FTC Settlement Bars Firm From Deceptive Use of Patent Demand Letters

The FTC said its members unanimously agreed to a settlement with patent assertion entity MPHJ Technology Investments that will prohibit the PAE and the Farney Daniels law firm from sending out deceptive patent demand letters to small businesses or other entities the PAE claims have violated its patents. The FTC said Thursday the settlement is its first action against a PAE using its consumer protection authority. MPHJ’s patent portfolio includes multiple patents on scanning documents for attachment to emails. The FTC said it had been investigating whether MPHJ’s sending of more than 9,000 demand letters between September 2012 and June 2013 to small businesses constituted “deceptive sales claims and phony legal threats.” That investigation determined that “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.” MPHJ counter-sued the FTC in January (see 1401160076), but that suit was dismissed. MPHJ, Farney Daniels and MPHJ owner Jay Mac Rust agreed not to make deceptive representations when asserting MPHJ’s patent rights and not to misrepresent the likelihood and timeline of possible patent infringement lawsuits in demand letters. Violation of the settlement will result in a $16,000 fine per letter, the FTC said in a consent order adopting the settlement. MPHJ and Farney Daniels said in a joint statement that they “strongly maintain their position that the enforcement letters that were sent were accurate, required by law, and protected by the First Amendment.” Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., praised the FTC in a statement, but said “this action alone with not stop abuse of the patent system.” The Patent Transparency and Improvements Act (S-1720) included a demand letter provision that “would have empowered the FTC to seek meaningful monetary penalties from bad actors, which is an important deterrent for misconduct,” Leahy said in his statement. Leahy scuttled the Judiciary Committee’s consideration of S-1720 in May (see 1405230056), which CEA President Gary Shapiro (see 1411050022) and others have blamed on direct pressure from Senate Majority Leader Harry Reid, D-Nev. Shapiro in a statement Thursday hailed the FTC "for focusing on the deception and harm caused by patent trolls," describing them as "extortionists that bleed $80 billion a year from the U.S. economy and who engage in fraudulent conduct." Slapping patent abusers with stiff financial penalties and having them make whole the businesses they deceived "is a step in the right direction," he said. "More important will be the swift passage of patent litigation reform in the next Congress, which will help drive trolls back under the bridge and ensure that our patent system is used to promote -- not suppress -- innovation to create jobs and grow our economy.”