Second state cracks down on patent-wielding “scanner trolls”

Trolls must back off their plan to get “fast money” from Nebraskans, says AG.

Joe Mullin – Jul 23, 2013 3:15 pm | 46

Nebraska's attorney general is the second state lawyer to attack notorious "scanner trolls." Credit: LSV Native / flickr

One of the most notorious “patent trolls” out there right now, MPHJ Technology Investments, is asking small businesses for $1,000 per worker just for using scanners. And they’re doing it in smaller states that aren’t used to seeing many patent threat letters.

That situation has caused major blowback from those states. The Vermont attorney general sued MPHJ in May, saying the company’s letter-writing campaign was violating Vermont consumer protection laws.

Now a second state is going after MPHJ and its go-to law firm, Texas-based Farney Daniels. The Nebraska attorney general has published a cease-and-desist letter it sent to Farney Daniels telling the firm to lay off the Cornhusker state or else. No more infringement demands should be made until the attorney general gets a chance to investigate, the letter says. Farney Daniels has been ordered to hand over all information related to Nebraska patent enforcement for all of its clients since January 2010.

“‘Patent trolls’ make egregious threats with little or no valid legal purpose to gain fast money,” said Nebraska Attorney General Jon Bruning in a statement accompanying the letter, which went out last week.

The focus appears to be similar to the focus in the Vermont lawsuit. Essentially, if the MPHJ demand letters said things that were “unfair or deceptive” in order to get target companies to pay up, it may have violated Nebraska state consumer protection laws.

Farney Daniels has until August 19 to comply with the information demands in Nebraska. Until then, they need to lay off the state, says Nebraska Attorney General Jon Bruning.

The letter states in part:

The protection of Nebraska consumers and businesses from baseless harassment, particularly that which bears the potential for costly and destructive litigation, is a top priority of this office. We view as especially egregious threats which serve to advance no valid legal purpose or the legitimate protection of productive intellectual property but, rather, seek only to extract quick settlements from those otherwise committed to building their businesses and providing positive value to society. We will use every means at our disposal to prevent such conduct and deter its future occurrence.

The possible violations specified in this letter are serious and require your immediate and unconditional cooperation. Given the significant ramifications posed to Nebraska consumers and businesses by your potentially unlawful conduct, I hereby demand that you immediately cease and desist the initiation of any and all new patent infringement enforcement efforts within the state of Nebraska pending the outcome of this office’s investigation.

MPHJ’s head lawyer, Bryan Farney, responded to an inquiry about the Nebraska letter in a statement:

We firmly believe that a strong patent system is vital to the US economy, and are proud of our service to that system and to our clients.

While the Nebraska Attorney General may have concerns about the US patent system and how it works, or about particular types of patent owners, we are confident that any fair investigation will conclude our firm has lawfully and honorably represented our clients in upholding their rights.

We believe the actions of the Nebraska Attorney General directed at our firm should be of concern to every firm in the country that works to protect and enforce the lawful rights of US patent owners.

In addition to that statement, Farney previously told Ars that he believes they were running their campaign fairly and by the book in Vermont and elsewhere. The campaign isn’t targeting small nonprofits, and if the Vermont organizations named as plaintiffs in the suit had simply identified themselves, MPHJ would have backed off according to Farney.

Three other attacks against MPHJ

MPHJ acquired the patents after they were used in a similar campaign last year by a different patent company called Project Paperless. The inventor, Laurence Klein, lives in Israel, and the patents relate to work he did at Imagination Software, his company in the mid-’90s. It’s not clear if Klein has any financial interest in the current campaign or who is making the real money from the MPHJ patent enforcement. MPHJ is a Delaware company and reveals no information about its officers, and Farney has refused to identify his client.

Meanwhile, MPHJ and the Vermont authorities are sparring over venue. In June, MPHJ had the lawsuit against it removed into federal court. Earlier this month, the AG’s office filed a motion arguing that the case should stay in state court. “The State’s consumer fraud claims have nothing to do with the validity of MPHJ’s patents,” wrote government lawyers. “Nor does the State’s complaint address whether, in fact, any Vermont businesses are infringing the patents.”

“The State clearly likes its chance better in state court, most likely because the VT Supreme Court has a history of ruling against finding preemption of federal laws,” Vermont IP attorney Justin McCabe told Ars.

In addition to the state actions, three scanner companies have also challenged MPHJ patents at the patent office. Xerox and Ricoh teamed up to file one reexam, and HP filed another on its own. The HP reexam features manuals from old printers that the company says do all the office-networking that MPHJ claims to own with its patents.