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Top U.S. patent troll sues the government for interfering with its business

The notorious troll MPHJ Technology claims FTC actions violate its constitutional rights

One of the most well-known patent trolls in the United States and some would say the most innovative MPHJ Technology has recently filed a lawsuit against the U.S. Federal Trade Commission, claiming that the agency’s interference with its business are in violation of its constitutional rights.

MPHJ is demanding royalties of $1,000 from each employee from companies that own networked scanners with a scan to email function. The company sent letters to 16,000 businesses, warning them that their use of scanners is in violation of its patents. Those are in addition to the thousands of letters sent by the previous owner of the patents.

Attorneys general in Minnesota, Nebraska, New York, and Vermont have taken various actions against the company, and the FTC has warned MPHJ could face legal action from the government. But, in documents filed with the U.S. District Court in the Western District of Texas, MPHJ argues that not only are the state actions against it baseless, but that the FTC's interference is unconstitutional.

"The relief that is requested by this suit is warranted because the actions of the FTC Defendants are in violation of the U.S. Constitution, federal law, the FTC Defendant's jurisdictional authority, and the relevant facts," MPHJ's owner-cum-counsel, the Texas law firm Farney Daniels, wrote in the filing.

According to the suit, the FTC lacks jurisdiction to intervene in MPHJ's patent assertion activities because they do not constitute acts or practices in or affecting commerce. MPHJ's letters to companies "did not offer any good or service for sale," the filing states. 

The suit claims the FTC can't stop MPHJ from sending letters claiming patent rights, because these letters are protected under its First Amendment right to free speech. The FTC has argued that MPHJ's letters to companies constituted illegal "threats to sue without intent to sue," but MPHJ says the agency has no evidence to support that claim.

Furthermore, the suit observes that the FTC has threatened to sue Farney Daniels over its representation of MPHJ, which the company alleges is a violation of its constitutional right to choose its own counsel and an improper attempt by the FTC to regulate the practice of law.

Earlier this week, New York State Attorney General Eric Schneiderman announced that the state has reached a settlement with MPHJ that requires it to refund any money it has collected from New York businesses so far and bars it from further contact with businesses it has targeted.

"State law enforcement can't cure all the ills of the federal patent system," Schneiderman said in a statement, "but the guidelines established in today's settlement will put an end to some of the most abusive tactics by placing the industry on notice that these deceptive practices will not be tolerated in New York."

MPHJ’s actions have helped bring the patent troll issue to the spotlight. General counsel and state attorneys general alike have turned their attention to the issue, and an assortment of AGs and GCs will be speaking about the topic at an upcoming roundtable event. The free event will take place on Feb. 4, 2014 from 3:00-5:00 pm at the Intercontinental New York Barclay. It will feature the attorneys general from Nebraska, Missouri and Vermont as well as the general counsel from Walmart, du Pont and Rackspace. For more information, or to register for the event, click here.

 

For more on patent trolls, check out these articles:

IBM takes the lead in patents once again

New York cracks down on patent trolls

Patent trolls invade the cloud

South Carolina’s attorney general latest to join war on patent trolls

Contributing Author

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Amanda Ciccatelli

Amanda G. Ciccatelli is a Contributing Writer for InsideCounsel, where she covers the patent litigation space. Amanda earned a B.A. in Communications and Journalism from...

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