FTC Takes First Action Against Patent Trolls For Deceptive Sales, Phony Legal Threats

For the first time in its history, the Federal Trade Commission has brought action against a patent assertion company that allegedly used nefarious tactics in trying to pry money from other companies accused of violating patents it owned.

The FTC announced Thursday that MPHJ Technology Investments, LLC, and its law firm, Farney Daniels agreed to settle charges that they used deceptive sales claims and phony legal threats in letters that accused thousands of small businesses of patent infringement.

Under the consent order, MPHJ, its subsidiaries and Farney Daniels, 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.

Should any of the companies or individuals named by the FTC be found to be involved in future misconduct of the same nature, they must pay up to $16,000 per letter.

The settlement with MPHJ is the first time the FTC has taken action using its consumer protection authority against a patent assertion entity (PAE). The companies are known for obtaining patent rights and trying to generate revenue by licensing to or bringing litigation against businesses that are or may be using the patented technology.

According to the FTC complaint, from September 2012 to June 2013 MPHJ Technology Investments sent more than 9,000 letters to thousands of small businesses warning that they were likely infringing on MPHJ’s patents relating to network computer scanning technology.

The letters sent by MPHJ and its subsidiaries allegedly include false representations that many companies had already agreed to pay thousands of dollars for licenses.

Additionally, the FTC complaint alleges that the company’s law firm, Farney Daniels, authorized the issuance of letters on the firm’s letterhead that were sent to 4,800 small businesses.

Those 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 FTC complaint alleges, 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.

FTC Settlement Bars Patent Assertion Entity From Using Deceptive Tactics [FTC]