For the many small businesses harassed by suspect claims of patent infringement, a recent settlement shows signs for a positive development. For the first time, the Federal Trade Commission (FTC) has used its consumer protection authority against a so-called non-practicing entity, commonly referred to as a patent troll.
Patent trolls often target small businesses that use off-the-shelf technology such as printers, scanners and wireless networks and typically send letters asserting that the business may be infringing upon a patent owned by the patent troll. Oftentimes, the patent troll lacks any direct evidence of the business’s use of the patented technology, but demands licensing fees typically ranging from a few hundred to several thousand dollars. If the business refuses to pay licensing fees, the troll will threaten or even file a lawsuit alleging patent infringement. The cost to defend against such lawsuits is almost always exponentially greater than the demanded licensing fees.
In a recent case settled by the FTC, MPHJ Technology Investments, LLC, bought patents relating to technology that enables users to scan documents from a scanner and email the image to their inbox. According to the FTC, the company, either directly or through its law firm, sent thousands of demand letters to small businesses— some falsely asserting that other companies agreed to pay licensing fees to MPHJ, while others claimed MPHJ would sue the recipient business if it did not respond within two weeks. According to the FTC, MPHJ never intended to sue—nor did it sue—any of the small businesses that received its letters, and it sold a license to only two of the approximately 9,000 small businesses that were falsely informed. The settlement bars MPHJ from making misrepresentations regarding licensing fees paid for patent use or the initiation or imminence of a lawsuit. Each violation of the settlement may result in penalties up to $16,000.
Although the last Congress failed to pass patent reform legislation, this settlement and other recent actions by states’ attorneys general are a welcome development in the fight against patent trolls.
According to the FTC, MPHJ’s letters went to small businesses in all 50 states and across 54 industries. And according to analysis by Patent Freedom, the number of business and industries affected by patent trolls has increased substantially over the last five years—with the retail and restaurant industries as the biggest targets.
Questions about patent trolls? Contact the Big “I” Office of General Counsel.