Scanner Patent Troll Shut Down by Federal Court

Court dismisses suit
Brought by scanner patent troll
Against FTC

MPHJ Technology Investments, a company that the Electronic Frontier Foundation (EFF) calls a “poster child” for patent abuse, has had its lawsuit against the Federal Trade Commission (FTC) dismissed by a federal court judge. The company and its 101 subsidiaries are allegedly controlled by Jay Mac Rust, a Texas lawyer. They claim to hold patents that cover emailing scanned documents. The patents at issue include 7,986,426 (“Distributed Computer Architecture and Process for Document Management”), 7,477,410 (“Distributed Computer Architecture and Process for Virtual Copying”), and 6,771,381 (“Distributed Computer Architecture and Process for Virtual Copying”). Several of the patents are being reviewed by the US Patent Office. MPHJ claimed that merely using such a scanner infringed its patent rights.

In September of 2012, the company started sending out letters to over 16,000 small US businesses, stating that the price to license its scanner technology was either $1,000 or $1,200 per employee. MPHJ claimed that the price for a license had been set based on the responses of “many companies.” However, when it sent its first letters, MPHJ had apparently not actually obtained a single license, according to the FTC.

According to the EFF, MPHJ obtained only 17 licenses via its letter writing campaign. Vermont sued MPHJ under its new patent-trolling law, bringing an action for “Bad Faith Assertions of Patent Infringements,” saying that the company engaged in unfair trade practices. The state attorney general in Nebraska also brought suit. There, a Nebraska court found that MPHJ has the constitutional right to threaten to bring patent infringement suits and that its rights had been violated by the state’s attorney general. The FTC investigated MPHJ and threatened to file suit, on the grounds that the letters constituted a deceptive trade practice.

According to the draft FTC complaint;

As part of their campaign to sell licenses for a portfolio of U.S. patents, the Defendants falsely threatened thousands of small businesses with imminent patent infringement litigation when, in truth, the Defendants did not intend to take and did not take such action. In addition, the Defendants falsely represented that substantial numbers of businesses had responded to their letters by purchasing licenses from the Defendants when, at the time of the representations, the Defendants had not sold any licenses to letter recipients.

In response, MPHJ sued the FTC in January, saying that the government action violated the company’s First Amendment rights to talk about and enforce its patents. Judge Walter Smith dismissed MPHJ’s case, saying that the FTC’s investigation wasn’t complete and thus that the issue wasn’t ripe for decision. The judge acknowledged that the company had the right to threaten and file lawsuits – unless its letters were a sham. The FTC and state investigations, as well as proposed and enacted anti-troll legislation at the state and federal levels, and the Supreme Court’s recent fee-shifting decisions, show that it’s becoming increasingly risky to bring an arguably ill-founded patent infringement suit, or even to threaten such a suit.

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