Technology

Patent Troll Made ‘Phony Legal Threats’

MPHJ Technology settled with the FTC for sending letters to more than 16,000 companies, claiming they had violated a patent for network scanning te...
Matthew HellerNovember 7, 2014
Patent Troll Made ‘Phony Legal Threats’

In the first consumer-protection case of its kind, so-called patent troll MPHJ Technology Investments has settled U.S. Federal Trade Commission allegations that it made “deceptive sales claims and phony legal threats” in letters accusing small businesses of patent infringement.

The settlement was announced Thursday, less than two months after MPHJ lost its court challenge to the FTC’s investigation of letters it sent to more than 16,000 companies claiming they had probably violated patents involving network computer scanning technology.

MPHJ threatened the companies with legal action if they did not purchase a patent license for $1,000 to $2,000 per employee, even though, according to the FTC, it had “no intention — and did not make preparations — to initiate lawsuits against the small businesses that did not respond” to its letters.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

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

The case was the first in which the FTC has taken action using its consumer protection authority against a patent assertion entity, or patent “troll.” The settlement bars MPHJ and Farney Daniels, the law firm it hired to help with its enforcement campaign, from making deceptive representations when asserting patent rights. Any violation may result in a civil penalty of up to $16,000.

The FTC said in an administrative complaint that MPHJ and its sole executive, Texas lawyer Jay Mac Rust, began a nationwide campaign in September 2012 to sell licenses to patents it had acquired from another patent troll. Through May 2013, the complaint says, it sent initial letters to about 16,645 businesses. Most of those businesses then received additional letters on Farney Daniels’ letterhead.

MPHJ filed a preemptive suit against the FTC in January, alleging the agency’s investigation interfered with its constitutional right to assert its patents. But a Texas judge dismissed the case in September.

4 Powerful Communication Strategies for Your Next Board Meeting