MPHJ Technology became infamous by sending out thousands of letters demanding $1,000 per worker from small businesses using basic scan-to-e-mail functions. The company says it owns several patents that cover those basic functions and has sent out more than 10,000 letters demanding payment.

That behavior led MPHJ to be the first patent troll ever to be sued by the government. Vermont Attorney General Bill Sorrell filed a lawsuit against MPHJ in May of last year that accuses MPHJ of making misleading statements in its demand letters and doing "little, if any, due diligence to confirm that the targeted businesses were actually infringing its patents." In addition to targeting a variety of small businesses, MPHJ sent letters to two Vermont nonprofits that help disabled residents and their caregivers.

For the past year, MPHJ has pushed back, demanding that its case be heard in federal court and even suggesting that the Vermont AG should be sanctioned for going after it.

But a federal judge kicked the case back into state court and rejected MPHJ's invitation to sanction the state. MPHJ appealed all the way to the US Court of Appeals for the Federal Circuit, insisting that its case was closely related to the validity of its patents and that Vermont should be forced into federal court, where all patent cases are heard.

The final appeal didn't work. Yesterday a panel of Federal Circuit judges rejected MPHJ, saying it didn't have jurisdiction to overturn the federal judge's decision.

The Vermont case, where MPHJ has lost its venue battle, is one of three fronts where MPHJ is battling the government. In Nebraska, the patent company gained the upper hand when a judge agreed that its patent demand letters were constitutionally protected free speech. That state's attorney general, Jon Bruning, has appealed the decision. Finally, MPHJ took the stunning step of suing the FTC. In that case, the FTC's motion to dismiss (PDF) is fully briefed and awaiting a decision.

Vermont "dislikes these patent rights"

The patent troll's appeals brief (PDF) was written by its lawyer, Bryan Farney, and filed in May. In it, MPHJ makes an impassioned appeal to the Federal Circuit as a final defender of patent rights and called on the court to stop "the Vermont AG's plan to usurp federal patent law."

"The issue presented here goes to the heart of why this Court was created by Congress—to secure national uniformity in the application of the patent laws," writes Farney in the brief. "This Court has held among the rights provided by the patent laws are the rights to give notice of infringement, to threaten suit, and to seek licenses." He continues:

Vermont and its Attorney General dislike these patent rights and their associated constitutional protections, and now seek intentionally to evade them by the artifice of drafting a complaint in a way that they can argue does not allege federal patent law issues, including objective baselessness on the merits of validity or infringement. If the Vermont AG succeeds in this approach, it will be a catastrophe for the national uniformity of patent law, and for the nation’s patent owners.

Finally, Farney argued even the district court judge's decision to not sanction the state was an egregious error.

"[T]he District Court clearly abused its discretion in denying MPHJ’s Rule 11 Motion when he denied it on grounds that he had never in 18 years granted a Rule 11 motion because that is not 'the Vermont way,'" wrote MPHJ lawyers.

Now, MPHJ has lost this crucial jurisdictional battle. More than a year after initiating an unprecedented lawsuit, Sorrell and Vermont will get the chance to present their case in a Vermont courtroom. But they're forging new ground, legally, and it's far from a foregone conclusion that they'll win this case.

Still, in a year when Congress failed to pass an anti-patent-troll reform bill, Sorrell will have plenty of supporters. No patent assertion entity has done as much as the MPHJ to show that "patent trolls" are everyone's problem.