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FTC REACHES SETTLEMENT WITH MPHJ

■ Nicholas J. Peterka

On November 6, the Federal Trade Commission and MPHJ Technology Investments LLC agreed to settle FTC charges alleging MPHJ used deceptive practices and phony legal threats. The settlement prevents MPHJ and its law firm, Farney Daniels, P.C., from making deceptive representations when asserting its patent rights, with further deceptive conduct bringing with it a penalty of up to $16,000 per misrepresentation.

The settlement comes on the heels of a September ruling by the U.S. District Court for the Eastern District of Texas to dismiss a suit filed by MPHJ against the FTC. The suit, which was filed in January 2014, was an attempt to stop the FTC’s investigation into MPHJ for allegedly sending deceptive demand letters to potential infringers.

The FTC is investigating deceptive representations from patent assertion

MPHJ owns at least five patents related to networked computer scanning programs, also known as “scan-to-email” programs, which it acquired in 2012. Since then, MPHJ has sent at least 16,000 demand letters to potential infringers, mostly small businesses, threatening litigation if the potential infringers did not sign license agreements and pay licensing fees. This caused several state attorneys general to investigate and file actions against MPHJ under their consumer protection laws, alleging that statements made by MPHJ in the demand letters were false.

The FTC, the agency tasked with investigating and policing unfair or deceptive acts or practices affecting interstate commerce, began its own investigation into MPHJ last year. The FTC alleged that the demand letters sent by MPHJ stated that MPHJ would take imminent patent infringement litigation against any potential infringer when MPHJ did not intend to take action and did not take such action. Further, the FTC alleged that MPHJ falsely represented that substantial numbers of businesses have responded to MPHJ’s demand letters by purchasing licenses when, at the time of at least some of the representations, MPHJ had not sold any licenses to potential infringers. As part of this investigation, the FTC sent MPHJ a draft complaint it intended to file if a settlement between the FTC and MPHJ was not reached, but the FTC had not initiated any legal action at the time MPHJ filed suit.

In its suit, MPHJ asserted that the FTC investigation was in violation of MPHJ’s First Amendment rights. The suit alleged that the FTC unlawfully interfered with MPHJ’s lawful, proper, and constitutionally protected efforts to identify and seek redress for infringement of its patents. MPHJ asserted that the FTC violated MPHJ’s First Amendment right to petition the government for redress under the Noerr-Pennington doctrine and its First Amendment right to free speech. In dismissing the case, District Judge Walter Smith found that MPHJ’s suit lacked subject matter jurisdiction and was an attempt by MPHJ to derail the not-yet-completed FTC administrative process.

This settlement is the first time the FTC has taken action under its consumer protection authority against an alleged “patent troll”.

 

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