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FTC Slaps Texas Firm, Lawyers In First Action Against Patent 'Trolls'

Jenna Greene, The National Law Journal
November 6, 2014
http://www.nationallawjournal.com/id=1202675705016/FTC-Slaps-Texas-Firm-Lawyers-In-First-Action-Against-Patent-Trolls?cmp=share_twitter&slreturn=20141006143706

In a stark warning to patent assertion entities and their lawyers, the Federal Trade Commission on Thursday settled charges against a Texas company and its outside counsel for using phony legal threats to pressure small businesses into buying licenses.

It’s the first time the FTC has taken action using its consumer protection authority against a patent assertion entity, commonly known as a “patent troll.”

According to the FTC’s administrative complaint, the Waco-based MPHJ Technology and its outside counsel, Farney Daniels of Georgetown, Texas, sent more than 9,000 letters to small businesses, claiming that they were infringing its patents related to network computer scanning technology. Written on Farney Daniels letterhead, they warned that the firm “would file a patent infringement lawsuit against the recipient if it did not respond.” Also included – a purported complaint, ready to be filed at the nearest federal court.

But according to the FTC, “the senders had no intention – and did not make preparations – to initiate lawsuits against the small businesses that did not respond to their letter. No such lawsuits were ever filed.”

To the FTC, this amounts to deceptive sales tactics, in violation of the FTC Act.

To settle the case, MPHJ and Farney agreed to stop making “deceptive representations when asserting patent rights” and “prohibit misrepresentations that a lawsuit will be initiated and about the imminence of such a lawsuit.” If the company or the law firm violates the agreement, they will face fines of up to $16,000 per letter.

“Patents can promote innovation, but a patent is not a license to engage in deception,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, in a written statement. “Small businesses and other consumers have the right to expect truthful communications from those who market patent rights.”

MPHJ representatives wrote in an email that under the settlement it “continues to have the right to enforce its patents.” Further, MPHJ said, “The company strongly maintains it did intend to bring suit, 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.”

The company and its counsel also “strongly maintain their position that the enforcement letters that were sent were accurate, required by law, and protected by the First Amendment.”

In its complaint, the FTC offered details of Farney’s arrangement with MPHJ. According to the FTC, Farney did not charge MPHJ hourly fees. Instead, MPHJ gave the firm a percent of the payments from licensees. “Specifically, the agreement entitles Farney Daniels to 40 percent of the gross amount paid by entities that Farney Daniels had sued or with which Farney Daniels was ‘substantially engaged,’ and 30 percent of the gross amounts paid by all other entities,” the FTC complaint states.

According to the firm’s website, name partner Bryan Farney has represented clients including Hewlett-Packard, Apple, Lenovo, Gateway, Compaq, Intel, Verizon and Samsung.

Contact Jenna Greene at [e-mail].

http://www.nationallawjournal.com/id=1202675705016/FTC-Slaps-Texas-Firm-Lawyers-In-First-Action-Against-Patent-Trolls?cmp=share_twitter&slreturn=20141006143706