Federal Circuit Declines to Fix VoIP-Pal’s “Problem of [Its] Own Making”

  • March 25, 2022
  • Category: Patent Litigation Feature
    Market Sector: Networking

The Federal Circuit has decided not to come to the rescue of VoIP-Pal.com, Inc. (VPLM) in one of the declaratory judgment (DJ) actions filed against it by Twitter. This latest appeal stems from a fight over jurisdiction, as the publicly traded NPE has twice argued that there is no controversy because it has not formally asserted the patent at issue against Twitter. Late last year, the district court denied the first of those motions, finding that VPLM’s assertion of related patents, its public statements, and its refusal to grant a covenant not to sue established a live controversy. This prompted VPLM to file another similar motion to dismiss that included a conditional covenant not to sue. Yet the NPE also lodged a mandamus petition challenging that earlier denial, asking the Federal Circuit to rule before the district court decided its second motion. The appellate court has now denied that petition, stating that this “problem is one of VoIP-Pal’s own making”.

Earliest Twists and Turns in VPLM’s Campaign

This latest ruling prolongs the latest chapter of a campaign that has become rather infamous for its various twists and turns. As detailed in RPX’s prior reporting, VPLM has been asserting patents since February 2016 against various defendants, including Twitter as well as Alphabet (Google), Amazon, Apple, AT&T, Facebook (WhatsApp), T-Mobile, and Verizon, many since February 2016. VPLM’s first wave of litigation asserted a family of former Digifonica patents that broadly relate to routing messages between private and public networks based on stored caller profiles. However, transfers took those cases from the District of Nevada to the Northern District of California, where District Judge Lucy H. Koh eventually invalidated the asserted claims of various VPLM patents-in-suit under Alice in 2019. The Federal Circuit affirmed those decisions without opinion, and the US Supreme Court has declined review.

The present dispute with Twitter stems from a second, 2018 wave of VPLM litigation over patents from another family—the so-called “gateway patents”—this time brought in the Western District of Texas. A tug-of-war over venue then ensured: In April 2020, Twitter filed its first DJ action against VPLM in the Northern District of California (3:20-cv-02397), seeking a judgment of noninfringement as to one of the gateway patents (10,218,606) that the NPE had begun asserting in West Texas. Earlier defendants Apple, AT&T, and Verizon (Cellco Partnership d/b/a Verizon Wireless) also filed their own Northern California complaints, after which VPLM filed additional West Texas cases against AT&T and Verizon (two against each).

Twitter’s litigation then took a somewhat unusual turn. As later recounted by the company in another complaint against VPLM, the NPE offered it $250K to dismiss its case in early December 2020—an offer that Twitter denied. Later that month, the district court denied VPLM’s motion to dismiss on grounds related to subject matter jurisdiction, personal jurisdiction, and venue. Yet Twitter argued in a subsequent motion for sanctions that although that order should have ended the case, VPLM continued to litigate for another eight months in what Twitter characterized as a “vexatious manner”. Among the conduct at issue was the NPE’s initial refusal to offer a covenant not to sue over the ‘606 patent, only to later offer such a covenant that did not encompass another gateway patent (9,935,872) and others at issue. Additionally, VPLM had offered a “piecemeal” settlement covering only that patent family, which as mentioned above had gutted by Section 101—an offer that Twitter rejected for not encompassing all of VPLM’s patents. The aforementioned covenant not to sue as to the ‘606 patent ended the case, though Twitter’s motion for sanctions remains pending.

Twitter’s Second DJ Action Prompts Another Jurisdictional Battle

The exclusion of the ‘872 patent from that earlier covenant prompted Twitter to file a second California DJ action over that patent in April 2021 (5:21-cv-02769). Two months later, VPLM filed another motion to dismiss for lack of subject matter jurisdiction, lack of personal jurisdiction, and improper venue. The NPE argued that the court lacked subject matter jurisdiction because no actual, immediate controversy exists as to the ‘872 patent, based on the facts that it had not attempted to assert that patent against Twitter or any other party; it had not sued Twitter in five years; that it had offered a covenant not to sue as to the related ‘606 patent; and that it had in fact offered a license to the ‘872 patent, albeit one that Twitter had rejected. The purported lack of enforcement activity in the Northern District, VPLM further alleged, also deprived the court of personal jurisdiction over it, while venue was improper against VPLM because it is not a California resident.

Judge Koh denied the motion in November 2021, disagreeing as to each point. With respect to subject matter jurisdiction, Judge Koh explained that under Federal Circuit precedent, “if the defendant previously has asserted patents against the plaintiff, the plaintiff typically may seek a declaration regarding related patents” (citing that court’s 2013 decision in Arkema Health v. Honeywell). Under that principle, Judge Koh determined that VPLM’s previous actions “aggressively” accusing Twitter of infringing the 8,542,815 and 9,179,005 patents—of which the ‘872 patent is a “direct descendent”—through the same products “strongly support Twitter’s claim that there is an active controversy regarding the ‘872 patent”. This was particularly the case, found Judge Koh, in light of a press release that VPLM issued after an adverse decision in a related appeal that it “undeterred in [its] fight to assert [its] intellectual property rights” and that it “remain[ed] firm in [its] resolve to achieve monetization for [its] shareholders”. Moreover, Judge Koh rejected VPLM’s counterargument that its prior Twitter suits were filed too long ago to be relevant, rejecting the underlying premise regarding timing as having no support in precedent—and in any event, noting that the last relevant appeal ended less than two years prior. Twitter’s claim was further “bolster[ed]”, Judge Koh continued, were VPLM’s suits asserting five other related patents against other defendants from 2018 onward.

