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New York AG "patent troll" settlement touted as model for other states

New York attorney general Eric Schneiderman has announced a settlement with MPHJ Technology Investments that has been described as a model for other states to follow when taking on patent trolls

The news comes against a background of US states such as Nebraska and Vermont increasingly looking to tackle patent abuse.

The attorney general’s investigation focused on what Schneiderman describes as MPHJ’s use of deceptive and abusive tactics when it contacted hundreds of small and medium-sized New York businesses to try to coerce them into paying for patent licences of dubious value.

The settlement resolves Schneiderman’s investigations into MPHJ’s conduct and imposes requirements on the firm when communicating with New York businesses in the future. The attorney general said the requirements should be viewed by other patent trolls as the minimum standards that such entities seeking to contact New York businesses must follow to avoid liability for unlawful deceptive practices. 

“State law enforcement can’t cure all the ills of the federal patent system, but the guidelines established in today’s settlement will put an end to some of the most abusive tactics by placing the industry on notice that these deceptive practices will not be tolerated in New York,” said Schneiderman.

"A model for other states"

Law professor Robin Feldman, the director of the Institute of Innovation Law at the University of California Hastings College of Law, added: “Misrepresentation and downright fraud have become a major problem with patents, particularly against vulnerable targets like individuals and small businesses. Today’s historic New York settlement agreement strikes at the heart of this inappropriate behavior while protecting the legitimate exercise of patent rights. The agreement provides a model for other states, and for federal regulators as well.”

The settlement requires MPHJ to allow any licensees that received deceptive letters to void their licence with it and receive a full refund, and it prohibits MPHJ from further contacting certain small businesses it previously targeted.

The settlement also imposes a variety of obligations on MPHJ that Schneiderman said should serve as guidelines for all patent trolls engaged in similar patent assertion behavior. They include:

  • Diligence and Good Faith When Contacting Potential Infringers. The guidelines require a patent holder to make a serious, good-faith effort to determine whether a targeted business actually engages in infringement before making an accusation. This prohibits the mass mailing of accusations of infringement to hundreds of businesses with little regard to the actual likelihood that the businesses infringed. The guidelines also forbid using a lawyer as a threatening mouthpiece for baseless allegations.
  • Providing Material Information So an Accused Infringer Can Evaluate the Claim. When a patent holder accuses a business of infringing its patent, the guidelines require it to explain the basis for the claim in reasonable detail. The guidelines also prohibit a patent holder from trying to collect revenue for a patent that has been held invalid, and from failing to disclose material information that reveals the patent’s likely invalidity.
  • No Misleading Statements about a License Fee. If a patent holder seeks to justify a specific licensing fee, it must clearly explain the factual basis for its proposed fee.
  • Transparency of the True Identity of the Patent Holder. The guidelines prohibit a patent troll from hiding its identity from its targets.

The New York-based Public Patent Foundation and the Electronic Frontier Foundation also applauded the settlement.

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