FTC Hit with Lawsuit by Target of its Fraudulent Patent Enforcement Investigation

By on January 27, 2014

On January 13, 2014, MPHJ Technology Investment LLC (MPHJ) filed a seven-count complaint against the Federal Trade Commission (FTC) alleging various constitutional and other violations, including violations of MPHJ’s First Amendment rights and violations of the Separation of Powers Doctrine.

The FTC began an investigation into MPHJ’s business practices and in December 2013 served MPHJ with a draft complaint.  The FTC’s complaint alleges that MPHJ sent 16,000 demands to small companies to pay $1,000 per employee to license MPHJ’s patents over document scanning equipment.  In particular, the FTC took issue with two statements in the demands.  The first was that MPHJ would file suit if the company did not respond and the second was that many companies with similar technology promptly paid licensing fees upon notification of the infringement.  These statements were both false, according to the FTC, because MPHJ never intended to file suit and never actually filed suit against any recipient and also because MPHJ only sold 17 out of the 16,000 demanded licenses.  Therefore, the FTC contends MPHJ’s demand letters constitute deceptive business practices.

MPHJ filed its complaint against the FTC in response to the FTC’s draft complaint.  MPHJ alleges that its patents are valid, that they are being infringed by thousands of companies, that it has a right to enforce those patents, that the first step to doing so is sending demand letters to infringers, and that those demands may legally contain a threat to sue for infringement.  MPHJ’s complaint states that the FTC has not contradicted or even disagreed with any of these assertions.  Instead, according to MPHJ, the FTC’s position is that a litigation threat not followed by a prompt lawsuit is a violation on its own.  In any event, MPHJ alleges the FTC does not have jurisdiction to interfere with MPHJ’s patent activity because the letters at issue do not meet the commerce requirement for Section 5 enforcement.  Moreover, MPHJ alleges that the right to enforce a federally granted patent is covered under the First Amendment right to petition the government.  As such, its patent enforcement activity is a petition to the government, and protected by the Noerr-Pennington doctrine.  MPHJ also charges the FTC with failing to do the requisite pre-suit investigation to find infringement as required under Federal Rule of Civil Procedure 11.

MPHJ’s complaint was filed in the Western District of Texas as MPHJ Tech. Inv. LLC v. FTC et. al., Case No. 6:14-cv-00011.

Michelle Lowery
Michelle S. Lowery focuses her practice on antitrust and competition. Michelle has experience in a broad range of antitrust litigation, transactional and counseling matters. Her practice focuses on complex litigation, government investigations, mergers and acquisitions, and counseling. Read Michelle Lowery's full bio.

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