Patent madness: Troll sues FTC

Faced with the threat of having its business model being ruled illegal, patent troll MPHJ has sued the Federal Trade Commission.

Patent trolls come in two forms. One uses patents as a bludgeon to protect its own turf against its corporate enemies. You see that in the worldwide lawsuits between Apple and Samsung . Another uses the threat of a patent lawsuit to extort payment from large companies since the cost of defending against a less than $1-million patent demand, averaged $650,000 in 2011. God help you if you lose. Then, there's MPHG's model. They go after the small fry: companies with less than a million dollars to their name. 


MPGH, and its 101 shell corporations, is the brain-child of Texas attorney Jay Mac Rust  (PDF Link). Instead of going after the big companies, he goes after small businesses all the way down to mom and pop businesses. MPGH sends them a letter informing, say a local coffee shop chain that their company is using its patented technology and that for a license fee of a mere $900 to $1,200, their business won't be sued.

The logic is that the amount is small enough that many small businesses will cough up the cash rather than face an expensive lawsuit. This is patent trolling as a protection racket: "Pay up and we won't burn down your business with a lawsuit."

The company's patents covers scan to e-mail technologies. What does that technology have to do with a cup of coffee? Nothing. But they might use a scanner and e-mail the document to someone so, by MPGH's greedy logic, that makes them a target.

MPGH bases its claims for five patents it bought in 2012 for one dollar. Yes, you read that right one (1) dollar. MPGH has used these patents to threaten at least 16,000 small businesses with lawsuits. So, at a $1,000 a pop, 16,000 targets, this plan could result in a $160-million return on a $1 investment. Not bad money if you can get it, eh?

But it hasn't worked out that well. We know of only 17 businesses that have paid up. Still, the potential is there. With the mere possibility of profits like that is it any wonder that 56 percent of all patent lawsuits in recent years have been by patent trolls ?

Now, faced with the likelihood of the Federal Trade Commission (FTC) suing MPGH for deceptive trade practices, MPHJ attacked first. The company's grounds for the lawsuit  (PDF Link) is that the FTC is overstepping its bounds because patent licensing isn't commerce.

This lawsuit comes on the heels of the New York State Attorney General ruling that MPGH must repay any money it's been paid by New York-based businesses. Clearly, MPGH is feeling the heat and is resorting desperate measures to save its business model.

The experts aren't impressed.

Daniel Ravicher, executive director the Public Patent Foundation), sniffed, "Dumb people do more dumb things. To be expected, right?" Andrew "Andy" Updegrove, a founding partner of top-technology law firm Gesmer Updegrove, told me he "loved the part where Rust complains about being 'burdened' by the FTC coming out of nowhere asking for things. Tsk tsk."

There is some good news about this lawsuit. It's brought even more attention to just how bad our current patent laws are. There is simply no reason on earth why a business or individual should be sued simply because they use a product or service, which might violate a patent. If MPHJ has a real beef, it should be taking it up with scanner and e-mail companies, not small local businesses.

The other is that this lawsuit is shedding light on the truly lousy state of patent law — just as Congress is showing signs that it's seriously considering reforming patents . With luck, this lawsuit will not only help break MPGH, but it will hunt down patent trolls once and for all.

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