Yesterday patent monetization entity MPHJ filed a Complaint in W.D. Tex. against the U.S. Federal Trade Commission (FTC) for threatening an enforcement action against MPHJ premised on MPHJ’s extensive letter campaign to accumulate license fees on its scanner patents by threatening small end-users with litigation that MPHJ allegedly did not actually intend to pursue. We previously posted about MPHJ receiving attention from the Vermont Attorney General and those of other states based on that letter campaign.
For example, MPHJ explained why it mailed its licensing letters to end-users, rather than vendors. The patent claims “relate to networked scanning systems that are connected and interfaced such that they permit the seamless transmission of a scanned document image into application software running on a destination computer.” MPHJ asserts that it sent letters to end-users because no single equipment vendor supplied the entire claimed system or would be liable for direct infringement (MPHJ did not address liability for induced or contributory infringement). For example, the vendor of an off-the-shelf scanner may not supply network equipment, a destination computer or other equipment/software separately purchased and combined by an end-user with the scanner to practice the claimed invention.
MPHJ gained attention because it sent a large volume of licensing letters to many small businesses–including home-businesses–that purchased and used off-the-shelf scanner equipment for its intended purpose with other conventional equipment. Concern was raised that MPHJ might be seeking to extract unwarranted, nuisance licensing fees from many of those small businesses who did not have the resources, sophistication or motivation to engage in costly patent infringement negotiation or litigation. Among other things, MPHJ explains that it did not intend to target really small businesses — those with less than 20 employees — but inadvertently mailed letters to some given erroneous public information about their size.
MPHJ also explained that its letter campaign was a required pre-requisite to filing suit. MPHJ asserts that what system a particular entity uses is not publicly available. MPHJ sent letters to those it thought likely infringed — without actually asserting they did infringe — and simply sought a response and information on whether the recipient infringed the patents as part of MPHJ’s required Rule 11 diligence. Given the small number of responses, MPHJ escalated follow-up letters by sending draft Complaints because that tended to spur recipients to respond. MPHJ supports its letters seeking information by citing to the Federal Circuit’s decision in Hoffman-La Roche v. Invamed that approved a complaint filed without full knowledge of non-public portions of a system where the patent owner (1) could not reverse engineer that information and (2) first drew-the-foul by unsuccessfully seeking that information from the putative infringer before filing suit.
And MPHJ raises other issues, such as First Amendment Constitutional right to access to courts (including pre-litigation activity) and whether the FTC has been acting outside its statutory mandate. An interesting case we will keep an eye on.