Comments:"Meet the nice-guy lawyers who want $1,000 per worker for using scanners | Ars Technica"
Starting late last year, hundreds of US businesses began to receive demand letters from secretive patent-holding companies with six-letter gibberish names: AdzPro, GosNel, and JitNom. The letters state that using basic office equipment, like scanners that can send files to e-mail, infringes a series of patents owned by MPHJ Technologies. Unless the target companies make payments—which start at around $9,000 for the smallest targeted businesses but go up from there—they could face legal action.
In a world of out-there patent claims, MPHJ is one of the most brazen yet. It's even being talked about in Congress. Rep. Peter DeFazio (D-OR), who has sponsored the anti-troll SHIELD Act, cited the operation as a perfect example of why the system needs reform. After publishing a story on the scanner-trolling scheme, Ars heard from letter recipients and their lawyers from around the country—Idaho and Texas, California and South Dakota.
Before the AdzPros and GosNels took over, the patents were owned by an entity called Project Paperless, which threatened dozens of businesses in Virginia and Georgia. Project Paperless ultimately filed two lawsuits, prosecuted by lawyers at Hill, Kertscher, and Wharton, an Atlanta firm with complex connections to the patents. In late 2012, Project Paperless sold the patents to MPHJ Technology Investments. Today, the anonymous owner of MPHJ operates GosNel, AdzPro, JitNom, and at least a dozen other shell companies now targeting small businesses around the country.
So how does it all work? Bringing in the patent payoffs is a lawyer-driven business. The top lawyer behind the new scanner-trolling enterprise is Brian Farney, a Texas IP lawyer who is senior partner at Farney Daniels. Farney won't reveal who he's working for; he simply refers to whoever is behind MPHJ as "the client." But the client did agree, surprisingly, to allow Farney to do an interview about the patent-enforcement campaign.
Another lawyer deeply involved in the scanner-trolling enterprise is Jay Mac Rust, a Waco, Texas attorney who works as a kind of in-house patent enforcer for MPHJ. He isn't the only one with that job, but Rust has a special role. It's up to him to calm down letter recipients who are "really irate"—and, at the end of the day, to get them to pay from $900 to $1,200 per worker. Rust didn't agree to talk to Ars, but a source has provided a recording of a revealing conversation he had with Rust.
Together, the Farney and Rust conversations show how the scanner-trolling campaign is designed. They also give a glimpse at how the lawyers involved see themselves. It's the most insight available into a scheme that, to some business owners, feels like a shakedown.
So what are the top lawyers behind MPHJ Technology Investments like? Well, on the phone they come off as really nice guys. Demanding payouts from small business users of everyday technology isn't the typical patent enforcement strategy, but it's perfectly legal under US law. As a business strategy, however, it has generally been considered unworkable—and unwise.
Well, until now. As the art of modern "patent trolling" enters its second decade, the MPHJ scanner-trolling scheme has opened a new front in the battle. The company has a patent that it believes is being violated by "99 percent" of American office workers. And it wants to get paid.
Jay Mac Rust, from 2006 magazine cover of Super Lawyers Texas “Rising Stars.” Super Lawyers“99 percent of people are using it. You know it and I know it.”
Mac Rust is one of a few lawyers who gets certain "territories" of the MPHJ patent scheme. A person who had a conversation with Rust in January about alleged violations of the MPHJ patents—I'll call the source Mr. Smith—gave Ars a recording of his phone call. The recording was made with Rust's knowledge.
In the call, the confused Mr. Smith starts out by telling Rust he can scarcely believe what is happening. "Just to reiterate, my home printer—if I scan to e-mail, it's an option on my Hewlett-Packard printer—I do that, I owe you money?" asks Smith.
"If you said you hooked it up to the Internet, and in one button, you can scan and e-mail directly out—yes, you have violated the patent that we own," says Rust.
That means millions of Americans owe Rust’s anonymous client money. But Smith seemed overly focused on his personal behavior, with his home printer. Individuals aren’t the intended target, Rust explains.
“We’ve been trying to do what we can to focus on businesses that have 10 or more employees,” says Rust. “But look, it's not perfect. All our information is not exactly perfect. That’s why we send a letter to ask you certain questions.”
