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Threatened patent suits amounted to deceptive tactics, FTC alleges; law firm and client settle

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The Federal Trade Commission has settled a complaint against a Texas law firm and its client that alleged their threatened patent suits amounted to false or misleading statements.

Law firm Farney Daniels and its client MPHJ Technology Investments agreed in a consent order (PDF) to stop making misrepresentations in letters to small business owners, including claims that they will initiate a lawsuit when they have no intent to follow through. Farney Daniels and MPHJ neither admit nor deny the FTC’s accusations in the consent order. The National Law Journal covered the agreement, announced in an FTC press release.

The settlement is the first time the FTC has used its consumer protection authority against a patent assertion entity—or a patent troll, as such entities are more commonly known.

According to the FTC’s administrative complaint (PDF), thousands of small business owners received a series of three letters from MPHJ subsidiaries and Farney Daniels as part of an effort to sell licenses relating to network computer scanning technology. The law firm was to receive 30 to 40 percent of the money generated as its fee.

The first letter from an MPHJ subsidiary told more than 16,000 small business owners they were likely infringing patents by using common office equipment and they were being contacted to discuss the need for a license, according to the administrative complaint. The second letter on Farney Daniels letterhead, sent to more than 10,000 businesses, said the lack of a response has led its client to “reasonably assume” infringement and the matter has been referred to the law firm. The third letter, sent to more than 4,800 businesses, says that if the recipient does not respond in two weeks, it will be sued for patent infringement. The letter included a draft complaint.

To date, no legal action has been filed, the FTC says.

MPHJ representatives told the National Law Journal that the company still has the right to enforce its patents under the settlement. “The company strongly maintains it did intend to bring suit,” the statement said, “but refrained from doing so because of intervening patent reviews challenging certain MPHJ patents. The FTC was unwilling to accept that rationale as a reasonable basis for not bringing suit.”

MPHJ and Farney Daniels also “strongly maintain their position that the enforcement letters that were sent were accurate, required by law, and protected by the First Amendment,” the statement said.

MPHJ had tried to prevent FTC action by suing agency commissioners in a federal lawsuit claiming unlawful interference with efforts to seek redress of patent rights, according to the National Law Journal story. A federal judge dismissed the suit in September.