Wednesday, January 15, 2014

New York AG Investigation Results in Settlement with MPHJ Technology Investments

Professor Robin Feldman said I might find this interesting: A.G. Schneiderman Announces Groundbreaking Settlement with Abusive "Patent Troll." She is right, and thus it's my late night post.

I suggest reading the attorney general's press release, but the following passage describes the deceptive conduct that led to the attorney general's investigation:

"Certain patent trolls, such as MPHJ, have adopted a strategy of targeting small and medium sized businesses. These companies acquire patents of dubious validity, then send deceptive and abusive letters to a large number of small businesses in an effort to extract small, often nuisance-value license payments from them. This strategy can be successful, and the collective value of these smaller payments can be quite high, because smaller businesses often do not have the experience or resources needed to fully evaluate the patents. In MPHJ’s case, it told hundreds of New York businesses that they "likely" infringed its scanner-related patents, creating the impression that MPHJ had conducted a meaningful, individualized analysis of the targeted company’s business. In fact, MPHJ merely sent form letters to companies of a certain size and industry classification. In addition, MPHJ falsely told businesses that most other businesses it had previously contacted had acquired licenses when in fact only a handful of businesses had done so. MPHJ also provided misleading information about the fees that the (few) prior licensees had paid. And MPHJ falsely threatened to sue hundreds of businesses if they did not respond to its letters within two weeks; in fact, it has never filed a patent lawsuit against a New York business.

The AG also listed its guidelines to stop the most abusive tactics used by patent trolls:

"Diligence and Good Faith When Contacting Potential Infringers. The guidelines require a patent holder to make a serious, good-faith effort to determine whether a targeted business actually engages in infringement before making an accusation. This prohibits the mass mailing of accusations of infringement to hundreds of businesses with little regard to the actual likelihood that the businesses infringed. The guidelines also forbid using a lawyer as a threatening mouthpiece for baseless allegations. If a patent troll communicates through an attorney, the attorney sending such letters must also make diligent efforts to ensure that there is a good-faith basis for believing that the targeted business infringed the patents.

Providing Material Information So an Accused Infringer Can Evaluate the Claim. When a patent holder accuses a business of infringing its patent, the guidelines require it to explain the basis for the claim in reasonable detail. This information will allow the recipient to assess whether the accusation has any foundation in light of the actual activities of the recipient’s business. The guidelines also prohibit a patent holder from trying to collect revenue for a patent that has been held invalid, and from failing to disclose material information that reveals the patent’s likely invalidity.

No Misleading Statements about a License Fee. If a patent holder seeks to justify a specific licensing fee, it must clearly explain the factual basis for its proposed fee. This requirement prevents a patent troll from taking advantage of informational asymmetry to deceive businesses into paying more than a fair price for a license.

Transparency of the True Identity of the Patent Holder. The guidelines prohibit a patent troll from hiding its identity from its targets. This allows businesses that have been targeted by patent troll campaigns to find information about the patent troll. Ensuring transparency has a number of positive effects, including allowing targeted businesses to find and communicate with one another."

The attorney general says "the guidelines in this settlement are minimum standards- they are not a safe harbor."

"As redress, the settlement requires MPHJ to allow any licensees that received deceptive letters to void their license with it and receive a full refund, and it prohibits MPHJ from further contacting certain small businesses it previously targeted. The settlement also imposes a variety of obligations on MPHJ that should serve as guidelines for all patent trolls engaged in similar patent assertion behavior."

This is an interesting development in patent law and it makes some sense for states to police deceptive practice. At the same time, why aren't manufacturers defending and indemnifying these small businesses? It should be universal practice and widely publicized. Most small businesses cannot conduct a patent investigation even if all the guidelines are followed nor can they afford defending themselves in a patent suit. Further, the manufacturers might add a web page up for purchasers to upload or email any patent dispute letter and a standard reply to the patent owner saying I bought my gear from company X which has requested all correspondence go directly to it, because it is handling this dispute. Finally, I have mixed feelings about state efforts. US patent law is federal law and most times best handled by Congress to avoid the risk of balkanizing US patent law state by state.

Copyright © 2014 Robert Moll. All rights reserved.