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Consent Order Settles FTC Complaint Against Patent Assertion Entity

On Nov. 6, 2014, the Federal Trade Commission announced that it has brought an enforcement action against a patent assertion entity seeking to license its patent rights for the first time in its history.1  MPHJ Technology Investments, LLC, and Farney Daniels L.P., the law firm representing it, have agreed to settle a complaint brought by the FTC that they made deceptive representations in threat letters purporting to enforce MPHJ’s patent rights.

According to the FTC’s administrative complaint,2  in September 2012, MPHJ purchased four patents directed to networked scanning systems whereby computer systems are capable of transmitting electronic images, graphics and/or documents over a network from a scanner or copier to external devices, files, and applications. Then, between September 2012 and June 2013, MPHJ, via a network of subsidiaries, began a multi-stage campaign to extract patent licenses from thousands of small businesses through a series of threat or demand letters, alleging that the recipients were likely infringing on its patents by using common office equipment. At later stages in the campaign, the letters were sent on Farney Daniels letterhead and signed by Farney Daniels attorneys. MPHJ’s and Farney Daniels’ letters contained various representations that the FTC alleged were false and misleading. For instance, according to the complaint, despite sending over 9,000 letters in the first stage of its campaign representing that “many companies” had taken a license to MPHJ’s patents, in reality, MPHJ sent its first 7,366 letters without having sold a single license, and by February 2013, only two small businesses contacted by MPHJ had opted to license its patents. In the last stage of MPHJ’s campaign, Farney Daniels’ attorneys represented that “litigation [would] ensue” against companies that did not respond within two weeks from the date of the threat letter, while in reality, MPHJ and its attorneys “were not prepared to initiate and did not intend to initiate such legal action imminently.” According to the FTC, these representations constituted deceptive acts or practices in violation of Section 5 of the FTC Act.

In a consent order settling the FTC’s complaint,3  MPHJ and Farney Daniels agreed to refrain from making misleading, unsubstantiated representations about the existence or price of any licenses to MPHJ’s patents, the results of any licensing, settlement, or litigation activities, or that MPHJ has initiated a lawsuit or will imminently initiate a lawsuit if a license is not taken. The consent order also imposes certain recordkeeping and reporting requirements on MPHJ and Farney Daniels with respect to future demand letters. MPHJ’s principal, Jay Mac Rust, was named individually as well as in his capacity as an officer of MPHJ, in both the complaint and consent order. The FTC voted unanimously to accept the proposed order, which will be published in the Federal Register for public comment. If made final, the consent order will carry the force of law with respect to future actions and could impose a civil penalty of up to $16,000 for each violation.

The FTC’s enforcement action is the latest in a line of legal proceedings brought by and against MPHJ. The State of Vermont has brought suit against MPHJ for violation of Vermont consumer protection laws; that litigation is proceeding in state court despite MPHJ’s attempts to remove the case to Federal court.4  And, in Minnesota, MPHJ entered into a settlement agreement requiring it to give the attorney general’s office 60 days’ notice and obtain its consent before sending demand letters to Minnesota businesses.5  However, in Nebraska, the state’s attorney general was preliminarily enjoined from enforcing a cease-and-desist letter directed to Farney Daniels, demanding that it refrain from initiating new patent infringement efforts;6  that injunction is now on appeal.

MPHJ has maintained that its letters were not misleading and protected by the First Amendment, and that lawsuits were not filed because its patents were the subject of challenges at the U.S. Patent and Trademark Office. And, of course, FTC action with respect to lawsuits that were threatened but never instituted does not necessarily foreshadow any similar action with respect to even facially meritless lawsuits that have been actually filed. So while consumer and business advocates may herald the FTC’s willingness to bring enforcement actions in the most egregious of circumstances, it remains to be seen whether the MPHJ settlement and the threat of future enforcement will seriously impact the litigation and licensing activities of most patent assertion entities.


 1 Press Release, Fed. Trade Comm’n, FTC Settlement Bars Patent Assertion Entity From Using Deceptive Tactics (Nov. 6, 2014), available at http://www.ftc.gov/news-events/press-releases/2014/11/ftc-settlement-bar...

 2 http://www.ftc.gov/system/files/documents/cases/141106mphjcmpt.pdf (Nov. 6, 2014). 

 3 http://www.ftc.gov/system/files/documents/cases/141106mphjagree.pdf (Nov. 6, 2014). 

 4 See Vermont v. MPHJ Tech. Investments, LLC, 763 F.3d 1350 (Fed. Cir. Aug. 11, 2014). 

 5 See Press Release, Office of Minnesota Attorney General, Attorney General Lori Swanson Announces First-in-the-Nation Order to Stop Delaware Company from “Patent Trolling” in Minnesota (Aug. 20, 2013), archival copy available at http://www.law.berkeley.edu/files/Panel_17b_Documents.pdf. 

 6 See Activision TV, Inc. v. Pinnacle Bancorp., Inc., 2014 WL 197808 (D. Neb. Jan. 14, 2014). 

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume IV, Number 323
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About this Author

Scott Bornstein, Greenberg Traurig Law Firm, New York, Intellectual Property and Litigation Attorney
Shareholder

Scott J. Bornstein is is a lawyer firm's Global Intellectual Property & Technology Practice, Co-Chair of the firm's Global Patent Litigation Group, and serves on the firm's Executive Committee. Scott has extensive patent trial experience and has served as lead counsel in more than 100 patent litigations. He has broad experience in patent, trademark and copyright litigation, licensing and general IP counseling for a wide variety of national and international clients. Scott also has wide-ranging experience working with clients to develop comprehensive prosecution and...

212-801-2172
Mary-Olga Lovett, Greenberg Traurig Law Firm, Houston, New York, Healhcare, Intellectual Property Litigation Attorney
Texas Co-Regional Operating Shareholder; Houston Co-Managing Shareholder

Mary-Olga Lovett is the Co-Regional Operating Shareholder of Greenberg Traurig’s Texas offices and is a member of the firm’s Executive Committee. Ms. Lovett concentrates her practice in intellectual property, commercial and complex litigation. In 2016, she was named one of the Top 100 Lawyers in Texas, one of the Top 50 Women Lawyers in Texas by Super Lawyers Magazine/Texas Monthly and one of the Top 100 Lawyers in Houston. Ms. Lovett has served as national trial counsel for five companies on a variety of commercial and liability claims and has tried...

713-374-3541
Justin Maclean, Greenberg Traurig Law Firm, New York, Intellectual Property Litigation Attorney
Shareholder

Justin A. MacLean is a shareholder in the Intellectual Property & Technology Practice of the firm's New York office. His areas of concentration include patent, trademark, copyright and trade secret litigation. Justin has been involved in all stages of litigation from pre-litigation diligence and enforcement and preliminary injunction proceedings through discovery (including electronic discovery), summary judgment, trial, and appeal as well as in inter partes review proceedings before the Patent Trial and Appeal Board. Justin has represented companies across...

212-801-3137
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