Scan-to-e-mail patent troll loses appeal, can’t avoid Vermont court case

One of the most maligned patent trolls, MPHJ Technology Investments, will have to face claims in state court that it violated Vermont's consumer protection laws.

MPHJ and its owner, Texas attorney Mac Rust, gained national attention after sending tens of thousands of letters out to small and medium-sized businesses stating that any business using scan-to-e-mail technology owed MPHJ around $1,000 per worker for patent infringement.

MPHJ was investigated by the Federal Trade Commission and confronted by several state attorneys general, including Vermont Attorney General William Sorrell, who sued MPHJ for violating his state's consumer protection law. MPHJ fought to move the case into federal court but lost that appeal in 2014. Then it filed a second appeal seeking removal to federal court, stating that Vermont's new patent-related consumer protection law, the Vermont Bad Faith Assertions of Patent Infringement Act, ("BFAPIA"), was preempted by federal law.

In an opinion (PDF) issued yesterday, the US Court of Appeals for the Federal Circuit rejected that argument as well. The Federal Circuit noted that Vermont sued MPHJ under its long-standing consumer protection law, not the BFAPIA, which was passed shortly after the lawsuit was filed. Vermont authorities have narrowed their injunction request. The state's complaint doesn't mention BFAPIA, and Sorrell made clear in a press interview that in his view, no lawsuits have yet been filed under BFAPIA.

"Because MPHJ relies on the BFAPIA as its basis for removal... we find no grounds for removal to federal court," the three-judge panel concluded.

It's taken a long time, but MPHJ looks to be the first patent troll that will have to face charges that it broke consumer protection laws. Vermont says that its letters were misleading, implying among other things that a lawsuit was imminent when MPHJ had no plans to file such a case.

"The ruling means that a Vermont state court must now consider our claim that MPHJ violated state law by sending unfair and deceptive demand letters to Vermont businesses," said Bridget Asay, a lawyer for the Vermont AG's office, in an email to Ars. "The fact that Vermont’s consumer-protection case against MPHJ will finally be heard on the merits will set an important precedent for protecting consumers in this area."

MPHJ has already reached deals with Minnesota, New York, and the FTC. It agreed to stay out of Minnesota, but in New York the company was only made to modify its patent demand letters. The FTC settlement bars MPHJ from making "misleading or unsubstantiated representations."