Cease and Desist Letter

Typical Contents

• (1) identification of the asserted patent(s) (number, title, claims at issue)
• (2) identification of the allegedly infringing product or process
• (3) a demand to immediately stop the infringing activity
• (4) a demand to account for past infringement and pay royalties
• (5) an offer to license the patent
• (6) a threat to file a lawsuit if the demands are not met
• (7) a deadline for response (often 30 days)

Who Sends Them

• Operating companies asserting infringement by competitors
• Non-practicing entities (NPEs/patent trolls) as part of mass assertion campaigns
• Universities and research institutions asserting technology licensing rights
• Individual inventors
• INFORMAL vs.

Formal Demand Letters

• Informal letters may not cite specific claims or products
• Formal demand letters from litigation counsel cite specific claims, map them to specific product features, and are precursors to litigation

Effect on Willful Infringement

• Receiving a C&D letter puts the recipient on NOTICE of the patent
• Continuing to sell the accused product after receiving a C&D letter and WITHOUT investigating the claim may constitute willful infringement under the Halo Electronics standard
• The recipient must take the notice seriously

No Admission

• The C&D letter is a ONE-SIDED legal document prepared by the patent owner
• It does not establish infringement
• Many C&D assertions are based on overbroad claim readings or misidentification of the accused product.

(1) Preserve Evidence

• Immediately preserve all documents and records related to the accused product or process
• Implement a litigation hold
• Notify relevant personnel

(2) do not Respond Immediately

• Do not acknowledge the letter, promise to comply, or make admissions
• Any written response is discoverable

(1) Identify the Patent

• Obtain a copy of the asserted patent
• Review the file history at USPTO PAIR (Patent Center)

Review the Sender

• Research the patent owner — are they a practicing company, an NPE, or a university?
• What litigation history do they have?
• Have they sued others with this patent?

Document Design and Development History

• Gather records showing when the accused product was designed
• Identify who designed it
• Preserve any earlier prior art that might be relevant to invalidity

Privilege

• All communications with counsel about the C&D letter and your response are attorney-client privileged
• Do not discuss the substance with non-attorneys outside of counsel.

DJ Jurisdiction — Medimmune Standard

• MedImmune, Inc. v. Genentech, Inc. (S.Ct. 2007): a plaintiff has standing to seek a declaration of non-infringement or invalidity when there is an 'actual controversy' — a real dispute, not a hypothetical one
• The actual controversy requirement is met when the patent holder's conduct created a reasonable apprehension of suit in the other party

How the C&d Creates Actual Controversy

• A cease and desist letter alleging specific infringement of specific claims typically establishes sufficient controversy
• The letter puts the recipient in the position of either ceasing activity or continuing under the threat of suit

Strategic Use of DJ

• The DJ plaintiff can choose the filing forum
• TC Heartland venue rules don't apply to DJ plaintiffs (§ 1391 governs)
• A DJ action allows the accused infringer to: (a) fight in a favorable forum
• (b) control the litigation timeline
• (c) take the offensive against a weak patent before the patent owner files suit

When not to File DJ

• If the patent owner may be persuaded to license at a reasonable rate, DJ litigation may be premature
• If the recipient is unsure whether they infringe and needs time to assess, jumping to DJ may be premature

DJ Plus IPR

• Filing a DJ action starts the § 315(b) one-year clock for filing an IPR petition
• The DJ complaint's service date does NOT start the IPR clock — the IPR clock starts from a complaint alleging infringement in a civil action

(1) Investigate and Engage

• Retain patent counsel to analyze the claim
• If non-infringement or invalidity is clearly established, respond professionally declining the demand with a brief (non-detailed) explanation
• Offer to discuss further
• Preserves the relationship and may avoid suit

(2) License Negotiations

• If the patent appears valid and infringed, negotiate a reasonable license
• NPE licensing demands are often inflated — start by independently assessing the value of a fair royalty

(3) Design Around

• Modify the product to avoid the claims
• May require time and investment but eliminates ongoing liability
• Obtain an opinion on whether the redesign avoids infringement

(4) File Inter Partes Review (IPR)

• Within one year of service of a complaint alleging infringement, file an IPR petition challenging validity
• PTAB invalidation rates are high
• Stops the lawsuit during IPR

(5) File Declaratory Judgment Action

• Proactive litigation in a favorable forum
• Appropriate when the patent owner is unreasonable, the patent is weak, or the recipient cannot stop selling the product

Risk

• Creates willful infringement from the notice date forward
• Provides no defenses for the pre-notice period.

State Bad Faith Demand Letter Laws

• Many states enacted laws between 2013-2016 targeting abusive patent demand letters from NPEs
• Prohibit sending patent demand letters that: (a) lack a good-faith basis for infringement claims
• (b) misrepresent the asserted patent's validity or enforceability
• (c) demand payment without identifying the specific claims and accused features

State Examples

• Vermont was first (2013)
• Followed by California, Maryland, Georgia, Louisiana, Oregon, and others

Preemption Issues

• Some state laws have been challenged as preempted by federal patent law
• Courts split on whether state demand letter laws are preempted

Innovation Act (Proposed, Never Passed)

• Federal bill would have required patent demand letters to contain: (a) patent numbers
• (b) specific claims being asserted
• (c) identification of accused products and specific claim elements present
• Never passed Congress

FTC Enforcement

• The FTC has authority under Section 5 of the FTC Act to challenge unfair or deceptive trade practices
• Has brought actions against NPEs sending deceptive demand letters
• FTC Report on Patent Assertion Entities (2016)

Federal Court Sanctions

• Rule 11 sanctions are available against parties who file suits or make representations lacking a reasonable factual and legal basis
• Courts have sanctioned plaintiffs who filed suits based on baseless claim assertions
• § 285 FEE-SHIFTING: Octane Fitness provides a mechanism to award fees in cases of baseless assertion — deterring frivolous C&D follow-through with litigation.