State of Vermont v. MPHJ Technology Investments

7/28/2019 State of Vermont v. MPHJ Technology Investments

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theGENERAL

StreetVT05609

STATE OF VERMONT

SUPERIOR COURTftWASHINGTON UNITl.,_ . : 0

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O ffice of theATTORNEYG EN E R A L

tate Streetr, VT

05609

LLC; BriPol, LLC; BruSed, LLC; BunVic, LLC; CalLad, LLC; CalNeb, LLC; CapMat, LLC; ChaPacLLC; CraVar, LLC; DayMas, LLC; DesNot, LLC; DreOcc, LLC; DucPla, LLC; ElaMon, LLC;EntNil, LLC; EquiVas, LLC; FanPar, LLC; FasLan, LLC; FolNer,LLC; FraMor,LLC; GimVea,LLC; GosNel, LLC; GraMet, LLC; HadOpp, LLC; HanMea, LLC; HarNol, LLC; HeaPle, LLC;InaNur, LLC; InkSen, LLC; IntPar, LLC; IsaMai, LLC; JamVor, LLC; JitNom, LLC; JonMor, LLC;JudPur, LLC; and JusLem, LLC (collectively, the "S hell LLCs"). E ach of the ShellLLCs is aDelawareLimited Liability Companythat claims tobe located at40 East MainSt reet , #19,N ew ark , Delaware 19711, a UPSStore.

4. Jay Mac Rust, a Texas at torney, is the manager of MPHJ Technology. Calls fro mle tter recipients to any Shell LLC are directed to Mr. Rust if there is a significant problem.

5. Mr. Ru st is also the signatory of every patent' s"ExclusiveLicense A greemen t "between MPHJ Technolo g y and each Shel l LLC. He has signed eachagreement on behalf ofboth MPHJ Technolog y and the ShellLLC.

6. MPHJ Technology controls the opera tions of the Shell LLCs.7. At all times relevant to th i s Complaint, Defendant MPHJ Tech nology d id

business in Vermont and solici ted payments from Vermont consumers through its whollyowned sub sid iar ies .

8. The Vermont Attorney G eneral is authorized underthe Vermont ConsumerProtection Act, 9 V.S.A. 2458(b , to sue to enforce the Act 's prohibitions on u nfa ir anddeceptive acts andpract ices in commerce.

9. This Cour t has personal jurisdiction overDefendant and is the proper venue fo rthis action, based onthe unfai r anddeceptivele tters sen t , or otherwise authorized, byDefendant throughout Vermont , inc luding in Washington County .

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10 . This action is in the publi c in teres t .

III.Statuto ry Fra m e work11 . The Verm ont Consumer P rotect ion Act, 9V.S.A. 2453(a), prohibits unfair and

deceptive actsand practices in commerce.12 . Businesses areconsidered consumers underthe Verm on t Consumer P rotect ion

Act, except where the goods orservices at issue are being resold by the business.13 . The acts described below, and summar iz ed in paragraphs 14-54, constitu te

unfairand deceptive acts and practices in com merce.

IV. Facts14 . Since Sep tembe r 2012, numerousV erm ont small businesses have received

le tters from one of the Shel l LLCs.15 . Defendant, acting through the Shell LLCs,has sent sim ilar le t ters to hundreds or

thousands of businesses outs ide Vermont.16 . One Vermon t recip ient of thel e t te r s was Lincoln Street, Inc., a S pringfield,

V erm ont non-prof i tthat operateson stateand federal fundin g to br ing hom e care todevelopmenta lly disabled V erm onters. A nother Vermont recip ient was ARIS Solutions, anon-profit tha t provide s fiscal agent serv ices to Vermon ters with d isabilities to assist themwith daily living tasks.

17. The l e t ter s allege potential infr ingem ent of MPHJ Technology's patents , andrequestthat the recip ients ei ther purchase licenses or confir m that they are not infringin gthe patents . See Exs. A-C.

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18. The patents that Defendant owns and that are referenced in these letters sent to

Vermont businesses were previously the subject of litigation brought by the prior owner othe patents. Those lawsuits were voluntarily dismissed by the patent-holder prior to anydetermination of their validity. No court has ruled on the validity of the patents.

19. The earliest patent referenced in these letters was filed in 1998 and issued in2001.

20. On information and belief, no attempt to enforce the patents occurred until2012.

21. Exhibit A is a redacted copy of the first letter sent to targeted businesses.22. The first letter began, "We have identified your company as one that appears to

be using the patented technology."23. The first letter further stated:

You should know also that we have had a positive responsefrom the business community to our licensing program. As youcan imagine, most businesses, upon being informed that theyare infringing someone's patent rights, are interested inoperat ing lawfully and taking a license promptly. Manycompanies have responded to this licensing program in such amanner. Their doing so has allowed us to determine that a fairprice for a license negotiated in good faith and without theneed for court action is payment of [$900- $1200] peremployee.

