Jessica M. Karmasek Nov. 11, 2014, 12:30pm

WASHINGTON (Legal Newsline) - U.S. Sen. Patrick Leahy commended the Federal Trade Commission for its recent settlement with the so-called “scanner troll,” MPHJ Technology Investments LLC, and the company’s law firm, but said reform is still needed.


“These steps taken by the FTC will stop one notorious patent assertion entity from using misleading demand letters to harass small businesses in Vermont and across the country, but this action alone with not stop abuse the patent system,” he said.


Leahy, D-Vt. and chairman of the Senate Judiciary Committee, and Sen. Mike Lee, R-Utah, last year introduced bipartisan legislation that would target the widespread sending of fraudulent or materially misleading demand letters.

But efforts to pass the patent reform came to a halt when Leahy removed his bill, the Patent Transparency and Improvements Act, from the judiciary committee’s calendar in May.


Leahy blamed Sen. Harry Reid, D-Nev., for its failure. The soon-to-be former Senate Majority Leader reportedly has strong ties to trial lawyers, and they were concerned about a fee-shifting provision of the bill that would require the loser to pay the winner’s legal fees.


Texas-based MPHJ has been accused of demanding businesses pay $1,000 per worker for using a process of scanning and emailing an electronic document.


“The demand letter provision I included in the bipartisan Patent Transparency and Improvements Act would have empowered the FTC to seek meaningful monetary penalties from bad actors, which is an important deterrent for misconduct,” Leahy said.


“Small businesses should be able to focus on their work and on their customers -- not frivolous exploitation schemes.”


The senator said he is “committed” to addressing the problems of patent trolls through legislation in the coming year, including a “strong” provision to address deceptive demand letters.


Last week, MPHJ and its law firm Farney Daniels P.C. agreed to settle FTC charges that they used deceptive sales claims and phony legal tactics in demand letters accusing thousands of businesses of patent infringement.


The settlement, announced Thursday, would bar the company and the Texas law firm from making deceptive representations when asserting patent rights.


The settlement with MPHJ marks the first time the commission has taken action using its consumer protection authority against a non-practicing entity.


Generally speaking, a non-practicing entity, patent assertion entity or patent monetization entity purchases groups of patents without an intent to market or develop a product.


In some cases, but not all, the entity then targets other businesses with lawsuits alleging infringement of the patents it bought. Often, these are referred to as “patent trolls.”


MPHJ, in a statement Friday, said under the agreement it continues to have the right to enforce its patents by contacting companies suspected of infringement, and “there is no restriction impairing MPHJ’s right to enforce its patents.”


“The agreement includes MPHJ’s commitment that letters sent by the company and its counsel will continue to be accurate, and requires no material revisions to the company’s letters,” the company said, adding that the agreement will not be formally concluded until certain procedural steps are carried out by the FTC.


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