15 January 2014Patents

MPHJ sues FTC over patent lawsuit “threats”

MPHJ, a non-practising entity (NPE), has sued the US Federal Trade Commission (FTC) for allegedly threatening to “impede” the company from enforcing its patents.

The FTC claimed that MPHJ had threatened to file several lawsuits without intending to actually file them, the suit alleges, and that the agency was going to sue MPHJ for breaching section 5 of the FTC Act.

Section 5 bars companies from engaging in unfair or deceptive acts.

“Setting aside that the FTC’s factual premise is false, and that MPHJ can show that it did intend to bring suit at the time the alleged threats were made, the FTC’s legal premise is flawed on multiple grounds,” the suit states.

The complaint was filed at the US District Court for the Western District of Texas on January 13 against the FTC, its chair Edith Ramirez, commissioners Julie Brill, Maureen Ohlhausen and Joshua Wright, and director Jessica Rich.

At issue are five patents, which MPHJ acquired from Project Paperless LLC.

The suit says that “the claims of the ... patents relate to networked scanning systems that are connected and interfaced such that they permit the seamless transmission of a scanned document image into application software running on a destination computer”.

Project Paperless had been sending letters asking companies to pay licensing fees for their alleged infringement. Some licensing agreements were agreed, while Project Paperless filed suit against some companies.

MPHJ, which acquired Project Paperless in September 2012, continued sending enforcement letters and signed a licensing agreement with Canon.

But the company delayed filing multiple lawsuits, the complaint says, noting that it was sued (in May 2013) by Vermont’s attorney general for allegedly violating consumer protection laws and that two of the patents received petitions for review.

In November 2013, MPHJ did file a lawsuit alleging patent infringement, with another suit following in January 2014.

The complaint claims that in December 2013 an (unnamed) FTC representative told MPHJ that the agency was going to sue MPHJ. That accusation prompted this lawsuit.

The suit says the FTC’s actions violate the US Constitution, federal law, the FTC’s jurisdictional authority and the relevant facts. MPHJ wants to be cleared of any misconduct, and wants to receive fees and costs.

Jay Jurata, partner at Orrick, Herrington & Sutcliffe LLP, explained that the sending of enforcement letters can lead to immunity from US antitrust litigation.

“The exception is that the demand letters are deceptive,” he said.

“It’s all going to depend on whether these letters were deceptive, which is a difficult question ... You have to show that the party knew that before filing suit that the suit was subjectively baseless – and there is only one case that found that.

“MPHJ put the demand letters in context,” he added, “and set out that under the applicable laws we can’t file a lawsuit without doing due diligence.”

Jurata said he has been very critical of “massive demand letter campaigns” but that MPHJ’s complaint “demonstrates that the issue is a bit more complicated than we thought”.

The law firms – Farney Daniels PC and Dunnam & Dunnam LLP – representing MPHJ are the same firms that act for the company in all their “NPE matters”, said Jeanne Gills, partner at Foley & Lardner LLP, which may mean that the firms and MPHJ are trying to “justify why their actions are proper”.

“MPHJ, in particular, has been a poster child for NPE abuse, and here is an opportunity for the plaintiff and law firms to try to change the story ... and show that  the FTC is trying to put too much of a sum on a plaintiff that is trying to enforce its patent rights,” she said.

Filing suit against a government agency is unusual, noted Bernie Knight, partner at McDermott Will & Emery LLP and former general counsel at the US Patent and Trademark Office, and thegovernment “will have to spend resources to get it dismissed”.

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