This story originally appeared in sister publication The National Law Journal.
Patent attorneys are celebrating a first-in-the-nation settlement reached by Minnesota Attorney General Lori Swanson that essentially kicks a Texas patent “troll” out of the state.
Swanson announced on Tuesday that MPHJ Technology Investments had agreed to stop threatening to sue Minnesota businesses that use typical office equipment that scans documents to e-mail. MPHJ, of Waco, Texas, had demanded license fees of $1,000 to $1,200 per employee.
“Patent trolls shake down small businesses to pay ‘license fees’ they may not owe to avoid threats of costly litigation,” Swanson said in a written statement.
The agreement bars MPHJ from sending licensing or infringement inquiry letters in Minnesota without the attorney general’s permission. MPHJ cannot assign its patents to any party unless that party agrees to the settlement terms. And it must pay a $50,000 civil penalty.
In an emailed statement, MPHJ attorney Bryan Farney of Farney Daniels in Georgetown, Texas, emphasized that the agreement was voluntary and does not affect MPHJ’s right to bring patent infringement cases against Minnesota companies.
“The agreement does not allege any wrongdoing on the part of MPHJ and, in fact, none of the company’s actions in Minnesota or elsewhere were wrong or unlawful,” Farney said.
MPHJ’s threats against companies for using plain vanilla document-scanning equipment was clearly an egregious use of patents, said Morgan Chu, an intellectual property partner at Los Angeles-based Irell & Manella. “Finding ways to quell that conduct is a very good thing. The Minnesota A.G.’s actions were appropriate,” he said.
Bryan Kohm, a San Francisco intellectual property associate at Mountain View, Calif.-based Fenwick & West, agreed. “It’s important for the A.G. in various states to step in and prevent this sort of abuse of the legal system,” he said.
Other companies have initiated U.S. Patent & Trademark Office proceedings to re-examine the patentability of MPHJ’s patents, but that process takes time, he said. “This troll systematically was avoiding the court system and using its mechanism to shakedown companies throughout the country,” Kohm said.
Small businesses often lack the resources to fight dubious infringement claims, said Eric Hagen, a Los Angeles intellectual property partner at McDermott Will & Emery. “For the A.G. to step in and make it more difficult for a patent troll to operate this kind of scheme is definitely helpful.”
Swanson’s settlement also shines a light on MPHJ’s tactics, which could be useful if these types of cases ever end up in court, he said.
Most nonpracticing entities don’t target end users like MPHJ did, so the situation was somewhat unique, said John Dragseth, a Fish & Richardson Minneapolis partner and appellate group co-chairman. Still, “people should keep an eye on how other attorneys general might expand on what Swanson did,” he said.
Two other state attorneys general are fighting MPHJ. William Sorrell of Vermont sued in state court in May alleging consumer protection law violations.
MPHJ removed the case to Vermont federal court in June, but the state is still fighting the remand.
Last month, Jon Bruning of Nebraska announced an investigation into whether Farney Daniels’ patent enforcement efforts violate Nebraska law.
Sheri Qualters can be contacted at [email protected].
