FTC Takes on a Patent Troll
Tackling the issue of patent trolls for the first time, the Federal Trade Commission charged MPHJ Technology Investments, LLC and its law firm Farney Daniels with making deceptive claims and fake legal threats accusing small businesses of patent infringement.
The administrative complaint marked the agency’s first action against a patent assertion entity.
According to the FTC, MPHJ purchased patents related to network computer scanning technology and then sent tens of thousands of letters to various small businesses across the country. MPHJ accused the recipients of infringing its patents and suggested they purchase a license.
MPHJ sent more than 16,000 letters that falsely stated that “many companies” had paid thousands of dollars for similar licenses, and it offered to settle with the recipients for a license of $1,200 per employee. When the first 7,300 letters were sent, however, not a single license had been purchased, the FTC said.
Another 4,870 missives, sent on Farney Daniels’ letterhead, threatened a patent infringement suit “which our client will be forced to file” if the recipient failed to respond within a two-week period. Although the letters included a complaint drafted for filing in the federal court closest to the recipient’s location, the defendants never filed a single lawsuit, the FTC alleged, and never had any intention of actually initiating a case.
The FTC reached a deal with MPHJ, its owner Jay Mac Rust and Farney Daniels in which they are prohibited from falsely stating that a lawsuit will be filed and which bans them from making deceptive representations when asserting patent rights, including that a patent has been licensed at particular prices.
To read the complaint and the proposed consent agreement in In the Matter of MPHJ Technology Investments, click here.
Why it matters: In a statement about the case, Jessica Rich, the director of the FTC’s Bureau of Consumer Protection, acknowledged that the action is the first time the agency has asserted its consumer protection authority against a patent assertion entity, colloquially referred to in some circles as a patent troll. “Patents can promote innovation, but a patent is not a license to engage in deception,” Rich said. “Small businesses and other consumers have the right to expect truthful communications from those who market patents rights.”
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President Calls on FCC to Forbid Fast Lanes
In the latest chapter of the continuing drama known as net neutrality, President Barack Obama issued a statement calling on the Federal Communications Commission to reclassify broadband as a utility that will eliminate the possibility of Internet fast lanes.
“The time has come for the FCC to recognize that broadband service is of the same importance and must carry the same obligations as so many of the other vital services do,” the President said. “No service should be stuck in a ‘slow lane’ because it does not pay a fee. That kind of gatekeeping would undermine the level playing field essential to the Internet’s growth.”
Controversy has swirled since a January decision from the D.C. Circuit Court of Appeals struck down the FCC’s prior net neutrality regulations. The agency subsequently announced that it was considering new regs that would allow for “fast lanes” where Internet service providers afford certain companies preferential treatment by paying for faster service.
The FCC’s request for public comment led to a record-setting number of opposition comments that overloaded the FCC’s website.
The President joined the chorus and asked the FCC “to answer the call of almost 4 million public comments, and implement the strongest possible rules to protect net neutrality.” He advocated that the agency change the classification of broadband under Title II of the Communications Act from an “information” service to a “telecommunications service,” which would then subject it to the common carrier rules that includes a prohibition on discrimination.
Digital rights groups and consumer organizations praised the President’s stance while cable companies and telecoms were less than thrilled.
Public Knowledge president Gene Kimmelman applauded the President’s support for “the strongest tools to deter fast lanes and prioritized traffic on the public’s most essential communications platform of the 21st century”; however, industry group US Telecom Association characterized it as “baffling.”
Politicians also shared their two cents. “What the President is asking the FCC to do … is simply common sense,” Sen. Al Franken (D-Minn.) opined. On the other end of the spectrum, Sen. Ted Cruz (R-Texas) tweeted: “Net Neutrality is Obamacare for the Internet.”
To read President Obama’s statement, click here.
Why it matters: FCC Chairman Tom Wheeler – who thanked the President for his “important and welcome addition to the record” – had hoped to pass new regulations by the end of 2014. But he recently said more time is needed for the Commission to figure out what to do. News reports have speculated that the FCC is now considering a “hybrid” proposal that would establish two separate services: a retail service without fast lanes and a “back-end” service in which ISPs could charge extra fees for faster delivery. Without a clear consensus and with net neutrality becoming an increasingly politically charged issue, new regulations are unlikely in the near future.
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Florida AG, FTC Collaborate on Medical Alert Scam Targeting Seniors
Working in conjunction with Florida’s Attorney General, the Federal Trade Commission announced the permanent end to a scam tactic that law enforcement authorities said used robocalls to sell “free” medical alert systems to seniors.
AG Pam Bondi and the FTC charged the Orlando-based Worldwide Info Services and related corporate entities and individuals with violations of the Federal Trade Commission Act, the Telemarketing Sales Rule, and Florida’s Deceptive and Unfair Trade Practices Act.
