Cease and Desist Letter

A patent cease and desist letter (C&D or demand letter) is a formal written notice from a patent owner to an alleged infringer: 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.

Responding to a patent demand letter requires a prompt, organized response — inaction is itself a strategic choice with consequences: IMMEDIATE ACTIONS (WITHIN 24-48 HOURS): (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; (3) INVOLVE LEGAL COUNSEL: immediately retain patent litigation counsel (or outside patent counsel if you have in-house counsel) who can provide privileged analysis; WITHIN THE FIRST WEEK: (1) IDENTIFY THE PATENT: obtain a copy of the asserted patent; review the file history at USPTO PAIR (Patent Center); (2) IDENTIFY THE CLAIMS AT ISSUE: if the letter cites specific claims, analyze those; (3) IDENTIFY YOUR PRODUCT: confirm exactly what product or process is accused; (4) ASSESS DJ JURISDICTION: determine whether you have grounds for a declaratory judgment action and whether filing DJ first is strategically advantageous; 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.

A patent cease and desist letter can create the basis for the recipient to file a declaratory judgment action in a forum of their choice: 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; COVENANT NOT TO SUE: if the patent owner provides a covenant not to sue, DJ jurisdiction is eliminated.

Recipients of patent demand letters have multiple response strategies; each has advantages and disadvantages: (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; RISK: a substantive response can identify your best defenses prematurely and invite further litigation; (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; COMPARABLE LICENSES: research what licenses the patent owner has granted others; ADVANTAGE: avoids litigation cost and uncertainty; RISK: paying a royalty to a weak or non-covering patent; (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; ADVANTAGE: preserves product sales without ongoing royalty obligation; (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; (6) DO NOTHING (IGNORE): tactically possible for weak assertions by under-resourced plaintiffs; RISK: creates willful infringement from the notice date forward; provides no defenses for the pre-notice period.

Several states and some federal proposals attempt to regulate patent demand letters that lack a reasonable basis: 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.