Next, Judge Koh agreed with Twitter that the court had specific personal jurisdiction over VPLM because it had “purposefully directed” patent infringement actions into the district, specifically its prior suits against Twitter that it voluntarily transferred there; and because it had retained a law firm there for those activities. The court also determined that exercising such jurisdiction would be “reasonable and fair” based on the applicable five-factor Burger King test. Finally, Judge Koh quickly dispensed with VPLM’s venue challenge based on the general venue statute, which applies to declaratory judgment actions of noninfringement and establishes that venue is proper anywhere that a court has personal jurisdiction over the defendant.

The Federal Circuit Denies VPLM’s Mandamus Petition

As mentioned above, VPLM reacted to the dismissal order by taking two steps. First, it filed a second motion to dismiss that included a covenant not to sue over the ‘872 patent, conditioned on the court granting the motion, in an explicit attempt to “divest[] the Court of jurisdiction over Twitter’s claim of noninfringement”. Second, it filed a mandamus petition with the Federal Circuit seeking the reversal of the order denying its first motion to dismiss.

In that petition, VPLM doubled down on its assertion that there is no subject matter jurisdiction in the DJ action because it has never asserted the ‘872 patent against Twitter. The NPE also alleged that it has never directed any assertion activity into the district (ostensibly a reference to Judge Koh’s holding on personal jurisdiction) because it did not assert infringement counterclaims in an Apple DJ action involving the ‘872 patent and granted Apple a covenant not to sue on that patent—also citing the fact that it had not pursued counterclaims against Twitter over the related ‘606 patent in the earlier DJ action, and its rejected license offers to Twitter covering the ‘872 patent. VPLM argued that these circumstances were an “especially compelling basis” for mandamus review, and that such relief was justified based on the need to prevent companies accused of infringement from “serially file declaratory-judgment actions any time the patent owner files suit against another party on any of its patents”.

The Federal Circuit disagreed in its March 22 order denying VPLM’s petition, concluding instead that the NPE had not met the necessary threshold for mandamus relief. In particular, the appellate court found that VPLM had failed to show that Judge Koh “clearly and indisputably erred in denying its first motion to dismiss”. Rather, the court found that Judge Koh made a “reasonable determination” in finding that there had been an active controversy over the ‘872 patent based on litigation involving the “same patents and closely related patents”, and in further basing that conclusion on the statements from VPLM’s press release, the fact that it “continued to aggressively enforce its patents against other telecommunications and internet companies”, and that “at the time, [VPLM] declined to grant a covenant not to sue on the ‘872 patent”.

Also precluding mandamus relief, the Federal Circuit continued, was VPLM’s failure to show “that it had no other means to obtain dismissal of Twitter’s action other than by way of granting its mandamus petition” in the form of its pending second motion to dismiss, for which a hearing was upcoming. The appellate court found the NPE’s counterargument on that point unconvincing:

VoIP-Pal responds that it should not have to provide a covenant not to sue in order to secure dismissal of the action, and that if successful on its first motion to dismiss, the district court need not reach the second motion and the conditional covenant. But that problem is one of VoIP-Pal’s own making. VoIP-Pal is the one that decided to offer the covenant rather than wait to challenge the ruling on direct appeal following final judgment.

The hearing on VPLM’s second motion to dismiss has been scheduled for May 5, 2022.

In the meantime, also pending is a third DJ action that Twitter filed against VPLM in December 2021 (5:21-cv-09773), again in the Northern District of California, concerning another two gateway patents (8,630,234; 10,880,721). On February 11, the NPE filed a motion to dismiss, again seeking to terminate the case for lack of subject matter jurisdiction, lack of personal jurisdiction, and improper venue. That motion is currently being briefed as of the date of this report.

These jurisdictional disputes, the tug-of-war over venue, the aforementioned tussles over alleged litigation misconduct, and repeated Alice invalidations are not the only notable narratives in this campaign. A prior chapter further includes unusual activity before the Patent Trial and Appeal Board (PTAB) as well as early damages estimates vaulting into the billions. For instance, an earlier complaint filed against Apple provided a “royalty monetization analysis overview” in which a proposed 1.25% royalty rate, when applied to the accused iPhone, iPad, and Mac products, resulted in purported damages in the amount of $2.8B. A similar analysis attached to a concurrent complaint against both AT&T and Verizon laid out damage amounts just over $1.8B (from AT&T) and roughly $2.4B (from Verizon). More recent complaints do not contain damages estimates as ambitious as those attending the onset of this campaign.

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