Antitrust Law Daily Wrap Up, CONSUMER PROTECTION: FTC’s proposed settlement with PAE would encourage abuse by “trolls,” app developers say, (Dec 9, 2014)

By Lynn Stanton,TR Daily

The FTC’s failure to include sanctions in its proposed settlement with patent-assertion entity (PAE) MPHJ Technology Investments, LLC—over alleged “deceptive sales claims and phony legal threats” in patent demand letters— “encourage rather than discourages subsequent malfeasance by patent trolls,” according to the Application Developers Alliance.

According to the FTC’s complaint (In re MPHJ Technology Investments, LLC, File No.142-3003), MPHJ bought patents relating to network computer scanning technology, and then told thousands of small businesses that they were likely infringing the patents and should purchase a license to settle without court action. In more than 9,000 letters sent under the names of numerous MPHJ subsidiaries, the complaint alleged, MPHJ falsely represented that many other companies had already agreed to pay thousands of dollars for licenses. The complaint also alleged that MPHJ’s law firm, Farney Daniels, P.C., authorized letters to more than 4,800 small businesses. These letters warned that the firm would file a patent infringement lawsuit against the recipient if it did not respond to the letter. In reality, the complaint alleged, the senders had no intention—and did not make preparations—to initiate lawsuits against the small businesses that did not respond to their letters. No such lawsuits were ever filed.

Under the proposed consent order announced by the FTC on November 6, MPHJ, Farney Daniels and MPHJ’s owner, Jay Mac Rust, agreed to refrain from making certain deceptive representations when asserting patent rights, such as false or unsubstantiated representations that a patent has been licensed in substantial numbers or has been licensed at particular prices. The proposed order also would prohibit misrepresentations that a lawsuit will be initiated and about the imminence of such a lawsuit.

In comments filed on the FTC’s proposed settlement yesterday, the ADA said, “The FTC has the authority to punish MPHJ, but the consent decree signals that the FTC’s enforcement powers are essentially toothless, thereby encouraging similar abuses by patent trolls.”

ADA also criticized the proposed settlement for being “vague,” “overbroad,” and failing “to clearly identify and establish conduct that will subsequently be interpreted as per se abusive.” The settlement would allow MPHJ, which is “neither a manufacturer or service provider,” to continue in business as a PAE and would not require it “to abandon or lose the right to assert the patent in question,” ADA added.

The proposed settlement also “fails to provide redress to make whole those individuals and corporations that received MPHJ’s abusive demand communications and took actions—at substantial cost of time and monetary resources—to assess those claims or respond to those claims,” ADA said.

The proposed settlement amounts to a “slap on the wrist” and is “further evidence that comprehensive patent legislation with teeth—including demand letter provisions—should be near the top of Congress's agenda,” ADA President Jon Potter said in a statement.

Companies: MPHJ Technology Investments, LLC

News: ConsumerProtection FederalTradeCommissionNews