'Patent Troll' Sues FTC During Hectic Week of Litigation

, The National Law Journal

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NYS Attorney General Eric Schneiderman
NYS Attorney General Eric Schneiderman

MPHJ Technology Investments, which has been aggressively attempting to enforce a patent on networked scanning technology, has sued the Federal Trade Commission over what it called unconstitutional threats about its enforcement tactics.

Meanwhile, MPHJ marked a number of milestones in a busy litigation portfolio. On Tuesday, New York Attorney General Eric Schneiderman announced a settlement concerning the outfit’s patent enforcement activities. And MPHJ scored at least a temporary victory in Nebraska, where a federal judge imposed a preliminary injunction against Attorney General Jon Bruning’s attempt to block patent enforcement efforts by MPHJ’s law firm, Farney Daniels of Georgetown, Texas.

MPHJ filed suit in the Western District of Texas on Monday claiming the FTC threatened an unfair trade practice case against it and the law firm. An FTC draft lawsuit accuses them of threatening—but never intending—to sue thousands of companies that use the scanning technology at issue.

Its critics decry MPHJ as a “patent troll”—an entity formed solely to enforce claimed intellectual property rights. But the company claims the FTC violated the First Amendment and the constitution’s separation-of-powers doctrine. It also claims the FTC has interfered with its right to choose its counsel and lacks jurisdiction over either party’s actions.

In an emailed statement, an MPHJ spokesman said the FTC’s case seems to be based on “its remarkable and new contention” that the company had not promptly followed a threat with a suit.

“Congress has specifically prohibited the FTC from having authority in circumstances like these, and the courts have also ruled that the FTC cannot regulate the conduct it accuses here,” the spokesman said.

FTC spokesman Peter Kaplan confirmed the existence of an investigation of MPHJ but declined to elaborate.

In New York, Schneiderman announced a settlement requiring MPHJ to grant licensees who received deceptive letters a full refund upon request, and bars MPHJ from contacting certain companies. Before sending any notices to new alleged infringers, MPHJ must make a serious attempt to figure out whether they’re actually infringing; explain the infringement claim and the proposed licensing fee; and reveal the patent holder’s true identity.

“[T]he guidelines established in today’s settlement will put an end to some of the most abusive tactics by placing the industry on notice that these deceptive practices will not be tolerated in New York,” Schneiderman stated.

MPHJ called the guidelines reasonable and the agreement “an acceptable resolution of the issue.”

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