Patent Assertion Entity Settles FTC Charges

Patent Assertion Entities (PAEs) acquire patent rights and attempt to generate revenue by licensing or litigating the patents.  In September 2013, the FTC announced its decision to collect empirical data to study the effects of PAE activities.

Recently, on November 6, 2014, the FTC agreed to settle charges against MPHJ Technology Investments, LLC, a PAE that sent patent enforcement letters to thousands of small businesses and demanded licensing fees.  The FTC charged MPHJ and its law firm with using “deceptive sales claims and phony legal threats” to enforce MPHJ’s patents. This is the first time the FTC has responded to PAE activities using its consumer protection authority.  The public may comment on the proposed consent order through December 8, 2014.

The proposed consent order prevents MPHJ from making any deceptive representation (1) that many small businesses have licensed the patents at a particular price or within particular price ranges, or (2) that MPHJ will initiate a lawsuit if MPHJ does not receive a response within a certain period of time.  In addition, MPHJ must preserve any patent assertion related communication for inspection and copying for five years.

Jessica L. Rich, director of the FTC’s Bureau of Consumer Protection, said, “Small business and other consumers have the right to expect truthful communications from those who market patent rights.”  Whether or not the FTC study spurred this action against MPHJ, the FTC’s prosecution adds a new dimension to the discussion about PAEs.