24. The first letter demanded that if the recipient business did not believe it wasinfringing, it fill out a questionnaire and produce extensive and burdensomedocumentation to prove that it was not infringing. See Ex. A, p. 4, para 2.

25. Exhibit B is a redacted copy ofthe third let ter in the series ofletters sent toVermont businesses.

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26. Exhibit Cis a redacted copy of a draft complain t sent to Vermont businesses wi t

the second or thi rd letter.27. The second and third le t ters were sent by a Texas law firm, Farney Daniels LLP

("Farney Daniels"). The second and thi rd le t ters s ta te that Farn ey Daniels is sending thele t ters on behalf of the Shell LLC that sent the first letter.

28. These la ter let ters claimed that , e c ~ u s e the rec ipients did no t resp ond to th efirst, or fi rst and second, letters, it w as reasonable to assu m e that the recipien t wasin fringing the patents, and Defendant had therefore re ta ined patentco unsel.

29. Some businesses that have complained to the A ttorney General nev er receivedthe fi rs t or second let ters, and only received a thi rd le t ter that referred to the prior let ters.

30. The second le tter s ta ted thatFarney Daniels ' rep resen tat ion can involvelitigation, which could be avoided if the recipien t wereto respond in two weeks to discusslicensing thepatents.

31 . The third le t ter twice prom ised to b ring litigation:[I]fwe do n o t hear from you within two weeks from the date ofthis letter, our cl ient will be forced to file a Complaint againstyou for patent infringemen t in Federal Court where it willpursue all of the remedies and royalties to which i t is entitled ..

[W ]e must hearfrom you with in two weeks of thedate of thisle tter. Given tha tlitigation will ensue otherwise, w e againencourage you to reta in com peten t patent counsel to assist youin this m atter. (Emphasis in original).

32 . The third let ter, and somet imes the second letter, at tached a draft compla in tagainst the receiving business, naming the Shell LLC that sent the le t ter as the plaintiff. SeExhibit C.

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GE NERA L9 State Street

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33. Defendant s ta tes in the let ters thatit will ta rge t addit ional V ermont businesses

as part of its "ongoing vigorous licensing program ."34. The three let te rs D efendant sent to Vermont businesses contain statem en ts that

are false, deceptive, and likely to m islead the businesses that received them .35 . On informat ion and belief, De fendant perform ed little, if any, due diligence to

confirm that the ta rge ted businesses were actually infringing i ts pa ten ts pr ior to sendingth ese let ters.

36. Defendant targeted small businesses in commercia l fields that were likelyu nrela ted to patent law.

37 . On inform ation and belief, Defendant has not received a positive response f romthebusiness com muni ty to its licensing program.

38 . Nationwide, only a tiny fraction of the businesses that have received theselet ters, no t "many" or "m os t," have pu rchased licenses.

39. The actual average licensing fee negotiated by Defendant was lessthan $900.40. A business that re ceives a le t ter from a law firm that m entions the possibility of

litigatio n is reasonably l ikely to infer that thethreat of potential litigation is real.41. Neither Defendant n o r a ny Shell LLChas filed a single lawsuit in Vermont or any

other sta te .42. Over 130 days have passed since V ermont businesses began re ceiving le t ters

p romisingthat t hey would be sued if th ey did n o t re spond wi th in two weeks.43 . On inform ation and be lief, at th e ti m e the thi rd le tters were sent , and

D efendant's counsel promised to sue therecipient businesses, Defendant had not engaged

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in any fur ther investigation of the recipien t businesses or de te rmined thatthe businesseswere actually in fringing its pa tents.

44 . At the t im e the let ters weresent to V erm ont businesses, Defendant had no tre ta ined local Verm ont counsel, as would be needed to prepare for litigation in Vermont.

45. Obtaining an opinion from qualified patent counsel as to whether apatent isvalid and whether a po te ntial paten t-infr ingemen t action is likely to succeed can costthousands o f dollars, and can exceed th e cost of the req uested l icenses.

46. Eve n an unsuccessful patent -infr ingement action may cost the d efendant in

excess of $1-2 million if the defendant chooses not to settle.47 . In certain circum stances, defendan ts inpatent litigation m ay be able to recover

th eir costs from plaintiffs , but that requires first enduring the en t i re ty of the litigation.48 . If th e de fendant in a patent lawsuit successfully moves for an award of fees and

costs, but the plaintiff is an u ndercapital ized sh ell company, the defendant will not bere imbursed for the costs of litigation.