The six-letter entities are divided up by region, Rust continues. "According to patent law, if we're going to sue you, we have to sue you in your area. So we broke those up, so we could sue in those individual areas, so we don't have to drag you to Delaware [where MPHJ is incorporated]. You don't really want to fight in Delaware, and I don't want you to have to fight in Delaware."
"I see. So you're doing me a favor!" says Smith.
"In a sense, yes," replies Rust.
"So—I'm sorry," says Smith. "You're going to have to bear with me. I'm just flabbergasted."
"I highly recommend you contact a patent attorney," says Rust, a theme he returns to throughout the 15-minute phone call.
Telling target companies to consult an attorney may seem like a surprising suggestion for an enforcer of controversial patent claims. But suggesting that small companies lawyer up probably yields excellent results for Rust and MPHJ. A patent lawyer will likely tell targets that the letters shouldn’t be ignored, and the lawyer will quickly let them know the cost of fighting an issued patent, which can be hundreds of thousands of dollars—or millions, if a case actually goes to trial. That’s far more than the cash asked for by AdzPro, GosNel, and the other MPHJ entities, which will grant a license for between $900 and $1,200 per worker—around $100,000 for a 100-employee business.
"I promise, they'll help you to understand how patent law works,” says Rust. “You'll figure out it's not a scam. It's not some kind of bull. We're not trying to harass people. They'll look up the patents and tell you whether or not what you do infringes. And if you don't infringe, hey, let us know that."
Companies that don’t infringe just need to sign a simple "declaration" document saying so, Rust explains.
In the MPHJ declaration, which Ars has obtained a copy of, a representative of the target company must swear under penalty of perjury that the company doesn't use any equipment that scans a document to e-mail and then transmits it over a network. If that statement proves to be false, the company agrees to a "consent judgment" in the amount of $1,200 per employee.
But most companies do infringe, according to MPHJ. "If you're scanning direct to e-mail, you're violating," says Rust. "It's pretty simple."
"So everyone violates!" says Smith, later in the call.
"99 percent of people are using it," says Rust. "You know it and I know it. So, yeah."
Smith continues to be incredulous that he as an individual, and not a big company, could be on the hook for payments related to patents. At one point, Rust uses an analogy about Apple v. Samsung to explain to Smith the power that MPHJ has over him.
"Do you know that if you had bought a notebook—or whatever, the Samsung version of the iPad—you know they could have come and taken those away from you? Actually made you give them all back? Do you know that?" says Rust. "So I mean—it's interesting how patent law works. They could have actually stopped everybody from using them. Even though you paid your thousand bucks for the thing, they could have taken them away, under patent law."
Near the end of the call, Smith asks Rust how he even got his phone number. (The call was initiated when Rust called Smith; Smith had been repeatedly calling the call center number featured on the threat letters.)
Rust explains that in general, the scheme is broken up geographically, with certain MPHJ lawyers getting certain regions. The lawyers stick with the target company they are assigned to, suggesting they are paid on some kind of commission basis. But there’s a certain type of business owner that always ends up with Rust and his easygoing Texas drawl: the angry ones.
"You're the lucky guy that gets me," Rust explains to Smith. "I get to answer all the ones that are really, really… irate. And I understand that."
"I'm not irate at you, Mac, because like I said, you seem nice," says Smith. "But I am irate."
"I know you are, and I don't blame you," says Rust. He continues:
That's why I encourage people to go to a lawyer. Look, I'm a regular lawyer, too. I started out doing litigation. So if I had seen it [the threat letter], I would have gone, "Aw, bullshit," just like everybody else. But unfortunately once you get into the patent world, you'll find out… some guy that made an invention in 1999, back when this was a novel idea, really does have rights. Even going for a long time into the future. Now that… scanning and e-mailing has replaced the fax machine, all of a sudden his invention is really, really valuable.Rust ignored our phone calls and e-mails requesting interviews over a period of several weeks. Last week, I made a final phone call to let him know we were moving to publication with a piece that included a recorded phone conversation of him as well as a photo.
He returned that call within minutes.
"I'd appreciate you not running a photo of me, anywhere," said Rust. "You know how photographs work, with copyright and all. If there's a photograph up online of me, I own it."
I simply told Rust that we did have a photo that was fine for us to use, with or without his permission. I asked if he would talk about his work on the MPHJ patent campaign at all.
"No," he said. "I think you've already talked to Brian Farney. I doubt seriously if anything I say is going to change your mind about the legality of this, or anything else."