New York’s Settlement With “Trolls” Provides Guidance for Patent Licensors

In Re Investigation by Eric T. Schneiderman, Attorney General of the State of New York, of MPHJ Technology Investments, LLC

Assurance (No. 14-015)

On January 13, 2014, New York Attorney General Eric T. Schneiderman filed a settlement with MPHJ Technology Investments, LLC. (“MPHJ”), a firm he described as “a patent troll[.]” MPHJ had developed a licensing campaign for five patents relating to technology involving the distribution of digital documents, directed to small-to-midsize firms. It created one hundred subsidiaries and granted each a license to assert and enforce patents held by MPHJ. The subsidiaries sent letters to over one thousand New York businesses, stating that each recipient “likely” infringed the licensed patents. In many of the letters sent, the subsidiaries alleged that “[m]any companies” had entered into a license agreement with respect to the patents”; however, at the time the letters were sent, no business had yet entered into a license agreement regarding these patents. The subsidiaries sent several follow-up letters to these businesses, through the MPHJ’s counsel, conveying the impression that an outside attorney had conducted a meaningful review of the alleged infringement. A final set of letters were sent, including a draft complaint, threatening to file a civil suit in Federal District Court against the targeted firms; at the date of settlement, however, neither MPHJ nor its subsidiaries had filed a single patent infringement lawsuit against a New York business. 

The settlement requires MPHJ to permit any licensees that received the letters described above to void their license with MPHJ and associated entities and receive a full refund. Further, MPHJ is prohibited from contacting certain small businesses it previously targeted. Finally, the settlement imposes a set of obligations on MPHJ that the Attorney General suggests serve as a guide to patent assertion entities:

Diligence and Good Faith When Contacting Potential Infringers
The guidelines require patent-holders to make a serious, good-faith effort to determine if a targeted entity actually infringes patents before accusing the entities of infringement. This restriction aims to avoid the possibility of mass mailing accusations of infringement without regard for the likelihood of infringement. The guidelines also foreclose using a lawyer as a threatening representative without a basis for the allegations made. Attorneys are expected to have good-faith belief that targets are infringing patents before so accusing.

Providing Material Information So an Accused Infringer Can Evaluate the Claim
In any communication accusing a business of infringing a patent, the patent holder must explain the basis for the claim in reasonable detail. This permits the recipient to reasonably assess whether the accusation has any merit. Moreover, patent holders are prohibited from trying to collect revenue for a patent held invalid and from not disclosing material information regarding the patent’s invalidity.

No Misleading Statements about a Licensing Fee
A patent holder must clearly explain the factual basis for any proposed licensing fees.

Transparency of the True Identity of the Patent Holder
Patent holders are prohibited from hiding their identity from targeted businesses.

These guidelines, as set forth in the settlement, are not intended to be a safe harbor for patent assertion entities, but rather to serve as a baseline standard of acceptable licensing practices in the State of New York. The following limitations, however, protect patent licensors:

  • The guidelines are limited to communications that are reasonably concurrent with similar communications made to at least nine additional New York persons
  • Communications directed to potential licensees having 1,000 or more employees are not covered
  • Communications directed to potential licensees that “originate or manufacturer  
    [a]ssertedly infringing products or services for commercial sale” are not covered.

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