49 . In t he le t ters sentto V erm ont businesses, each Shell LLC claim ed to possess anexclusive license, w hich would permit it to enforce the paten ts against businesses wi th in aspecific geographic area and comm ercial field.

50. Each Shell LLCwas actually assigned a com bination of geographic and commercia l fields that w as identical toat least one otherShell LLC.

51 . Given theoverlapping assignm ents, the Shell LLCs do n o t possess exclusivelicenses.

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52 . The Shell LLCs m ostly targeted businesses in Vermontthat were located outside

thegeographic regions in which the Shell LLCs claimed to be legally permit ted to enforcethe patents.

53. Despite the reasonable inference that counsel sending a le t ter threa teni n glitigation has reviewed the case and found it meri torious in accordance with his or herprofessional and ethical obligations, on information and belief, that rev iew did no t takeplace .

54. Defe ndant acted in b ad faith by sending these let ters to Verm ont businesses.

V. Causeof Action: Unfair and De ceptive Trade Practices55. Plaintiff realleges and incorporates by reference here in each and every

allegation conta ined in the precedin g pa ragraphs 1 through 54.56. D efendant engaged in unfairtradepractices in commerce in violation of the

Verm ont Consumer Protection Act, 9 V.S.A. 2453(a), including:a. Stating that li tigation would be b rought again st the rec ipien ts , when

Defendant was neither prepared nor likely to bring l it igation;b. Using legal counsel to im ply that Defendant had per formed a sufficient

pre-suit investigation, including investigation into the t a rge t businessesand the ir potentially infringing activities, that w ould be requ i red to justifiling a lawsuit;

c. Targeting small businesses that wereunlikely to have the resources tofight patent-litigation, or even to p ay patent counsel;

d. Sending letters that threatened patent-infrin gem ent litigation w ith noindep endent evidence that the recipients were infringing its patents;

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e. Shifting the ent i re burden of the pre -sui t investig ation onto the small

businesses that received thelet ters;f. Propound ing b urdensom e information dem ands on any businessthat

claim ed not to infringe the paten ts; andg. Using shell corporations inorder to hide th e true o w ners of the patents,

avoid liability, and encourage quick set t lements .57. Defe ndant engaged in deceptive trade practices in com merce in violation ofthe

Verm ont Consumer Pro tection Act, 9 V.S.A. 2453(a) , by making deceptive s ta t ement s inthe threa ten ing letters which would likely lead consu m ers to believe the following:

a. Defendant would sue the ta rge t businesses if they did n ot respond w ithintw o weeks;

b. Defendant would su e the ta rge t businesse s if th ey did not pay money ;c. Defend ant had a reasonab le basis for identifying the ta rge t businesses as

infringing its p atents;d. Subsidiary Shell LLCs were exclusive licensees able to enforce the

patents; e. T arget com panies were within the sending Shell LLC's alleged area of

exclusivity;f. Defendant 's licensing program had received a positive response f rom the

business community;g. Many or m ost businesseswereinteres ted in prompt ly purchasing a

license from Defendant;

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h. B ased on prior licensing agreements,the fair price of a license was

between $900 and $1200 per emp lo y ee;i. Target businesses were receiv ing a third letter,which refersto two prior

letters, when in many cases recipientshad received no prior letters.

WHEREFORE P laint iff State ofVermont requests judgment in i ts favorand thefoll owing relief:

1. A permanent injunction prohibiting Defendant f rom en gaging in any businessac tivity in, into or from Vermont that vio la tes Vermont la w.

2. A permanent in junct ion requiring Defendant to stop threatening Vermontbusinesses with patent-infringement l awsuits .

3. Full restitutionto all Vermont businesses whosuffered damages due toDefendant's acts.

4. Civil penalties of upto$10 ,000 .00 for each v io lat ion of the Consumer Protection

Act.5. The award of investigat ive and l itigat ion costs and fees to the State ofVermont.6. Such other relief as the C ourt deems appropriate.

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Office of theATTORNEYG E N E RAL 9 S ta te Street

el ie r , VT05609

D ated: May 8, 2013

STATE OFVERMONTWILLIAM H.SORRELLATTORNEY GENERAL

Bridget C. A aR yan Kriger"-Assistant Attorneys G enera lVermont Attorney General's Office109 State St reetMontpelier, VT 05609Tel . (802) [email protected]@atg .state.vt.us

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State of Vermont v. MPHJ Technology Investments