A settlement with a so-called "patent troll" requiring it to repay all money received from organizations in New York should serve as a warning to other companies engaged in similar practices, the state's attorney general said.
Patent trolls are typically small companies run by a handful of people who buy old patents. They then contact target businesses claiming they may have violated certain terms of the patent and propose either a lawsuit or a settlement. The settlement is usually much cheaper than a possible legal battle, so the recipients of the letters typically pay the licensing fee.
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New York State's action was against MPHJ Technology Licensing, a company that has an online reputation as a notorious patent troll.
MPHJ contacted "hundreds" of small and medium-sized companies in New York over "likely" infringement of patents related to document scanning technology, according to a statement from the office of New York State Attorney General Eric Schneiderman, which announced the deal Tuesday.
The "deceptive letters" implied that MPHJ had already analyzed the target company's scanning system and found it to be possibly infringing its patents when in fact, "MPHJ merely sent form letters to companies of a certain size and industry classification," the state attorney general's office said.
Several examples of such letters from MPHJ can be viewed on the Trolling Effects website.
In its settlement, MPHJ has agreed to repay licensing money received from companies in New York state and has had a number of other requirements imposed upon it. The requirements, said Schneiderman, "should serve as guidelines for all patent trolls engaged in similar patent assertion behavior."
They include the requirement to conduct a "serious, good-faith effort" to determine whether a target company has actually infringed upon a patent, provision of a detailed explanation of the claim and alleged infringement, revealing the true identity of the patent holder and to not make misleading statements about a license. The identity requirement is in there because MPHJ uses multiple shell companies to make its claims.
Attempts were unsuccessful to reach MPHJ for comment at five different telephone numbers the company has used in the past.
Patent trolls have become a nuisance to many companies in the technology sector.
At last week's International CES in Las Vegas, the Consumer Electronics Association, the lobby group for the IT industry, renewed a call to reform the U..S. patent system to make such practices more difficult.
"We view what's going on in the patent world by trolls as legalized extortion and it's killing American jobs and it's hurting American companies," said Gary Shapiro, president of the CEA in a briefing with reporters.
The U.S. House of Representatives passed a bill that addresses the problem, HR3309, the Innovation Act, in late in 2013. The CEA is now pushing the Senate to do the same thing.
Martyn Williams covers mobile telecoms, Silicon Valley and general technology breaking news for The IDG News Service. Follow Martyn on Twitter at @martyn_williams. Martyn's e-mail address is firstname.lastname@example.org