In its first-ever consumer protection case against a patent troll, the Federal Trade Commission has settled with MPHJ, a company notorious for trying to extract money from folks it accuses of violating its patents.
The settlement bars MPHJ, which owns a number of patents related to scanning documents to e-mail, from sending such demand letters in the future. If the company, or its law firm Farney Daniels, tries to do so, MPHJ will be subject to a $16,000 fine — per letter.
Companies like MPHJ account for a whopping 67 percent of all new patent lawsuits. Unlike their peers, however, MPHJ never initiated any lawsuits despite threatening that it would. And that had the FTC saying MPHJ's phony threats were deceptive — and illegal.
According to the federal complaint, from September 2012 to June 2013, MPHJ sent thousands of letters to small businesses saying they were in potential violation of MPHJ's patents and would need to buy a license. Further letters threatened those businesses with lawsuits. But an FTC investigation found that "the senders had no intention — and did not make preparations — to initiate lawsuits against the small businesses that did not respond to their letters. No such lawsuits were ever filed."
In response to the FTC's inquiry, MPHJ counter-sued this year, arguing that the agency was treading on its First Amendment rights. That argument got shot down when the court said being investigated wasn't unconstitutional.
"MPHJ and its counsel strongly maintain their position that the enforcement letters that were sent were accurate, required by law, and protected by the First Amendment," the company said in a statement.
MPHJ has been called all kinds of names: Sen. Claire McCaskill (D-Mo.) has branded the company a "bottom-feeder" that misleads consumers. Others in the patent space welcomed the FTC's action Thursday.
"They're a particularly egregious troll, and so this is probably a particularly special settlement," said one patent analyst who spoke on the condition of anonymity because the legal proceedings were still ongoing. "It's probably not something you'll see the FTC do 50 times. But you could say this is a good thing that the FTC has done today."