, MPHJ shall pay the State a civil penalty of $50,000 and refund all such money paid by Minnesota residents and entities.

The Assurance thus explains that MPHJ did not make any money from Minnesota residents in response to its demand letters.

Related cases in Vermont and Nebraska continue. Law360 reports that MPHJ removed the Vermont Attorney General’s litigation to federal court, and that the Attorney General is seeking to remand the case to state court. Meanwhile, a federal judge in Nebraska has granted a  preliminary injunction for the law firm that represents MPHJ, allowing it to continue litigating patent cases there The Nebraska Attorney General had sent the firm a cease-and-desist letter, demanding that the firm stop its patent-enforcement efforts. Patently O has more details here.

Vermont, White House Aim at So-Called Patent Trolls

Vermont’s Attorney General has sued a patent holding company—MPHJ Technology Investments, LLC—for violation of the state’s consumer fraud statutes. The Vermont complaint alleges “unfair and deceptive trade practices.” The substance of the complaint asserts that one or more in a series of threatening letters was false, deceptive or misleading. Specifically, it says the letters falsely claimed to have received a “positive response,” misrepresented the treatment that most recipients gave the letter, or that the defendant did not make an adequate investigation before sending its letters threatening suit.

The complaint raises a host of interesting issues, including jurisdiction, federalism and the First Amendment. These types of suits may be preempted by 28 U.S.C. § 1338, which gives federal courts exclusive jurisdiction over claims arising under the patent laws. They may be impliedly preempted too. Further, the Petition Clause may limit state’s abilities to restrict the kinds of federal claims threatened or brought by persons. This is a case to watch.

The White House has taken notice of patent holding companies too. Recently it released a report titled “Patent Assertion and U.S. Innovation.” The report, prepared by the President’s Council of Economic Advisers, the National Economic Council, and the Office of Science & Technology Policy discusses “Patent Assertion Entities” (PAEs). The report cites the recent uptick in litigation filed by PAEs:


The White House’s report favorably cites the basis of Vermont’s lawsuit as an example of “abusive practices in litigation by patent assertion entities.” The report makes a few interesting points:

  • Not all PAEs are bad.
  • PAEs cause more harm than good in the net.
  • PAEs can harm large and small companies alike.
  • Claim uncertainty, especially in software patents, provides PAEs with an unfair bargaining power.
  • 19th Century patent litigation problems involving agricultural equipment and railroad equipment may provide a roadmap to address issues with today’s PAEs.

The report contains general recommendations to promote more straightforward, precise patents, to apply a higher burdens for novelty and non-obviousness, and to reduce patent litigation costs. The positions taken by the White House with respect to issues like Vermont’s are especially interesting because the likelihood that state-level action will be preempted may depend in large part on articulated federal goals and interests.

Cert. Grant: Already, LLC dba Yums v. Nike, Inc.

In trademark cases, does the plaintiff always dictate the existence of a case or controversy?  The Supreme Court has granted certiorari in a case in order to answer that question.  On June 25, 2012, the United States Supreme Court agreed to hear an appeal in Already, LLC dba Yums v. Nike, Inc., No. 11-982, in order to decide “whether a federal district court is divested of Article III jurisdiction over a party’s challenge to the validity of a federally registered trademark if the registrant promises not to assert its mark against the party’s then-existing commercial activities.”

In 2009, Nike sued YUMS over a YUMS brand shoe design that allegedly bore more than a passing resemblance to Nike’s federal trademark registration number 3,451,905.  It asserted claims for trademark infringement, unfair competition, and dilution under federal and state law.  In response, YUMS asserted a counterclaim for declaratory judgment, seeking to cancel Nike’s registration.

