FTC settlement bars patent assertion entity from using deceptive tactics

By Gabriele Accardo

On 6 November 2014, the Federal Trade Commission communicated that MPHJ Technology Investments (“MPHJ”) and its law firm have agreed to settle Federal Trade Commission 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 settlement would bar MPHJ and its law firm from making deceptive representations when asserting patent rights.

The settlement with MPHJ is the first time the FTC has taken action using its consumer protection authority against a patent assertion entity (“PAE”), which is a company 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 administrative complaint 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. In several thousand letters sent under the names of numerous MPHJ subsidiaries, MPHJ appears to have falsely represented that many other companies had already agreed to pay thousands of dollars for licenses.

MPHJ’s law firm authorized letters on the firm’s letterhead that were sent to more than 4,800 small businesses, warning them 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 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.

The Commission vote to accept the proposed consent order was 5-0. The proposed consent order will be subject to public comment through early December 2014, after which the Commission will decide whether to make the proposed consent order final.