On November 6, 2014, the Federal Trade Commission proposed a consent order that would settle charges against a patent assertion entity, MPHJ Technology Investments, LLC (“MPHJ”), and a law firm that represented MPHJ.

The FTC alleged MPHJ engaged in prohibited misleading or unsubstantiated representations when seeking to assert its patents.  More specifically, the FTC alleged, in relevant part, that MPHJ:

• bought patents related to network computer scanning technologies,

• threatened to sue thousands of small businesses that were alleged to infringe the patents, unless the businesses obtained a license from MPHJ;

• did not have any intention of and made no preparations to initiate lawsuits against these businesses; and

• falsely represented that other companies had agreed to obtain  licenses for the patents.

The FTC further alleged the law firm representing MPHJ improperly sent threatening letters on the law firm’s letterhead.

The proposed consent order limits MPHJ and its attorneys from making false or misleading representations about MPHJ’s patent rights, the licenses MPHJ has sold, future lawsuits MPHJ is likely to file, and the imminence of any future lawsuit.  The proposed consent order indicates any future deceptive conduct by MPHJ could trigger fines up of to $16,000 per false or misleading letter.

According to a press release from the FTC, the case against MPHJ marks the “first time the FTC has taken action using its consumer protection authority against a Patent Assertion Entity (PAE).”  The press release further notes:

“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 FTC has requested public comments on the proposed consent order by December 8, 2014.