FTC settles with NPE over deceptive patent threats

The US Federal Trade Commission (FTC) has published a settlement with a non-practising entity (NPE) that bars the company and its law firm from making deceptive patent infringement claims.

It comes after MPHJ and its counsel, Farney Daniels, settled FTC charges that they made specious claims and bogus legal threats in letters sent to thousands of US companies.

The FTC complaint represented the first time the agency had taken action against an NPE.

“Patents can promote innovation, but a patent is not a licence to engage in deception,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, as she announced the settlement on Thursday (November 6).

According to the FTC, MPHJ sent more than 9,000 letters to companies that it claimed were infringing patents covering computer scanning technology.

But, said the FTC, the company falsely claimed that many other businesses had already agreed to pay thousands of dollars for licences.

The complaint also alleged that Farney Daniels authorised letters, sent to nearly 5,000 small businesses, warning that it would sue them for patent infringement if they did not respond. They were given a two-week deadline.

However, the FTC said the firm did not intend—or make any preparations to—file lawsuits against the companies that did not respond. No lawsuits were ever filed.

Now, in a proposed order open for public comment, MPHJ, its owner Jay Mac Rust and Farney Daniels have agreed to stop acting in such deceptive ways when asserting patent rights. Future deceptive letters would trigger penalties of up to $16,000 per letter, the FTC said.

The FTC commissioners voted in favour of the order by five to nil.

The public comment period will end on December 8, 2014, before the FTC decides whether to make the proposed consent order final.