In the wake of President Obama’s admonition of the increasing costs of patent litigation in his State of the Union, a notorious patent troll has further illuminated the need for reform. After learning that the FTC planned to file a complaint alleging deceptive trade practices, MPHJ Technology Investments preemptively sued the FTC. MPHJ’s complaint asserts its First Amendment right to notify potential infringers and also questions the FTC’s jurisdiction by arguing that patent-licensing behavior is not “in “commerce.” Saving the larger “patent assertion entity” debate for another day, let’s analyze the merits of each party’s claims.

As a preliminary matter, MPHJ’s jurisdictional argument seems weak. The complaint asserts that 15 U.S.C. §45(n) “prohibits the FTC from exercising authority in these circumstances” and that “the federal courts have previously ruled that the FTC cannot regulate the conduct which it seeks to regulate here.” First, the statutory section cited in the complaint merely prevents the FTC from declaring an activity unlawful that doesn’t cause “substantial injury to consumers” or can be prevented by the consumers themselves. Asserting that this section prevents the FTC from exercising jurisdiction seems to only beg the larger question of the reprehensibility of MPHJ’s conduct.

Further, In American News Co. v. F.T.C., the Second Circuit held that the FTC had jurisdiction to prohibit a national newsstand chain from using its bargaining power to garner promotional rebates from national publishing firms. That is, because the rebates secured through the firm’s bargaining power would be paid in interstate commerce, the FTC had jurisdiction. Here, because MPHJ’s letters notifying potential infringers contemplate and request the receipt of license fees in interstate commerce, the FTC probably has jurisdiction on these grounds as well.

But the constitutional question is more difficult. A court could interpret the speech in the notice letters as commercial speech, which gets lesser protection. On the other hand, a patent is a property right and the most fundamental property right is the right to exclude. At the very least, this suit will likely turn the FTC’s attention from the larger patent troll problem toward this litigation.

Mark Foley

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