Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Patent assertion entity settles FTC charges of deceptive tactics claims, (Nov 6, 2014)

By Linda O’Brien, J.D., LL.M.

A patent assertion entity and its law firm have agreed to settle FTC charges that they used deceptive sales claims and phony legal threats in letters that accused thousands of small businesses around the United States of patent infringement, the FTC announced today. The settlement would bar the company, MPHJ Technology Investments, LLC, and its law firm from making deceptive representations when asserting patent rights.

The proposed settlement with MPHJ is the first action that the FTC has filed using its consumer protection authority against a patent assertion entity (PAE). PAEs are companies that obtain patent rights and try to generate revenue by licensing to or litigating against those who are or may be using patented technology.

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 on the firm’s letterhead that were sent 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. The letters also referenced a two-week deadline and attached a purported complaint for patent infringement, usually drafted for filing in the federal court closest to the small business receiving 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.

In the proposed consent order, 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.

“Patents can promote innovation, but a patent is not a license to engage in deception,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Small businesses and other consumers have the right to expect truthful communications from those who market patent rights.”

Lesley Fair, Senior Attorney of the FTC’s Bureau of Consumer Protection stated “Patent assertion entities have been the subject of much debate in antitrust and intellectual property circles. But there’s one proposition we hope that parties on all sides of the issue can agree on: It’s illegal to falsely threaten patent suits against small businesses or make unfounded claims that other companies have paid for patent licenses.”

The FTC will publish a description of the consent agreement package in the Federal Register shortly. The proposed consent order will be subject to public comment through December 8, 2014. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation to Comment” part of the “Supplementary Information” section of the Federal Register notice.

The Commission vote to accept the proposed consent order was 5-0.

Companies: MPHJ Technology Investments, LLC

News: ConsumerProtection FederalTradeCommissionNews