The U.S. Federal Trade Commission (FTC) has agreed to settle claims that MPHJ Technology Investments, LLC—a patent-assertion entity (PAE)—and company officer Jay Mac Rust, as well as outside counsel Farney Daniels, P.C., violated the FTC Act by conducting a campaign to promote and sell licenses for the company’s network computer scanning technology patents. The campaign allegedly involved sending a series of letters to thousands of small businesses throughout the United States claiming that they had infringed the patents and would be sued if they did not agree to buy a license, pay compensation or otherwise respond as requested. The letters were sent under the names of 81 different subsidiaries.
According to FTC, this constituted deceptive sales practices because “the senders had no intention—and did not make preparations—to initiate lawsuits against the small businesses that did not respond to their letter. No such lawsuits were ever filed.” The letters also apparently falsely represented that many businesses had purchased licenses to the patents; no such licenses had been sold when the first of these 7,366 letters were distributed. According to FTC’s complaint, “When Respondents sent the next 1,077 of these First Letters, Respondents had sold a license for the Klein Patents to only one of the approximately 7,366 small businesses that Respondents had contacted in their licensing campaign.” FTC has indicated that this is the first time it has used its consumer-protection authority against a PAE.
Under the proposed agreement, respondents neither admit nor deny the allegations in FTC’s draft complaint, but agree to cease making certain misleading or unsubstantiated representations in patent-assertion communications and maintain certain records for five years; the order remains in effect for 20 years. After a 30-day public comment period and a commission vote to make the proposed consent order final, any subsequent violation “may result in a civil penalty of up to $16,000” each. See FTC Press Release, November 6, 2014.