MPHJ Technology Files Lawsuit Against U.S. Federal Trade Commission; Anonymous Owner is Revealed

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Top MPHJ Technology attorney Jay Mac Rust, from 2006 magazine cover of Super Lawyers Texas “Rising Stars.”

Notorious scan-patent “troll” MPHJ Technology has filed a lawsuit against the U.S. Federal Trade Commission (FTC), alleging that the FTC overstepped its bounds when it threatened a lawsuit against MPHJ. New York Attorney General Eric Schneiderman also announced today that he had reached a civil settlement that bars the Delaware firm from using what he called “deceptive” means to get businesses to pay money for patent licenses. MPHJ has repeatedly sent companies demand letters, alleging that they infringed upon MPHJ’s scan patents by using their MFPs’ scan patents. The letters typically demand $1,000 per user, and, if the company does not comply, MPHJ threatens to sue them in court.

New York Settlement

According to settlement papers, in 2012 MPHJ acquired the five scanning-related patents – otherwise known as the Larry Klein patents – for just $1 from Project Paperless. It then created 100 subsidiaries with names such as “AbsMea,” “FolNer” and “GosNel,” which sent more than 1,000 letters to New York businesses accused of “likely” patent infringement. MPHJ sent more than 300 letters threatening lawsuits unless recipients negotiated for licenses on “reasonable terms.”  The New York settlement requires MPHJ to reveal its true identity to targets, describe with “reasonable specificity” its claims, and have a good faith basis for claiming infringements. 

MPHJ told the Wall Street Journal it considered its patent enforcement efforts lawful, but called the guidelines “reasonable” and the settlement an “acceptable resolution.” Ultimately MPHJ argues that the FTC’s threatened lawsuit against MPHJ infringed upon MPHJ’s Constitutional First Amendment and Due Process rights, and that the FTC may not infringe upon MPHJ’s patent-enforcement rights. Settlement papers also revealed also revealed the previously anonymous owner of MPHJ Technology, Texas lawyer Jay Mac Rush, shown above

FDC Lawsuit

MPHJ filed its lawsuit against the FTC on Monday, January 13, and in it, names not only the FTC, but several FTC commissioners: Edith Ramirez, who is also chairwoman; Julie Brill; Maureen K. Ohlhausen; Joshua D. Wright; and Jessica Rich, who is director of the FTC’s Bureau of Consumer Protection.

In the lawsuit, MPHJ argues that the FTC had no rights to threaten a lawsuit against MPHJ in December 2013 under  Section 5 of the FTC Act, which bars deceptive trade practices, and alleges “unlawful interference and threats by the FTC Defendants against MPHJ and its counsel directed at stopping or impeding the lawful, proper, and constitutionally protected efforts by MPHJ to identify and seek redress for infringement of its U.S. patents.”

Central to MPHJ’s argument is that the FTC’s threatened suit is principally based upon the FTC’s contention that if any U.S. patent owner threatens suit for infringement, even against a single infringer, and then fails promptly to bring suit for infringement, then that U.S. patent owner has committed an unfair trade practice under Section 5 of the FTC Act, unless the patent owner bears the burden and can prove that at the time the threat was made, it intended to bring suit. MPHJ contends that it did intend to bring suit at the time it threatened to sue, and can show that it did intend to bring suit. However, although MPHJ has been sending out demand letters for at least a year, it only brought its first lawsuit, which was against Research Now, on November 11, 2013. Last week, MPHJ also filed scan-patent infringement suits against four other companies, including Coca-Cola and Dillard’s.

MPHJ is seeking fees and costs, as well as a declaration from the FTC and the FTC defendants that they lack the right to regulate MPHJ’s patent-enforcement activity.

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