FTC Cracks Down on PAE's

The Federal Trade Commission has used for the first time its consumer protection powers to prevent bogus legal threats by Patent Assertion Entities (PAE's), sending a signal to patent trolls that the failure of House-passed patent troll legislation to make it through the Senate (at least so far) is no shield from the long arm of the government.

In a settlement with the agency, MPHJ Technology Investments and its law firm are barred from making "deceptive representations" when asserting a patent right.

So-called patent trolls attempt to make money by asserting claims widely against businesses or individuals that may or may not be using a patented technology and then collecting from those under threat of litigation.

"Patents can promote innovation, but a patent is not a license to engage in deception," said Jessica Rich, director of the FTC's Bureau of Consumer Protection, in announcing the action. "Small businesses and other consumers have the right to expect truthful communications from those who market patent rights."

According to the FTC complaint, MPHJ bought computer scanning patents and then contacted more than 9,000 small businesses saying they were probably infringing and should buy a license. The FTC alleges MPHJ "falsely represented that many other companies had already agreed to pay thousands of dollars for licenses," and that while the letters threatened lawsuits, it never planned to file any and had never filed any.

MPHJ, its owner and its lawyers have agreed "to refrain from making certain deceptive representations when asserting patent rights, such as false or unsubstantiated representations that a patent has been licensed in substantial numbers or has been licensed at particular prices. The proposed order also would prohibit misrepresentations that a lawsuit will be initiated and about the imminence of such a lawsuit."

Any further violations by the company are subject to a civil penalty of $16,000 per violation. So, another 9,000-letter mass mailing could mean $144 million in penalties.

The FTC vote to approve the order was 5-0. A spokesman had no comment on whether more patent troll actions were in the pipeline.

MPHJ still asserted its patent letters were accurate and could continute to go out virtually unchanged

In a statement from a company representing MPHJ's lawyers, the company indicated that the settlement leaves it free to enforce its patents, and argues that the agreement requires no "material" revisions to the letters, which it continues to maintain were accurate.

As to not filing suits after threatening them? the company suggested that was because there were intervening challenges to some of its patents.

“MPHJ is pleased that the FTC has agreed to end its investigation, and to enter into an agreement that does not impair MPHJ’s right to continue to send the correspondence required to enforce its patents against infringers,” said Mac Rust, who manages the company (and was named in the settlement), in statement. “This resolution ensures that we can continue our efforts to protect our patent rights, and it avoids protracted administrative hearings and subsequent appeals.”

"We commend the FTC for focusing on the deception and harm caused by patent trolls - extortionists that bleed $80 billion a year from the U.S. economy  and who engage in fraudulent conduct," said Gary Shapiro, president of the Consumer Electonics Association, which has been pushing Congress to opass patent troll legislation."Combined with actual financial penalties and the return of all funds to the businesses they deceived is a step in the right direction. More important will be the swift passage of patent litigation reform in the next Congress, which will help drive trolls back under the bridge and ensure that our patent system is used to promote - not suppress - innovation to create jobs and grow our economy."

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.