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Is the FTC Prepping for a War on Patent Trolls?

By William Peacock, Esq. on January 17, 2014 | Last updated on March 21, 2019

When it comes to fighting patent trolls, the government has been long on talk, and short on action. Legislation is in the works, but other than a few state governments standing tall, most of what we've heard is proposals and verbal condemnations, especially on the national level.

The hesitation, it seems, may have ended, and the first shots may have been fired in the federal government's War on Trolls. Earlier this week, one of the most notorious non-practicing entities, the "Scanner Troll" MPHJ, filed a lawsuit against the Federal Trade Commission. A troll litigating isn't the big reveal here, however. MPHJ was filing a preemptive attack against the FTC's own planned lawsuit, under Section 5 of the FTC Act, which prevents deceptive trade practices.

The Art of Patent Trolling

Step 1: Purchase a patent for pennies on the dollar.

Here, MPHJ purchased "scan to email" patents, invented by Laurence C. Klein, from Project Paperless, another patent holding company, reports Ars Technica. The patent covers the system or method of scanning a document and emailing it or storing it on a file server, directly from the scanning device.

In other words, a modern copy machine, many of which can email or store PDF'd documents to a local file server.

Step 2: Find Your targets, preferably small companies.

MPHJ started with small companies, those with 20-100 employees, and then worked its way up, sending demand letters for patent infringement to end-users of scanners.

Step 3. Threaten litigation, settle, and profit (maybe)!

MPHJ would send three increasingly-threatening letters, culminating in litigation threats accompanied with a draft of a complaint.

The letters demanded a license of $1,000 per user. Ars Technica notes that only 17 licenses were sold, but the audacious targeting of main street businesses is what attracted the FTC and state governments' attention.

Deceptive Trade Practice?

How is this deceptive? After all, they have a relevant patent and they are trying to enforce it.

The FTC claims that MPHJ never intended to litigate. Empty threats were used against thousands of businesses to squeeze out settlements. MPHJ points out that they were too busy fighting state governments, such as Minnesota and Vermont, to file suit, but are now doing so.

Troll Screams 'Speech!'

MPHJ's lawsuit, filed on Monday, argues that the FTC is exceeding its authority and that it is trampling upon MPHJ's speech.

In an email to Ars Technica, a company spokesman raised the free speech argument, stating, "[T]he FTC has decided it does not like the free speech in which MPHJ is engaged and is seeking to interfere with or stop that speech," before arguing that the FTC exceeded its authority in a semi-interesting argument:

"The FTC's issues appear to be based principally upon its remarkable and new 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 the FTC may sue it for committing an unfair trade practice unless the patent owner can prove that at the time the threat was made, it intended to bring suit. "

Takeaway

For companies enforcing their IP rights, it's important to take note of the FTC's strategy. Obviously, certain enforcement patterns (mass trolling of main street businesses using questionable patents) will attract more attention than others. Still, you may be treading on the line of deception if you threaten legal action with no intention of following through.

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