You’re minding your own business, just going through your company mail. There in the pile, you find what appears to be a cease and desist letter from some law firm you’ve never heard of. What the . . . ? It’s a demand letter that says your company is infringing someone else’s patent! Now what?! Is this one of those patent trolls you’ve heard of? What do you do?! Should you just throw it away?
Here are the first two rules for when you receive a demand letter:
1. DO NOT IGNORE IT
2. DO NOT RESPOND YOURSELF!
This is absolutely, without a doubt, something you need to talk over with your IP attorney. Before you do anything else.
I’ve been involved in many of these situations, and there are just too many unknown variables. If you get upset and fire off a response, even if your righteous indignation is justified, you almost always end up shooting yourself in the foot.
When you do talk to your lawyer, here are a few discussion topics to be prepared for.
1. Is This a Legitimate Demand, or a Patent Troll?
Believe it or not, it’s often the case that you are indeed dangerously close to another company’s patent rights. If that’s a direct competitor, then hopefully you’ve been keeping an eye on their portfolio. Maybe you knew this was a risk when you rolled out that last product. Or maybe it’s a small company that wasn’t on your radar. Regardless, patent lawsuits are a real thing and they can cost serious money. You don’t want to assume it’s no big deal.
Other times, but less often than you think, it may indeed be a “patent troll.” Also known as Non-Practicing Entities (NPEs) or Patent Assertion Entities (PAEs), these are generally shell companies set up for the purpose of enforcing patents they’ve obtained in a way that has no benefit for the greater good of society. For example, they’ll frequently (usually?) ask for a nuisance settlement that is just slightly less than what it would cost to defend yourself. That makes it irrational to fight, because it would be more cost effective to settle. These cases are extremely annoying, to say the least.
Nevertheless, if an NPE owns a valid patent, then their demand letter should be considered a real thing worthy of your serious attention.
2. What Should the Initial Response Be?
In the case of many patent “troll” scenarios, it may be clear that the letter is being shotgunned out to many potential “infringers” without any real analysis being done. If that’s the case, a wait-and-see approach might be advisable for now. Perhaps the sender is looking for low-hanging fruit, and may not be serious about following up. Again, though, don’t assume this is the case without talking to your attorney.
If it appears to be a legitimate demand, your attorney will likely take over the communication channel. He or she might send back an initial letter to establishes that the demand has been received and that the other side’s lawyer should communicate with your attorney going forward.
3. What’s Your Potential Exposure?
Another part of the initial analysis will be to determine what rights the other side might have. It’s hard to believe, but I once had a client receive a demand letter when the other side only had a provisional patent application. Provisionals are good for many things, but creating enforceable patent rights is not one of them. The moral of the story is that the party sending you the demand letter might not have much, if anything, and may even misunderstand their own rights. On the other hand, they might have a strong portfolio worthy of major concern. Either way, you need to figure that out.
Your patent attorney should be able to quickly determine the scope of rights on the other side. This could include research on topics such as:
- how many patents are involved,
- how many patent claims there are,
- whether there are any active applications that could expand their rights (e.g., continuations),
- when each patent is set to expire,
- any administrative procedures the patents may be vulnerable to (e.g., PGR, IPR, Reexam, etc.).
You would then look at whether any of your products seem to overlap with those rights. Ideally, the demand letter says which product(s) are allegedly problematic. Is this about one of your core products? How many do you sell per month? Did you already stop selling that product? How long ago?
4. Are There Any State Protections?
Some states have passed laws regarding demand letters that assert patent infringement. These state laws spell out what needs to be in the demand letter and what it might mean for the letter to be considered reasonable. If you’re in one of these states, and the demand letter fails to meet the requirements of that law, then you have one more thing to fight back with.
A couple of examples:
- Vermont: https://legislature.vermont.gov/statutes/chapter/09/120
- Oregon: https://www.oregonlaws.org/ors/646A.810
5. Are You Part of Any Protective Business Networks?
I don’t have any affiliation with these groups, and I’m not really familiar enough with them to make a recommendation either way. However, there are some business networks that have been formed to help combat this kind of patent assertion situation. For example, the LOT Network tries to sort of immunize its members by essentially granting free cross-licenses between them. In another example, Allied Security Trust buys up patents so they can’t be obtained by PAEs, and shares the cost as a group. Depending on your situation, being in one of these networks may provide you with some options.
If you’re aware of other companies who have received the same demand letter, you might also consider joining forces and resources with respect to your response effort.
6. Do You Have a Noninfringement or Invalidity Position?
Your attorney should be able to determine whether you have a straightforward defense against the asserted patent. The best one would be to establish a solid noninfringement position. In other words, you might have a strong argument that you aren’t violating the patent rights in the first place.
If that’s not the case, or it’s unclear, you may need to establish that the patent is invalid. This mainly involves searching for prior art that wasn’t considered during the patent’s original examination at the Patent Office, and being able to show that the patent shouldn’t have been allowed because someone else invented it first. Depending on your situation, you may need to employ a combination of noninfringement and invalidity.
These analysis steps are not easy or inexpensive, by any stretch of the imagination. However, they can be critical if you want to successfully avoid a lawsuit that’s several orders of magnitude more expensive.
Based on some or all of the above, your attorney will advise you on how to proceed. In some cases, it might be a good idea for you to personally contact the business owner on the other side, to see what they really want. Sometimes, it might be a good idea to consider negotiating a fair settlement, or purchasing the patent rights altogether. Other times, you may send a strong response laying out your position and making it clear that you’re prepared to defend your company vigorously. The best way forward will be unique to your situation, which is why I can’t say it enough: you must speak with your attorney before you do anything yourself.
If you receive a demand letter asserting that you’re infringing someone’s patent rights, you don’t want to go to extremes. On the one hand, you should never ignore this sort of thing. On the other hand, you should never fire off an angry response before you talk to your lawyer. Both of those approaches can cost you in the long run.
Patent trolls are a thing, but it’s more often the case that the other side is a real business that thinks it has a legitimate case against you. Either way, there are many things that will need to be considered when you discuss your particular situation with your attorney. We’ve gone over a few of them here, but the good news is that there are best practices and established courses of action for dealing with all of this.
As always, feel free to get in touch if you’d like to discuss anything further.
Blog Post © 2019 Kolitch Romano LLP
Photo © 2014 Dave Bourgeau (Bridal Veil Falls, Oregon)
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DISCLAIMER: This article is intended to give the reader an overview of the topic, and does not constitute legal advice as to any particular fact situation. Facts matter, and every situation is different. In addition, laws and their interpretations change over time and the contents of this article may not reflect these changes. You are strongly advised to consult competent legal counsel regarding your particular situation.