WASHINGTON (11/7/14)--A company accused of using deceptive sales claims and phony legal threats in letters accusing small businesses of patent infringement has agreed to settle Federal Trade Commission (FTC) charges. According to the FTC, the settlement bars MPHJ Technology Investments LLC and its law firm from making deceptive representations when asserting patent rights.
The settlement marks the first time the FTC has taken action allowed under its consumer protection authority against a patent assertion entity, often called "patent trolls." Companies that obtain patent rights and try to generate revenue by licensing to or litigating against those who are or may be using patented technology are considered to be patent trolls.
"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."
According to the FTC's administrative complaint, MPHJ bought patents relating to network computer scanning technology, then told thousands of small businesses that they were likely infringing the patents and should purchase a license.
More than 9,000 letters were sent under the names of numerous MPHJ subsidiaries, the complaint alleges, and MPHJ falsely represented that many other companies had already agreed to pay thousands of dollars for licenses.
The FTC also alleges that MPHJ's law firm, Farney Daniels P.C. authorized letters on the firm's letterhead that were sent to more than 4,800 small businesses. These letters warned that the firm would file a patent infringement lawsuit against the recipient if it did not respond to the letter, referenced a two-week deadline and attached a purported complaint for patent infringement.
In reality, the senders had no intention, and did not make preparations, to initiate lawsuits against the small businesses that did not respond to their letters, according to the complaint.
The Credit Union National Association has been heavily involved in supporting meaningful patent reform. CUNA has testified and written to lawmakers urging patent reform throughout this year, as well as participating in a White House gathering in April on patent law reform.
CUNA signed a joint letter in May urging the chair and ranking member of the House subcommittee on commerce, manufacturing and trade to "find a bipartisan solution on patent assertion entity demand letters" and to "send a signal to small businesses everywhere that Congress is ready to enact reforms that shield business owners from frivolous litigation letters."
A description of the FTC consent agreement package will be published in the Federal Register shortly. The proposed consent order will be subject to public comment through Dec. 8, after which the commission will decide whether to make the proposed consent order final.