(CN) - A company notorious for trying to extract money from thousands of small businesses it accuses of patent infringement has agreed to stop its deceptive practices to settle charges lodged against it by the Federal Trade Commission.
The announcement marks the first time the FTC has taken action against a patent assertion entity under its consumer protection authority.
PAEs -- better known as "patent trolls" -- are companies that obtain patent rights and try to generate revenue by licensing to or litigating against those who are or may be using patented technology.
According to the FTC's administrative complaint, MPHJ Technology Investments LLC and its law firm, Farney Daniels, sent letters to thousands of small companies warning that they face lawsuits unless they pat to license patents MPHJ owns.
The agency said these letters were deceptive and the legal threats "phony."
Under the terms of the settlement, MPHJ, its owner, Jay Mac Rust, and its law firm are barred from making deceptive representations when asserting patent rights. If they violate the agreement, MPHJ will be subject to a $16,000 fine per letter.
"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, in a written statement. "Small businesses and other consumers have the right to expect truthful communications from those who market patent rights."
The FTC's complaint says MPHJ, bought patents relating to network computer scanning technology, and then told thousands of small businesses that they were likely infringing the patents and should purchase a license.
In more than 9,000 letters sent under the names of numerous MPHJ subsidiaries, the complaint alleges, MPHJ falsely represented that many other companies had already agreed to pay thousands of dollars for licenses.
The complaint also alleges that Farney Daniels authorized letters on the firm's letterhead that were sent to more than 4,800 small businesses.
These letters warned that the firm would file a patent infringement lawsuit against the recipient if it did not respond to the letter. The letters also referenced a two-week deadline and attached a purported complaint for patent infringement, usually drafted for filing in the federal court closest to the small business receiving the letter.
In reality, the complaint alleges, the senders had no intention-and did not make preparations-to initiate lawsuits against the small businesses that did not respond to their letters. No such lawsuits were ever filed.
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