Scanner troll sued by states and FTC

In a previous blog post, I mentioned an (in)famous "long tail" patent assertion entity called Project Paperless. Project Paperless, along with its shell companies, targeted business offices with scanners on their network, claiming what appears to be patents on scanning paper documents and viewing images.

Project Paperless later sold its patents to another troll, MPHJ Technology, owned by a Texas attorney Mac Rust (no surprise there). Apparently, Rust's job is to calm down "really irate" letter recipients to get them to pay from $900 to $1,200 per worker. MPHJ typically sends notices to small businesses demanding payment for each employee or risk an impending lawsuit. As I understand, the notices are harsh but indiscriminate. MPHJ does not investigate infringement. It probably assumes that every business office owns a scanner with an infringing scan-to-email feature.

With such tactics, it's no surprise that politicians are reacting. Congressman Peter DeFazio (from Oregon) mentioned MPHJ when advocating for his SHIELD bill, which would require some losers of patent litigation to cover the other side's costs. (The SHIELD act might create problems of its own.) Legal action was also taken against the troll in several states, including Vermont, Minnesota, New York, and Nebraska. Minnesota's attorney general was able to convince a judge to force MPHJ out of the state entirely. New York's attorney general reached a settlement, requiring MPHJ to return money it had received from businesses in the state, but allowing it to send out "toned down" demand letters in the future.

MPHJ is trying to strike back. During an investigation by the Federal Trade Commission (FTC), the U.S. regulator for consumer protection and business practices, MPHJ unexpectedly sued the FTC. In turn, the FTC filed a motion to dismiss the lawsuit, claiming:

[MPHJ] improperly seeks to impede an ongoing investigation by the FTC...The FTC's investigation centers around whether Plaintiff [MPHJ] violated, or is violating [the FTC Act]...by falsely threatening thousands of small businesses with imminent patent infringement litigation when, in truth, Plaintiff did not intend to take and did not take such action.

In Nebraska, MPHJ claimed that its demand letters were constitutionally protected free speech. The judge agreed, but the state attorney general has appealed.

Like with other states, Vermont's attorney general sued claiming that MPHJ violated consumer protection laws. However, MPHJ called the case "sham litigation" that sought to illegally restrict free speech and "usurp federal patent law". It requested that the state attorney general be sanctioned and that state pay its legal fees.

Thankfully, it appears that saner heads will prevail. MPHJ attempted to get the case heard in a federal district court and then appealed to the Federal Circuit. Both times the judges pushed the case back to state court. A Vermont venue makes a victory for MPHJ unlikely.

I'm glad to see that startups and small businesses are not alone in the battle against trolls. But it's unfortunate that an abusive business with a patent (that I assume/hope has prior art) is able to run a legal circus. One wonders how much lost time/money is imposed on small businesses, bureaucrats, and the judiciary alike.