If you are like thousands of small American businesses, you might have received a dubious “cease and desist” letter during recent months from an LLC with an odd name. The LLC’s name has six letters, the first and fourth of which are capitalized, and is a two-syllable nonsense word. The letter states that your company is infringing at least one of U.S. Patents 7986426, 7477410, 6771381, and 6185590, because you own and use a scanner to send scanned files via e-mail. It goes on to say that a blanket license is available for the scanner patents for about $1,000 per employee and that the business community in your area has been eagerly snapping up licenses. In many cases, a menacing-looking mock judicial complaint is attached to the letter, a clear threat of an impending lawsuit if the recipient fails to pay for the license.
If you have not received such a “threat letter” yet, you soon may. During the past two years, a company called Project Paperless, LLC has sent thousands of such letters, almost exclusively to small business and non-profit organizations. All of the letters are sent in the name of one of forty nonsense-named shell companies, but not by Project Paperless itself. The intent of the letter is clear: scare small organizations into paying for the “license” to avoid a costly lawsuit.
The conduct of Project Paperless has gained notoriety as probably the most egregious “patent troll” in memory. The scanner patents are of questionable quality, and the letters appear to be sent without any real knowledge of whether the addressee is actually infringing any of the patents (at least one company we are familiar with received the letter, but does not own a scanner). Moreover, Project Paperless has sued only one company of the thousands that have received these threat letters and appears to select the target companies universally on the basis of the recipient companies being too small to afford a costly patent infringement trial. Project Paperless’ strategy has brought disrepute to the patent system and has amplified calls to curtail the rights of patent owners, generally.
However, things do not appear to be going well for Project Paperless: the system is fighting back.
Late last year Project Paperless gave up on its efforts and apparently sold or transferred its patents to a Delaware company, MPHJ Technology Investments, LLC (“MPHJ”). The man behind MPHJ seems to be a lawyer in Waco, Texas, named Jay Mac Rust. MPHJ is continuing the strategies used by Project Paperless, including the use of the same forty nonsense-named shell companies as fronts for its litigation threats.
The patent system which MPHJ and Project Paperless have cited as supporting their patent infringement claims is now being used to challenge their patents. Three major scanner manufacturers, Hewlett-Packard, Ricoh, and Xerox, have filed requests that the U.S. Patent and Trademark Office (“Patent Office”) review the validity of two of the patents (U.S. Patents 7986426 and 6771381). The review process, which is known as an “inter partes review,” is one of the reforms created when the America Invents Act was passed in 2011 and makes it easier for the public to challenge questionable patents. Hewlett-Packard, Ricoh, and Xerox have submitted copious evidence to the Patent Office that systems for scanning and e-mailing documents were known well before the scanner patents were filed. Although it is early in the “inter partes review” process, the prospects for MPHJ’s newly acquired patents surviving do not appear good.
To compound MPHJ’s problems, it is being sued by the State of Vermont over its obnoxious threats to Vermont businesses. In late May, the Vermont Attorney General’s Office filed a lawsuit accusing MPHJ of violating the Vermont Consumer Protection Act. Vermont alleges that MPHJ’s threat letters are full of untrue and misleading statements that constitute unfair and deceptive trade practices. The long list of false statements in the threat letters cited in the lawsuit includes: that MPHJ has knowledge that the recipient is infringing the patents when MPHJ has actually performed no investigation whatsoever; that requests for royalties have been well received by the business community when in fact most recipients just ignore the letters; that MPHJ will enforce its rights in court when in fact only one company out of thousands has ever been sued (and the case promptly settled out of court); and that the shell companies have the right to enforce the patents as exclusive licensees when they do not have that right. The lawsuit seeks to shut down MPHJ’s activities in Vermont and seeks money damages, including $10,000 per threat letter.
Lastly, at least one targeted business decided to fight back and has filed a preemptive lawsuit against one of the nonsense-named shell companies. As mentioned in our earlier report on the scanner troll phenomenon, Engineering & Inspection Services, LLC (located in Louisiana) reacted to its threat letter by suing the shell company for violating antitrust laws and seeking a court order that the scanner patents are invalid. The lawsuit was filed in April of this year, and the court has yet to issue any decision on the record (and most likely will not do so for at least several months). Often when such a preemptive lawsuit is filed (known as a declaratory judgment action), additional parties who have been threatened by a patent holder will join the litigation to pool resources against the common foe. At this time we are not aware of any additional parties joining the Engineering & Inspection Services, LLC, law suit.
We will continue to monitor this rapidly evolving situation and to provide up-date reports. The change in ownership of the patents and the challenges to their validity by private industry and government alike have increased the likelihood that some or all of the patents will be found to be invalid. Any decision by the Patent Office or one of the courts involved will be reported.