WASHINGTON (Legal Newsline) – The Federal Trade Commission has finalized a settlement with the so-called “scanner troll,” MPHJ Technology Investments LLC, and the company’s law firm over charges that they used deceptive sales claims and phony legal tactics in demand letters accusing thousands of businesses of patent infringement.
Texas-based MPHJ and its law firm, Farney Daniels P.C., reached an agreement with the FTC in November. However, the commission had to seek public comment on the proposed consent order before the settlement could receive final approval.
MPHJ has been accused of demanding businesses pay $1,000 per worker for using a process of scanning and emailing an electronic document.
Under the FTC’s final order, announced earlier this week, MPHJ, Farney Daniels and MPHJ owner Jay Mac Rust are prohibited from making “false or unsubstantiated” representations that a patent has been licensed in substantial numbers or has been licensed at particular prices when asserting their patent rights.
The order also prohibits misrepresentations that a lawsuit will be initiated and about the imminence of such a lawsuit.
The commission vote approving the final order was 5-0.
The settlement with MPHJ marks the first time the FTC has taken action using its consumer protection authority against a non-practicing entity.
Generally speaking, a non-practicing entity, patent assertion entity or patent monetization entity purchases groups of patents without an intent to market or develop a product.
In some cases, but not all, the entity then targets other businesses with lawsuits alleging infringement of the patents it bought. Often, these are referred to as “patent trolls.”
“Patents can promote innovation, but a patent is not a license to engage in deception,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in November.
“Small businesses and other consumers have the right to expect truthful communications from those who market patent rights.”
MPHJ said in November that under the agreement it continues to have the right to enforce its patents by contacting companies suspected of infringement, and “there is no restriction impairing MPHJ’s right to enforce its patents.”
“The agreement includes MPHJ’s commitment that letters sent by the company and its counsel will continue to be accurate, and requires no material revisions to the company’s letters,” the company said.
MPHJ has said the commission’s principal allegation was that it and its counsel indicated they would file infringement litigation against recipients of the letters, but then failed to do so.
“The company strongly maintains it did intend to bring suit, but refrained from doing so because of intervening patent reviews challenging certain MPHJ patents,” the company explained. “The FTC was unwilling to accept that rationale as a reasonable basis for not bringing suit.
“MPHJ and its counsel strongly maintain their position that the enforcement letters that were sent were accurate, required by law, and protected by the First Amendment.”
MPHJ owns a number of patents on certain networking system technologies, and has said it will seek to enforce those patents through licensing agreements and, when necessary, litigation.
From Legal Newsline: Reach Jessica Karmasek by email at [email protected].
