(Adds details on dispute, comment from company, background)
WASHINGTON, Nov 6 (Reuters) - The controversial patent assertion company MPHJ Technology Investments has reached an agreement with U.S. authorities barring it from using phony legal threats to demand patent licensing fees from small businesses, the Federal Trade Commission said on Thursday.
The deal is the first of its kind between a company and the FTC, which has said it would take action against so-called patent assertion entities (PAEs) who abuse the patent system by alleging infringement when there is none, or using other deceptive tactics.
In the deal, MPHJ agreed to settle charges that it used deceptive sales claims and phony legal threats in letters that accused thousands of small businesses of infringing on patents it owned. The FTC said that each violation of its order may result in a civil penalty of up to $16,000.
“A patent is not a license to engage in deception,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection.
PAEs, often known as patent trolls, are companies that obtain patent rights and try to generate revenue by demanding licensing fees or suing those who are or may be using patented technology.
In its complaint, the commission said MPHJ bought patents relating to network computer scanning technology, and then told businesses that they were likely infringing the patents.
Waco, Texas, based MPHJ then worked with the law firm Farney Daniels PC to create 81 subsidiaries. Either MPHJ or one of those subsidiaries sent letters to more than 16,000 businesses accusing them of infringing on a scanner patent, and urging them to buy a license for the patent.
The commission said in its complaint that some of the subsequent letters claimed that many other companies had licensed the patents, an assertion the FTC said was untrue.
Other letters threatened legal action within two weeks, although no legal action was ever filed. Because of this, the FTC said that the threat was similarly deceptive.
MPHJ said in a statement that the deal would allow it to continue to enforce its patents.
“MPHJ and its counsel strongly maintain their position that the enforcement letters that were sent were accurate, required by law, and protected by the First Amendment,” the company said.
MPHJ has already settled with attorneys general in New York and Minnesota. It has also been sued by Vermont. Nebraska’s attorney general warned MPHJ that its letters appear to lack legal merit but lost a subsequent legal fight with the company.
The White House last year urged action on several fronts to curb abusive patent lawsuits, which have grown in recent years to a multibillion-dollar industry. (Reporting by Diane Bartz,; Editing by Ros Krasny and Doina Chiacu)
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