Company's 'patent trolling' will end in Minnesota after attorney general investigation

The letters poured into Joann Sprino's small business from a Delaware company she didn't know -- each letter more threatening.

MPHJ Technology Investments LLC said Sprino was violating its patents by using office equipment to scan and email documents. One letter listed a court date for a potential lawsuit. But the accusations didn't make any sense to her. She tried to reach the Texas attorney listed on the letters, but no one would take her call.

"They wouldn't even get on the phone and tell me what it was, just 'You're getting sued,'" recalled Sprino, co-owner of small movie theaters in North Branch and Cambridge. "I didn't even know what I was being sued for."

MPHJ's threats to Sprino and other Minnesota small business owners alleging patent violation with little proof — a practice known as "patent trolling" — led to a settlement announced Tuesday between the company and Minnesota Attorney General Lori Swanson. MPHJ agreed to scale back its campaign.

"Businesses that never heard of this company started getting letters saying 'you are in violation of a patent we have on the entire process of copying and scanning and emailing documents,'" said Swanson. "These companies don't know what to do and they're basically hit with: 'Pay us $1,000 licensing fee for every employee you have, or else we might come after you.'"

The company's settlement with Swanson does not allege any wrongdoing and the company has not recovered any fees from Minnesota companies for patent infringement, an MPHJ attorney said. MPHJ also agreed not to restart its campaign without approval from the state attorney general.

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"Patent trolling" is a growing national problem, said Swanson, whose office began investigating MPHJ last spring for violations of state consumer protection laws after receiving complaints from Minnesota small businesses targeted by the company.

She characterized the practice as a "fishing expedition" where threatening letters are sent with little or no proof that a patent violation occurred. "And, of course, if people pay money where they don't owe the money, you can make a lot of money," Swanson added.

"You're suggesting to that person, 'Hey, I have the goods on you, you owe me money.' Basically that violates consumer protection laws," Swanson said.

William Schultz, a Minneapolis lawyer specializing in trademark and patent litigation, said some of his firm's clients received threatening letters from MPHJ.

He said it's possible some companies were violating MPHJ's patent.

"The issue, however, is the practice in which this company was going forward and sending out letters without any real understanding of whether any company truly did or did not infringe a particular patent," said Schultz, a partner with the law firm Merchant & Gould. "That practice of going forward and making these threats to these companies — with zero basis to do so — brought that within the purview of the attorney general," he said.

In a statement, MPHJ attorney Bryan Farney noted "none of the company's actions in Minnesota or elsewhere were wrongful or unlawful." The company is also facing scrutiny from attorneys general in Vermont and Nebraska.

The company has stopped pursuing infringement inquiries in those states at this time, a company spokesman said.

Companies like MPHJ often get called "patent trolls" because they own patents and don't actually produce anything, said Mark Lemley, a Stanford University law professor who specializes in intellectual property issues. "They make money by going after potential violators of their patents. That's legal."

Over the past couple years, patent trolls have pursued not just manufacturers who might violate a patent, but increasingly the "end users"-- consumers who use the patented products or processes, Lemley added.

"If your scanner might infringe a patent, well you could imagine the same thing happening with your car, with your computer and with your cell phone," Lemley said.

"It's an oddity of patent law that we've made it illegal not just to make and sell the product but to use the product that you bought from someone else and to do so even with no reason to believe you're infringing a patent."

Lemley says proposals in Congress may help reform the patent system.

A handful of big manufacturers, including Xerox and Hewlett Packard, are asking the U.S. Patent and Trade Office to take a look MPHJ's patents and consider whether they should be invalidated.