FTC settles first case with alleged 'patent troll'

The Federal Trade Commission on Thursday announced a settlement with a high-profile so-called "patent troll" that FTC officials say would prevent the company from making misleading claims and threatening lawsuits it has no intention of carrying out. 

The FTC said it is the first time the agency has used its consumer protection authority to crack down on a patent assertion entity, commonly referred to as a "patent troll."

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These companies make a profit from buying patents to license to others or by negotiating settlements after threatening patent infringement lawsuits. 

“Patents can promote innovation, but a patent is not a license to engage in deception,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Small businesses and other consumers have the right to expect truthful communications from those who market patent rights.”

The charges focused on MPHJ Technology Investments and its executives, who owned the rights to four patents dealing with computer scanning technology. The company, which has caught the ire of some in Congress, launched its own failed lawsuit against the FTC, which was dismissed in September. 

The FTC alleged that the company sent misleading letters to thousands of other companies threatening patent infringement lawsuits. The letters noted that many other companies in a similar position had settled.

The FTC found those claims to be untrue. It said MPHJ had no intention of following through with legal action. 

Under the settlement, the company neither admits nor denies the allegations. But MPHJ and its executives would be barred from making similar claims in the future. The company also agreed not to threaten a lawsuit if it has no intention of filing one. It must hold onto evidence to prove its intention of actually going through with any threat and make it available to the FTC on request for five years. 

The settlement will be made public for 30 days of comment, before the FTC decides whether to make the order final. 

Many observers see an increasingly likelihood of patent reform advancing in Congress as Republicans won control of the Senate. The House passed legislation last year, but Senate reform stalled, after Majority Leader Harry ReidHarry ReidThis week: Shutdown deadline looms over Congress Week ahead: Spending fight shifts from Zika to Flint Black Caucus demands Flint funding from GOP MORE (D-Nev.) failed to bring it to the floor.

Senate Judiciary Chairman Patrick LeahyPatrick LeahyOvernight Finance: McConnell offers 'clean' funding bill | Dems pan proposal | Flint aid, internet measure not included | More heat for Wells Fargo | New concerns on investor visas Dem senator won't back spending bill without visa reforms Top GOP chairmen investigating foreign visa program MORE (D-Vt.) said his legislation would have allowed the FTC financially penalize the action. He said he is committed to advancing similar legislation in the next Congress, which will be led by Republicans. 

"Small businesses should be able to focus on their work and on their customers—not frivolous exploitation schemes," he said. "I am committed to addressing the problem of patent trolls through legislation in the coming year, including a strong provision to address deceptive demand letters.”