Nike then threw a curveball.  Before any decision on the merits was made, Nike provided to YUMS a covenant-not-to-sue on its registration.  Motivated in part by Nike’s desire to avoid the onerous time and expense of litigation, the covenant documented Nike’s promise to refrain from making any claims or demands, and from commencing any action (either directly or indirectly) against YUMS or its successors and customers, based upon Nike’s registration number 3,451,905.  Although the covenant was limited to YUMS’ current shoes and “colorable limitations” of current lines, it effectively eviscerated Nike’s claim in the suit.

Instead of dismissing its own claim in response, YUMS attempted to continue its declaratory judgment claim.  The district court dismissed the case, however, holding that there was no subject matter jurisdiction.  YUMS could not demonstrate that it had taken any “meaningful steps” toward developing any potentially-infringing products outside the scope of the covenant, and therefore there was no ongoing case or controversy for the court to decide.  The Second Circuit affirmed, and YUMS appealed to the Supreme Court.

Now, it is up to the Supreme Court to decide whether there was an ongoing case or controversy between Nike and YUMS.  Beyond the immediate result between the parties, the Supreme Court’s decision may limit years of existing precedent which tends to grant jurisdiction when a party seeks to invalidate intellectual property rights.  Will the other shoe drop?  Stay tuned… Docket here. Petition documents, via Patently-O, here.

Preempted State IP Laws and Their Constitutionality

ConstitutionThe Constitution’s Supremacy Clause gives Congress the power to preempt state laws through legislation. Preemption is a perennial issue in IP cases because patents and copyrights have traditionally been matters of federal law, but trademarks and trade secrets have traditionally been matters of state law. The Supreme Court has analyzed the preemptive effect of federal intellectual property laws in cases like Bonito Boats, Inc. v. Thunder Craft Boats, Inc. (1989) and  Sears, Roebuck & Co. v. Stiffel Co. (1964).

Because Congress’s power to preempt state law flows from the Supremacy Clause, some opinions seem to state that preemption is a type of unconstitutionality. See Biotech. Indus. v. District of Columbia, 496 F.3d 1362, 1366 (Fed. Cir. 2007) (discussing district court determination than an act was “preempted and therefore facially unconstitutional”). This view is common but incorrect.

Preemption and unconstitutionality are distinct legal concepts. Fla. Lime & Avocado Growers, Inc. v. Jacobsen, 362 U.S. 73, 82 (1960) (discussing difference between “conflict with the United States Constitution” and “conflict with the Federal Agricultural Marketing Agreement Act” as examples of distinct constitutional and preemption-based challenges to a state statute); In re Buder, 271 U.S. 461, 466 (1926) (holding that a claim of conflict between a state statute and a federal statute is not a constitutional challenge); see also Lemke v. Farmers’ Grain Co. of Embden, N.D., 258 U.S. 50, 51, 62 (1922) (separately analyzing attacks on a state statute on (1) grounds that it was unconstitutional and (2) that it conflicted with a federal statute).

When examining whether a state law is preempted, courts will compare that law with a federal law—not with the Constitution itself. The Supremacy Clause tells us nothing about whether federal copyright law preempts state trade regulations. Federal copyright law, however, does control whether a given state law is preempted. In the absence of federal IP statutes, states would be free (or more free) to enact their own IP laws. Until then, many state IP laws may be preempted, but those laws are not—strictly speaking—unconstitutional.

Golan v. Holder Allows Patents On Laws of Nature, Physical Phenomena, and Abstract Ideas

The U.S. Supreme Court’s recent decision in Golan v. Holder suggests that the Constitution’s Patent and Copyright Clause imposes no meaningful substantive limits on Congress’ power over patent subject-matter eligibility. Congress could authorize patents that claim fire, the wheel, or any number of other ancient discoveries.

In Golan, the Supreme Court rejected a constitutional challenge to an act that re-imposed copyright protection on certain works that had been in the public domain. The Court held that the Copyright and Patent Clause does not make the public domain “a territory that works may never exit.”

The Court’s reasoning is defensible in light of history and precedent. But it raises interesting new questions about the constitutional limits (if any) on patentable subject matter. Read the rest of this entry

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