New York Attorney General’s “Groundbreaking Settlement” with a “Patent Troll” and the Broader Implications of the “Guidelines for Future Patent Conduct”

by Bond Schoeneck & King PLLC
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Earlier this month, New York’s Attorney General Eric Schneiderman announced a “groundbreaking settlement” agreement with MPHJ Technology Investments, LLC (“MPHJ”), a company many (including the Mr. Schneiderman) deem a “patent troll.”

What led to this settlement agreement?  Well, this was not simply a situation where a non-practicing entity was asserting, in good faith, its legal rights under patents that it owned.  Indeed, according to the Attorney General’s press release on its website, MPHJ engaged in certain “abusive” tactics, which included a strategy of sending “deceptive and abusive letters to a large number of small businesses in an effort to extract small, often nuisance-value license payments from them” in view of patents of questionable validity.  These letters indicated that each targeted business “likely” infringed MPHJ’s listed patents without any apparent due diligence on MPHJ’s part regarding such a claim, falsely indicated the number of licenses MPHJ had obtained under the listed patents, and falsely indicated the amount in fees paid to MPHJ pursuant to these alleged licenses.

As part of the settlement agreement, recipients of the infringement letters who agreed to a license with MPHJ were allowed to void the license agreement and receive a full refund on any license payments made to MPHJ.  Further, MPHJ is prohibited from contacting some of the previously targeted businesses.  If this was the basic scope of the settlement agreement, then many would see this as a big win for the particular targeted businesses.  However, this agreement has broader implications beyond MPHJ and the businesses MPHJ targeted.

The Attorney General’s press release specifically provides that the settlement agreement with MPHJ “should be viewed by other patent trolls as the minimum standards [or guidelines] that such entities seeking to contact New York businesses must follow to avoid liability for unlawful deceptive practices.”  These “guidelines for future patent assertion conduct” require, in part, a patent holder and/or its attorney to:

  1. conduct pre-letter mailing due diligence (i.e., “make a serious, good faith effort to determine whether a targeted business actually engages in infringement before making an accusation”);
  2. set forth the factual basis of the patent infringement claim in “reasonable detail;”
  3. provide a factual basis for any proposed licensing fee; and
  4. identify the true owner of the asserted patent(s).

In view of the Attorney General’s pronouncement, these guidelines may be used by New York based businesses in the analysis of the propriety of any letter from a patent holder seeking a license based on an allegation of patent infringement.  Conversely, these guidelines should be reviewed by any patent holder prior to sending a letter to any New York based business alleging patent infringement.  Indeed, the Attorney General’s press release provides that the enumerated guidelines are “not a safe harbor,” and that the Attorney General’s Office “will step in to stop abusive practices regardless of whether the guidelines are technically met.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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