(Adds details on dispute, comment from company, background)
WASHINGTON, Nov 6 (Reuters) - The controversial patent
assertion company MPHJ Technology Investments has reached an
agreement with U.S. authorities barring it from using phony
legal threats to demand patent licensing fees from small
businesses, the Federal Trade Commission said on Thursday.
The deal is the first of its kind between a company and the
FTC, which has said it would take action against so-called
patent assertion entities (PAEs) who abuse the patent system by
alleging infringement when there is none, or using other
In the deal, MPHJ agreed to settle charges that it used
deceptive sales claims and phony legal threats in letters that
accused thousands of small businesses of infringing on patents
it owned. The FTC said that each violation of its order may
result in a civil penalty of up to $16,000.
"A patent is not a license to engage in deception," said
Jessica Rich, director of the FTC's Bureau of Consumer
PAEs, often known as patent trolls, are companies that
obtain patent rights and try to generate revenue by demanding
licensing fees or suing those who are or may be using patented
In its complaint, the commission said MPHJ bought patents
relating to network computer scanning technology, and then told
businesses that they were likely infringing the patents.
Waco, Texas, based MPHJ then worked with the law firm Farney
Daniels PC to create 81 subsidiaries. Either MPHJ or one of
those subsidiaries sent letters to more than 16,000 businesses
accusing them of infringing on a scanner patent, and urging them
to buy a license for the patent.
The commission said in its complaint that some of the
subsequent letters claimed that many other companies had
licensed the patents, an assertion the FTC said was untrue.
Other letters threatened legal action within two weeks,
although no legal action was ever filed. Because of this, the
FTC said that the threat was similarly deceptive.
MPHJ said in a statement that the deal would allow it to
continue to enforce its patents.
"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.
MPHJ has already settled with attorneys general in New York
and Minnesota. It has also been sued by Vermont. Nebraska's
attorney general warned MPHJ that its letters appear to lack
legal merit but lost a subsequent legal fight with the company.
The White House last year urged action on several fronts to
curb abusive patent lawsuits, which have grown in recent years
to a multibillion-dollar industry.
(Reporting by Diane Bartz,; Editing by Ros Krasny and Doina
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