Minnesota Forces Patent Company to Cease Royalty Demands

A patent-licensing company sued by Vermont officials for sending threatening letters has agreed not to target businesses in Minnesota, that state’s attorney general said today.

MPHJ Technology Investments LLC, which is registered in Wilmington, Delaware, claims anyone who scans documents to be e-mailed infringes its patents for the technology. It’s sent thousands of letters nationwide to companies and non-profit organizations demanding as much as $1,200 per employee to avoid patent-infringement lawsuits.

The settlement limiting the firm’s ability to contact Minnesota residents and businesses is believed to be the first of its kind against a company derided as a “troll” for its licensing tactics, the state said. Vermont has sued the company under state consumer protection laws.

“Patent trolls shake down small businesses to pay license fees they may not owe to avoid threats of costly litigation,” Minnesota Attorney General Lori Swanson said in a statement. “While this settlement and court order may affect one patent troller, the practice of patent trolling will continue until Congress enacts laws to prohibit such activity.”

Retailers have reported a rise in letters demanding compensation for using common technology such as Wi-Fi connections to the Internet, tracking customer shipments and adding maps to website.

President Barack Obama has backed legislative proposals to curb lawsuits against users of technology and the U.S. Federal Trade Commission is considering a broad inquiry into whether the tactics hamper innovation and competition.

Consent Needed

To send any further letters to Minnesota businesses, MPHJ must give the attorney general’s office 60 days’ notice and obtain its consent, according to the agreement.

“They can’t do what they’ve been doing,” said Ben Wogsland, a spokesman for the Attorney General’s Office. “They’re going to have a steep, steep row to hoe to convince Attorney General Swanson they have something legitimate here.”

The agreement doesn’t restrict the company’s ability to file patent-infringement suits, nor does it involve any allegations of wrongdoing, MPHJ said in an e-mailed statement.

“MPHJ welcomes this review process, as the questions that have been raised by the Minnesota AG went to the form of MPHJ’s licensing and infringement inquiry letters, not the substance, and MPHJ prefers any such immaterial issues to be resolved in advance, so that it can focus on its lawful licensing activity without further interference,” according to the statement.

Ricoh, Xerox

Brian Farney of Farney Daniels in Georgetown, Texas, a lawyer representing MPHJ, said the patents cover a network system to scan documents so they can be sent over a local area network as attachments to e-mails. Since the system includes both scanners and local area networks, there’s no single manufacturer that could sign a broad licensing agreement to cover users of the technology, he said.

“We can’t go after the manufacturers,” he said in an interview. “We do have a valid patent which has been reiterated by the patent office, and we have a lot of people using it. What’s a patent owner to do?”

Ricoh Co., Xerox Corp. and Hewlett-Packard Co. have each asked the U.S. Patent and Trademark Office to take a second look at the MPHJ patents, claiming they don’t cover new inventions, according to Scott Daniels, a patent lawyer with Westerman Hattori in Washington, who writes about such review requests.

Nebraska Effort

Farney said MPHJ tries to identify companies that are using the technology, such as accounting firms. Letters were sent in error to a Vermont non-profit group that helps disabled veterans get jobs, he said.

Farney also said the company doesn’t pursue anyone who responds by saying they don’t infringe the patents. Wogsland said businesses in Minnesota complained they weren’t able to reach anyone at MPHJ and kept getting letters.

The Nebraska Attorney General’s office has written to Farney Daniels, telling it to stop any patent-enforcement efforts pending the outcome of an investigation. Farney said the letter pertained to a different client, Activision TV Inc., that’s sued companies including Mazda Motor Corp. and Build-A-Bear Workshop Inc. over patents for remote-control electronic display systems.

Vermont Suit

Farney said MPHJ’s activities are different from companies that seek small amounts from a large number of users rather than get licensing agreements with manufacturers.

“If the patents were written in a way that Xerox and Ricoh infringe, we’d be happy to go after them and it would save all this hassle,” Farney said.

MPHJ first agreed to stop activity earlier this year when the investigation began and has told the state that no Minnesota business has paid licensing fees, she said.

The Vermont suit, filed in June, has been mired in a dispute over whether the case will be heard in state or federal court.

The inventor, former Maryland resident Laurence Klein, has retired and transferred his patents. An earlier owner of the patents, Project Paperless LLC, filed two suits that were settled and a third, against companies including Hewlett-Packard and Xerox, was dropped last year because the patents were being transferred to MPHJ.

Before it's here, it's on the Bloomberg Terminal.