Anyone who has ever received an intimidating letter from an attorney is familiar with the rush of adrenaline that often comes along with it. Thousands of small business owners across America experienced just that when they received letters from MPHJ Technology Investments, a patent assertion entity (PAE), claiming that their companies were infringing on MPHJ’s patents, and that a lawsuit would be imminent if they did not respond within two weeks. Beginning around September 2012, and continuing into the summer of 2013, letters on various MPHJ subsidiaries’ stationery went out—often followed by additional letters from Farney Daniels, MPHJ’s law firm—containing threats of imminent litigation and claims that other companies had already agreed to license the technology company’s patented technologies for thousands of dollars. When it became known that these written representations were unsubstantiated, the Federal Trade Commission stepped in to try to put an end to it and filed an administrative complaint against MPHJ this past November. (This was the first time that the FTC employed its consumer protection arm against an alleged “patent troll.”)
In a press release announcing a settlement of the MPHJ case, Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, recognized the role that patents play in promoting innovation, but explicitly warned that intellectual property ownership is “not a license to engage in deception[…]Small businesses and other consumers have the right to expect truthful communications from those who market patent rights.” The settlement included a consent order (summarized in the Federal Register), which—among compliance and reporting provisions—demanded that MPHJ refrain from the deceptive correspondence behaviors that they were found to have been practicing. Any violation of the terms of this consent agreement could cost the PAE as much as $16,000 per letter. Even these terms, however, did not impress some authorities; Vermont Attorney General William Sorrell, who sued MPHJ on behalf of small businesses in his state, was underwhelmed by the settlement, since it did not involve actual admission of wrongdoing or guilt or any agreement to pay penalties on MPHJ’s part. A similar case against the non-practicing entity was settled in New York in January 2014, and resulted in far more severe consequences for the company, including having to reimburse a significant amount of the money it had collected from small businesses owners whom they had allegedly coerced into paying unnecessary licensing fees.
In a press release announcing a settlement of the MPHJ case, Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, recognized the role that patents play in promoting innovation, but explicitly warned that intellectual property ownership is “not a license to engage in deception[…]Small businesses and other consumers have the right to expect truthful communications from those who market patent rights.” The settlement included a consent order (summarized in the Federal Register), which—among compliance and reporting provisions—demanded that MPHJ refrain from the deceptive correspondence behaviors that they were found to have been practicing. Any violation of the terms of this consent agreement could cost the PAE as much as $16,000 per letter. Even these terms, however, did not impress some authorities; Vermont Attorney General William Sorrell, who sued MPHJ on behalf of small businesses in his state, was underwhelmed by the settlement, since it did not involve actual admission of wrongdoing or guilt or any agreement to pay penalties on MPHJ’s part. A similar case against the non-practicing entity was settled in New York in January 2014, and resulted in far more severe consequences for the company, including having to reimburse a significant amount of the money it had collected from small businesses owners whom they had allegedly coerced into paying unnecessary licensing fees.