Richard Raysman is a Partner in our New York office and Derrick Hibbard an Associate in our West Palm Beach office
On November 6, 2014, the Federal Trade Commission (FTC) issued a press release regarding a proposed settlement that would bar the company, MPHJ Technology Investments, LLC (MPHJ), from making deceptive representations when asserting patent rights.
According to the press release, the FTC issues an administrative complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the FTC that a proceeding is in the public interest. When the FTC issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000. In this administrative complaint, the FTC alleged that MPHJ bought patents relating to network computer scanning technology, and then sent letters to thousands of small businesses under the names of numerous MPHJ subsidiaries to inform the businesses that they were likely infringing its patents, and should purchase a license. MPHJ claimed to have patents that cover any networked "scan-to-email" function, thereby justifying the letters to likely infringers. The complaint further alleges that MPHJ falsely represented that many other companies had already agreed to pay thousands of dollars for licenses.
The FTC's principal allegation was that MPHJ threatened to file infringement litigation against the recipients of the letters, but then failed to do so. MPHJ, however, strongly maintains that it did intend to bring suit against the infringing business, but because of intervening patent reviews, it had refrained from doing so.
Under the proposed settlement agreement, MPHJ will continue to have the right to enforce its patents by contacting companies suspected of infringement, and there is no restriction impairing MPHJ's right to enforce its patents. The agreement includes MPHJ's commitment that letters sent by the company and its counsel will continue to be accurate, and requires no material revisions to the company's letters. In order to aid public comment, the FTC issued an Analysis of the Proposed Consent Order, which can be found here. The proposed settlement will be subject to public comment for 30 days, beginning November 6, 2014, and continuing through December 8, 2014, after which the FTC will decide whether to make the proposed consent order final.
"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."
The case marks the first time that the FTC has used its consumer protection authority against a patent assertion entity. Patent assertion entities are more commonly referred to as a "patent troll," a derogatory term for companies that engage in no business activities aside from suing over patents. This case follows the announcement last year that the FTC had initiated a sweeping investigation into the industry. It stands to be seen if the FTC will continue its investigation, and whether further actions will result in an effort to curb the trolling practice in the industry at large.
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