The FTC sent a message to “patent trolls” earlier this month, though how well that message will resonate remains to be seen. On Nov. 6, the FTC’s Bureau of Consumer Protection concluded its investigation into MPHJ Technology Investments, LLC’s practices involving its so-called “inquiry letters” by agreeing to accept a consent order. The consent order addresses two sets of misrepresentations contained in various letters that MPHJ sent to alleged infringers of MPHJ patents. First, the FTC found that MPHJ misrepresented that they had sold a substantial number of licenses within a certain price range; second, they misrepresented that they intended to initiate a lawsuit if they did not receive a response from the letters’ addressees.
The FTC outlines in its complaint how MPHJ and Farney Daniels, P.C., MPHJ’s attorneys, engaged in a three-stage campaign to promote and sell licenses for then-recently purchased patents. Farney Daniels and MPHJ had signed a written agreement splitting the proceeds of the letter campaign. In the first stage, they sent approximately 16,465 letters to small businesses (between 20 and 99 employees) that did business in veterinary services, lawn and garden services, building maintenance services or medical laboratories. The letters informed each business that it was likely infringing patents by using common office equipment. Next, they sent a second wave of letters to most of those same businesses, once again informing them of their likely infringement, but this time also offering to license the patent. The letter stated that MPHJ needed to hear back within two weeks. Finally, letters were sent on Farney Daniels’s letterhead that referenced the first two letters and threatened litigation for patent infringement if the business did not respond within two weeks. Each of the Farney Daniels’s letters contained a nine-page complaint alleging a cause of action for patent infringement. Nearly 4,870 small businesses received a letter from Farney Daniels. Evidently, MPHJ and Farney Daniels had no intentions of actually filing the complaints.
The consent order prohibits MPHJ and Farney Daniels, P.C. from including any misleading or unsubstantiated representations in any communication that either warns of possible patent infringements or demands that the business purchase a license to use a patent. They are also prohibited from threatening to initiate a lawsuit unless they have actually decided to do so. The FTC will give consideration to changed circumstances, including changes in the decision to file a lawsuit by a Farney Daniels’s client.
This action is notable for two reasons. First, it is the first enforcement action taken by the FTC against patent trolls. Second, although there is an FTC study underway to analyze the competitive effects of certain actions taken by “patent trolls,” the FTC did not use its competition authority in this case, but rather its consumer protection authority. In other words, the FTC did not allege that MPHJ’s actions were anticompetitive, but rather deceptive, bringing to bear an entirely different (and new) set of enforcement tools. It is thus clear that the FTC is willing to use each of its enforcement arms to attack the patent troll issue.
It is unclear whether this enforcement action will have wider implications. Certainly, the sheer number of letters sent, and the brazenness of the campaign make this case somewhat of an outlier among patent troll licensing campaigns. Nevertheless, the FTC often works in stages, sending messages by taking enforcement actions against the most egregious violators. Whether, and how, this message will be received by companies whose business model is to assert patent rights and seek licensing fees remains to be seen.