Yesterday, a suspected “patent troll” filed suit in Texas federal court against the Federal Trade Commission (FTC) alleging that the FTC unlawfully interfered with its constitutional right to identify and seek redress for patent infringement. Just last month, the FTC sent MPHJ Technology Investments LLC (MPHJ) a draft complaint accusing the company of engaging in unfair patent enforcement activities. After acquiring five patents in 2012, MPHJ sent cease and desist letters to thousands of businesses accusing them of patent infringement, and threatening litigation. In the draft complaint, however, the FTC alleged that MPHJ had no intention of filing legal action against the accused infringers. Instead, MPHJ–in troll-like fashion–threatened litigation to scare companies into signing lucrative licensing deals. The Commission deemed that practice unfair, in violation of Section 5 of the FTC Act, and threatened to file its draft complaint unless MPHJ agreed to a proposed consent judgment. MPHJ countered by filing a complaint seeking a declaratory judgment that the Commission acted outside of its authority. Among other things, MPHJ argued that it fully intended to pursue legal action, and has filed actions against several accused infringers, including the Coca-Cola Company and the Unum Group. MPHJ further alleged that the FTC lacked jurisdiction over the company’s enforcement activities because the Commission failed to assert that MPHJ’s infringement notices were false.

The FTC’s draft complaint against MPHJ hints to a broader investigation into the practices of the “patent troll” or non-practicing entity (NPE) industry. In September 2013, the FTC sought public comments on a proposal  to issue compulsory process orders seeking information from 25 “patent troll” entities (entities that are in the business of buying and asserting patent rights). MPHJ’s suit is just the first to challenge the Commission’s jurisdiction over patent enforcement activity. Specifically, MPHJ’s complaint calls into question whether the FTC has authority to restrict the assertion of allegedly valid patent enforcement rights. If the court decides that the FTC does not have jurisdiction, the case could impede the FTC’s effort to prevent potentially abusive patent-troll tactics.   

Jalyce Mangum