Patent assertion entities (PAEs), sometimes referred to as nonpracticing entities or, derisively, as “patent trolls,” generate revenue by acquiring and enforcing intellectual property rights against potential infringers. PAEs have different patent enforcement incentives from companies that develop and/or sell commercial products. A PAE’s unique structure enables it to aggressively pursue royalty licensing agreements in circumstances where a producing company, which may face counterclaims of infringement, might not.

There is substantial scholarly disagreement over whether PAE activities in general harm competition. Without getting into that thorny issue, the FTC and the state attorneys general pursued enforcement against one PAE, MPHJ Technology Investments, LLC, because it allegedly engaged in deceptive assertions of patent infringement and phony legal threats. MPHJ sent thousands of letters to small businesses around the United States asserting that the companies were infringing its patents related to network computing technology and proposing settlement payment terms. Allegedly, the letters misrepresented the number of settlements MPHJ had entered with other alleged infringers and the terms under which other companies had settled the patent infringement claims.

On November 6, 2014, the FTC entered into a consent order that prohibits MPHJ from engaging in future deceptive conduct and triggers a penalty of up to $16,000 per patent assertion communication that is misleading or unsubstantiated. This includes misrepresentations relating to the number of settlement agreements already entered into or the value of the other settlement agreements. The consent order also imposes recordkeeping requirements for patent assertion communications issued by MPHJ for a period of five years. The director of the FTC’s Bureau of Consumer Protection, Jessica Rich, stated that “Patents can promote innovation but a patent is not a license to engage in deception. Small businesses and other consumers have the right to expect truthful communications from those who market patent rights.”