Activision TV: District Court Expresses Concern over Nebraska Attorney General's Cease and Desist Order and Grants Preliminary Injunction Precluding Enforcement

October 7, 2013

In the ongoing battle between Activision TV, Inc. ("Activision") and the Attorney General for the State of Nebraska, Activision filed a preliminary injunction motion seeking to bar the Attorney General from enforcing a cease and desist order entered against Activision's counsel. The district court had previously determined that the Attorney General could not preclude Activision's counsel from representing Activision in the current patent infringement action pending in federal court in Nebraska. The district court was now faced with the issue of whether the Attorney General could order counsel for Activision (Farney Daniels) to cease and desist initiation of all new patent infringement enforcement efforts in Nebraska.

In response to the motion, the Attorney General first argued that the district court lacked jurisdiction to determine the issue because the cease and desist order applies to Farney Daniels and not to Activision and, as a result, Farney Daniels lacked standing to raise these issues because it is not a party to the action pending before the district court.

After addressing issues of Article III standing under the Constitution, the district court rejected the Attorney General's position and found that Activision had standing. "Activision contends that it clearly has standing to raise this issue. The court agrees. Activision has suffered an injury in fact. Farney Daniels was ostensibly unable to represent Activision in this case until the court found the cease and desist order did not apply to this case. Second, the settlement negotiations between Activision and other defendants in this and other jurisdictions came to a standstill, as the other parties believed the cease and desist order prohibited them from negotiating with Farney Daniels on behalf of Activision. Third, Farney Daniels cannot pursue further investigations on behalf of Activision in the State of Nebraska. There is no doubt that this injury is causally related to the cease and desist order and such injury is directed at Activision's activities via counsel. A favorable decision by this court redresses the respective injuries. Accordingly, the court finds Activision has standing to raise these issues."

The district court next addressed the First Amendment implications of the actions of the Attorney General. "A cease and desist order has been considered an unconstitutional prior restraint on speech when it "prohibits future statements which, although possibly similar to prior statements, have not yet found to be false, misleading, and deceptive." Weaver v. Bonner, 309 F.3d 1312, 1323 (11th Cir. 2002) (noting that there is a "heavy presumption" against a cease and desist request's constitutional validity); see also Pestrak v. Ohio Elections Comn'n., 926 F.2d 573, 578 (6th Cir. 1991) (holding that "cease and desist orders are a forbidden prior restraint. . . . Prior restraint of speech is unconstitutional unless certain safeguards are present."), citing Southeastern Promotions, Ltd. v. Conrad, 420 U.S. 546, 550 (1975) ("Any system of prior restraint, however, 'comes to this court bearing a heavy presumption against its constitutional validity.'" And stating further that "The settled rule is that a system of prior restraint 'avoids constitutional infirmity only if it takes place under procedural safeguards designed to obviate the dangers of a censorship system.'") Id. at 558-59."

The district court acknowledged that the Attorney General "generally has the power to investigate activity that it believes violates state law. Neb. Rev. Stat. § 87-303.03 (1)(a) allows the Attorney General to conduct the investigation and § 87-303.03 (1)(b) allows the attorney general to issue a cease and desist order against any person engaged in violation of the Deceptive Trade Practices Act."

But here the district was "deeply concerned about the ability of the Attorney General to issue cease and desist orders, prior to the conclusion of the investigation, prior to any negative findings, prior to any hearings, and prior to permitting submission of documents and evidence by the Farney Daniels law firm. On the contrary, the Attorney General sent a request for information to Farney Daniels the same day it sent the cease and desist order, and gave Farney Daniels until August 18, 2013, to respond. Farney Daniels responded, and no further actions have been taken. The inability of Farney Daniels to submit such letters to businesses in Nebraska clearly infringes on the First Amendment rights of Activision to be represented by the counsel of their choice."

Accordingly, the district court, found the cease and desist order in this case to be akin to a prior restraint.

The district court found also that Activision is likely to win on the merits as there is no claim or evidence to date of bad faith. Further, as there is no claim of bad faith, federal law governing these patents, including sending initial letters to businesses believed to violate a patent owned by Activision, is preempted by the federal government. Also, Activision has a First Amendment right to associate with counsel of its choosing without interference from the state of Nebraska. In addition, the cease and desist order operates in this case as a prior restraint on Activision's speech and association rights. For these reasons, the court finds Activision is likely to win on the merits."

As a result, the district court granted the injunction "and defendants Bruning, Cookson and Lopez are enjoined from taking any steps to enforce the cease and desist order issued to Farney Daniels on July 18, 2013, in any manner that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of U.S. patents owned by Activision with respect to companies based in, or having operations in, Nebraska. If, however, at some point during the investigation evidence supports a claim of bad faith, the Attorney General is free to revisit this preliminary injunction with the court."


Activision TV, Inc. v. Pinnacle Bancorp, Inc., Case No. 8:13CV215 (D. Neb. Sept. 30, 2013)

The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.