In a typical exchange, consumers would receive a robocall informing the recipients that a friend or family member had purchased a medical alert system for them. If a consumer pressed “1” for more information, a telemarketer joined the call and claimed that the system was recommended by various medical groups and, if accepted, the monthly monitoring fee would not begin until after the system was installed and activated.
Instead, consumers were immediately charged $34.95, the regulators said, regardless of whether the system was activated. The defendants focused their efforts on a vulnerable population, the FTC and AG added – elderly consumers who lived alone with limited or fixed incomes.
Pursuant to the settlement agreement, the defendants are prohibited from making robocalls and engaging in other telemarketing activity. They are also banned from making future misrepresentations about any products or services. The majority of a $23 million judgment (the total amount consumers paid for monthly monitoring services) will be suspended upon the surrender of various assets such as cash, cars, and a sailboat.
To read the complaint and final order in FTC v. Worldwide Info Services, click here.
Why it matters: Both the FTC and Bondi noted the need for law enforcement to protect older consumers and they emphasized the joint efforts of the two regulators. Calling the action “a great example of how federal and state law enforcement can work together,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, vowed that the agency will “continue to work with its state partners to protect senior citizens from pernicious schemes like this one.”
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IAB to FTC: Focus on Actual Harm
In comments filed by the Interactive Advertising Bureau in response to the Federal Trade Commission’s request for comment following the agency’s Big Data workshop, the group suggested the Commission focus on incidents of actual harm, instead of worrying about the mere collection or use of data.
“[I]t is where there are actual harms – not theoretical or speculative harms – that the Commission can be the most effective in carrying out its mandate of protecting the American consumer,” general counsel Mike Zaneis wrote.
In September, the FTC hosted a public workshop titled “Bit Data: A Tool for Inclusion or Exclusion?” During the daylong meeting, representatives from the Commission cautioned attendees about the dangers of big data, which FTC Chairwoman Edith Ramirez said “can have big consequences,” and “has the capacity to reinforce disadvantages faced by low-income and underserved communities.”
After the workshop, the agency offered the chance to comment on the topics discussed at the workshop.
Emphasizing the “hugely beneficial” advertising and marketing uses of data, the IAB said it appreciated the FTC’s consideration of big data and the possibility of consumer harm. But given the “enormous universe” of big data, the group urged the agency to focus on actual harm instead of theorizing about potential problems.
“To that end, the Commission’s continued focus on advertising – a topic explored once again in the workshop – does the Commission (and by extension the public) a disservice by diverting attention from where actual harms may be occurring,” Zaneis wrote. “Continuing to explore a sector of the economy with robust self-regulation, or even its intersection with sectors with specific laws where unauthorized or inappropriate use of data could cause concrete harms to consumers, is counterproductive and unwarranted.”
The IAB attached a recently published editorial by the group that called into question the FTC’s ability to render unbiased decisions about the advertising industry. In a blog post, the Commission’s chief technologist discussed the potential for discrimination where different protected classes view different ads.
Noting that different groups of people have seen different ads throughout the history of modern advertising, the IAB editorial said the idea that seeing certain online ads creates a “disproportionate adverse impact” on visitors “strains credulity.”
Not only does the suggestion make an “offensive assumption that members of specific racial, religious or social groups visit only one type of website, and see only one type of advertisement,” it implies that ads “represent such a primary and irreplaceable source of information for Internet users that failing to see a specific ad can cause measurable harm,” the group wrote.
Citing the blog post as an example of the FTC’s focus on hypothetical injuries, the IAB called on the agency to turn its attention to actual harm.
To read the IAB’s comments, click here.
Why it matters: The IAB urged the FTC to focus on actual harm to consumers and not the collection and use of data by advertisers. “As the Commission contemplates its path forward, we continue to support the current and successful approach of addressing privacy questions through targeted legislation coupled with industry self-regulation,” Zaneis concluded.
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Most Read Stories
In case you missed any, here are our top 10 most widely read stories in October:
1. Red Bull’s $13M False Ad Deal Crashes Site
2. SPECIAL FOCUS: The Impact of eBay on Lanham Act False Advertising Litigation
3. FTC: Personal Liability a Possibility, Large Advertisers a Target, Focus on COPPA
4. With “Operation Full Disclosure,” FTC Wants Ads to Let It All Hang Out
5. Something Smells: Suits Challenge Deodorant Slack Fill
6. Permanent Ban From Prize Promotion Business After Sweepstakes Scam
7. FTC Mows Down Astroturfing at Yahoo
8. Guidelines Released for Alcohol Companies Engaged in Social Media
9. Say Cheese . . . And Hello To Marketing
10. Data Breach Plaintiffs Lack Standing To Sue, Court Holds
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