Antitrust Law Daily Wrap Up, AGENCY NEWS: Patent assertion entity MPHJ Technology takes aim at FTC following mounting settlements with state attorneys general, (Jan 16, 2014)

By Cheryl Beise, J.D.

Patent assertion entity MPHJ Technology Investments, LLC, on behalf of itself and its subsidiaries, has filed a lawsuit seeking to enjoin the FTC from taking enforcement action under Section 5 of the FTC Act. The complaint alleges that the FTC’s enforcement actions against owners of valid patents seeking legal redress of their rights are outside the scope of FTC authority and violate the U.S. Constitution, and federal law. The complaint in MPHJ Technology Investments, LLC v. FTC was filed January 13 in the federal district court in Waco, Texas.

MPHJ claims that it initiated the action to halt “the unlawful interference and threats by the FTC against MPHJ and its counsel directed at stopping or impeding the lawful, proper, and constitutionally protected efforts by MPHJ to identify and seek redress for infringement of its US patents.”

According to the complaint, in July 2013, the FTC served a subpoena on MPHJ and its counsel, seeking certain information regarding MPHJ’s patent-related correspondence and enforcement activity. On December 17, the FTC provided a draft complaint the agency said it intended to file against MPHJ, its owner and managing member, MPHJ’s counsel, Farney Daniels, PC, and the managing shareholder of Farney Daniels. The FTC also provided a draft Consent Judgment.

The FTC’s action is principally based upon the FTC’s contention that MPHJ and its counsel have committed an unfair trade practice under Section 5 of the FTC Act by sending allegedly false or bad faith communications to thousands of medium and small businesses across the nation in an attempt to strong arm them into paying unwarranted patent license fees under threat of a lawsuit that MPHJ never intends to file.

MPHJ’s patent portfolio consists of five patents relating to networked scanning systems. MPHJ acquired the patents in 2012 from a Virginia limited liability company, which had obtained them via an assignment from the patents’ inventor Laurence Klein. MPHJ which concluded thousands of businesses in the U.S. infringed the Klein Patents through the operating of their networked scanning systems and that there was no single manufacturer, or small group of manufacturers, that would have liability under the Klein Patents for supplying the infringing components of accused networked scanning systems.

Communications related to patent rights are protected by the First Amendment unless they can be shown to be, in their essential message, objectively and subjectively baseless. MPHJ claims that its patents are valid and its enforcement efforts and communications are not baseless.

The complaint alleges that the FTC is interfering with MPHJ’s First Amendment right to enforce its patents and to select counsel of its choosing. In addition, because the FTC is interfering with the efforts of MPHJ, its licensees, and counsel to satisfy the pre-suit investigation requirement imposed by Fed. R. Civ. P. 11, the FTC is in violation of the separation of powers and is unconstitutionally encroaching on the authority of the federal courts.

The complaint seeks a declaration that the FTC lacks authority and jurisdiction to regulate or bring claims under Section 5 of the FTC Act and that the FTC has acted unlawfully and outside the scope of authority and violated MPHJ’s rights. It also seeks an award of attorney’s fees pursuant to the Equal Access to Justice Act.

State Attorneys General Actions against MPHJ

MPHJ’s suit against the FTC comes as the company continues battling lawsuits and enforcement actions brought state attorneys general.

Earlier this week, New York Attorney General Eric T. Schneiderman announced that his Office and MPHJ had reached a settlement of deceptive business practices claims. The investigation focused on MPHJ’s alleged use of deceptive and abusive tactics when it contacted hundreds of small and medium-sized New York businesses in an effort to strong-arm them into paying MPHJ for patent licenses of dubious value. The settlement resolves the OAG’s investigation into MPHJ’s conduct and imposes requirements on MPHJ when communicating with New York businesses in the future.

In August, Minnesota Attorney General Lori Swanson announced that her state had reached a similar settlement with MPHJ. William H. Sorrell

A lawsuit filed last June by Vermont Attorney General Bill Sorrell against MPHJ is moving forward in the federal district court in Burlington. Last May, the Governor Peter Shumlin signed a new law (Chapter 120 of 9 V.S.A.) prohibiting the bad faith assertion of patent infringement. The law, which took effect in July, sets minimal requirements for patent demand letters, provides a private right of action, and allows for enforcement by the Vermont Attorney General.

MPHJ, however, won a decisive victory earlier this week in its battle with Nebraska Attorney General Jon Bruning. As reported in IP Law Daily today, the federal district court in Omaha, Nebraska has issued a preliminary injunction prohibiting Bruning’s Office from enforcing a cease and desist order it issued against the MPHJ’s litigation counsel, the Texas law firm of Farney Daniels, PC. The court held that the Nebraska AG’s Office failed to show that MPJH or its counsel had acted in bad faith against any Nebraska businesses and, consequently, MPHJ was likely to succeed on its claims that the Attorney General’s order violated MPHJ’s constitutional rights to free speech and due process.

The case is No. 6:14-cv-11.

Attorneys: Steven R. Daniels (Farney Daniels PC) for MPHJ Technology Investments, LLC.

Companies: MPHJ Technology Investments, LLC.

News: ConsumerProtection FederalTradeCommissionNews