Over the past eight months, thousands of businesses across the United States received the same five-page letter from “The Licensing Team” of any one of 40 shell companies affiliated with MPHJ Technology Investments, LLC:

“We are the licensing agent for certain U.S. patents listed below. We have identified your company as one that appears to be using the patented technology, and we are contacting you to initiate discussions regarding your need for a license…..”

The letter claims that the recipient, through the use of standard office equipment, allegedly infringes four U.S. patents and a pending patent application, all listing Laurence C. Klein as the inventor: U.S. 7,986,426; U.S. 7,477,410; U.S. 6,771,381; U.S. 6,185,590; and U.S. Patent App. 13/182,857. Klein no longer owns the patents. The actual owner is the mysterious MPHJ, which was created and assigned the patents late last summer. Around the same time, a stable of six-letter limited liability companies were created — among them AdzPro, EntNil, FolNer, and GosNel — to license the patents. Perhaps not coincidentally, this restructuring took place after two abandoned attempts by the prior owner, Project Paperless LLC, to enforce the patents through litigation.

Through its “licensing agents,” MPHJ asserts that the patents cover the use of scanning equipment that connects to a company’s computer network and sends scanned images directly to email, a location on an internal network (e.g. using Microsoft SharePoint) or an FTP/SFTP site. The earliest of the patents claim priority from provisional patent applications filed in October 1996. Most tip the scales at around 90 pages long.

The assertions made by the MPHJ licensing entities, which claim to have the exclusive right to license the patents within certain geographical areas and fields of use, make the venture sound like a scam to a company that is not familiar with U.S. patent law. The patents, however, exist and have not yet been invalidated by a court or the U.S. Patent and Trademark Office. And, MPHJ is attempting to expand its patent protection. On March 15, 2013, MPHJ filed three additional applications that are not yet publicly available but claim the benefit of the earlier patents.

The objects of MPHJ’s attention tend to be small to medium-size companies that have achieved success and recognition in their region and/or area of business. The letter admits that the licensing agent has no particular knowledge of any company’s document imaging technology. In many instances, the licensing agent is sending letters to entities that no longer exist, having been folded into the operations of larger enterprises of the type MPHJ appears to be actively avoiding. The sole factual basis for the letter is MPHJ’s “review of several marketplace trends and surveys” that led MPHJ “to the conclusion that an overwhelming majority of companies” use network addressable scanning equipment.

The reason why MPHJ targets these types of companies is clear. It assumes that small to medium-size businesses that have achieved recognition in their field presumably have the resources to pay some amount to license the patents. At the same time, they typically are not experienced in patent law, lack a background in the technology and/or lack the resources and motivation for what they assume will be a lengthy and costly court battle.

MPHJ’s apparent fear of litigation is further evident by the steps MPHJ takes to avoid involving the scanning equipment and software manufacturers. MPHJ’s opening letter includes an almost apologetic explanation for why it is not contacting the manufacturers of the scanning equipment or application software directly. This explanation relies on the legal technicality that patents claiming a computer system are infringed when the system is implemented and the direct infringer is the party responsible for implementing the system. MPHJ does not address, however, whether the scanning equipment and/or software manufacturers would be liable for indirect infringement under inducement or contributory infringement theories when customers use the equipment and software for their intended purpose and according to manufacturer instructions.

Industry watchers object to MPHJ’s claim to own basic office technology that, they assert, was known in the industry prior to the earliest invention date of the patents. Those sensitive to “patent trolling” by non-practicing entities object to MPHJ’s strategy for pursuing the parties least able and motivated to challenge the patents. Companies receiving letters object to feeling coerced into paying MPHJ tens of thousands of dollars simply to use a multifunction printer/scanner they already paid several hundred or several thousand dollars to purchase. The State of Vermont has taken action on behalf of its small businesses and non-profit organizations that have received solicitations from MPHJ. The Vermont Attorney General filed suit against MPHJ on May 8, 2013, alleging violations of the Vermont Consumer Protection Act. A few weeks later, on May 22, 2013, Vermont enacted a new provision making bad faith assertions of patent infringement a violation of its Consumer Protection Act (9 V.S.A. §4195 et seq.).

Setting the ethical debate over MPHJ’s licensing strategy aside, what should a company that receives a letter from one of the MPHJ licensing entities do? Companies that ignore the initial letter from MPHJ likely will receive follow-up letters from a Texas law firm, Farney Daniels, that threaten litigation and even include signed, but not yet filed, complaints alleging patent infringement. Also, under current law, a company that acts, despite an objectively high likelihood that its actions constitute infringement of a valid patent and knows or should know of the objectively high risk of infringement, could be found liable for willful infringement and subject to enhanced damages. Addressing these risks does not require conceding to MPHJ’s misleading demands. While each company’s situation will be different, defenses such as invalidity, unenforceability and non-infringing alternatives are common to all. An attorney experienced in patent law can help answer questions, identify defenses and formulate an effective response strategy that mitigates the company’s risk. Having dealt with these patents, we are prepared to apply that experience to find an efficient solution for our clients.

If you have any questions about this alert, please contact Christina J. Moser at cmoser@bakerlaw.com or 216.861.7818 or your regular BakerHostetler contact.