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What To Do If You Receive a Patent Demand Letter: First Steps

A patent demand letter, also known as a cease and desist letter, identifies one or more patents, and alleges that one or more parties is infringing the patent. The letter may also identify an allegedly infringing product and may demand that you, the recipient, stop making and selling the product and may go so far as to demand a payment. Receiving such a letter can have a chilling effect on your business, and you may need to take certain actions to protect your business interests. Whether and how you respond should come after a reasoned analysis of offensive and defensive strategies for dealing with claims asserted. What should be the first steps in dealing with a cease and desist letter? What remedies or strategies may be available in preparing an appropriate response to demands?

Evaluate The Risks Presented

Using available information, evaluate the substance of the accusation to determine its threat level. Read the letter carefully: what, if anything, does it tell you about the purported patent holder? Is the claim overbroad or ill-defined? The document’s tone is a useful indicator of its sender’s intent. Specious threats often signal a non-practicing entity (a company whose business model revolves solely around obtaining and enforcing patents, without any intention to apply them) aggressively pursuing a hasty settlement. A good faith negotiator is more likely to provide, as Bloomberg BNA discovered, “descriptive information relating to the patent, the owner and necessary factual allegations.” Consider the patent at issue – is there a product on the market covered by the patent? Consider the impact on your day-to-day business activities – how disruptive would potential patent litigation be to your business? A formal review of the patent and patent history and a side-by-side comparison of the allegedly infringing product, will be necessary in order to organize a well-reasoned response.

Consider Strategies For Responding: Think Offensively & Defensively

Once a preliminary assessment of the scope of the patent and your potential exposure has been assessed, weigh your options. There are several defensive and offensive strategies to consider. First, consider possible “design arounds” to alter the product to fall outside the scope of the asserted patent claims. A patent attorney can assist by reviewing the patent file history to ensure the new design avoids the patent. Second, determine if you are indemnified by another party. For example, if the allegedly infringing product is sourced from another company, any agreements with the other party may contain an indemnification clause, making the party obligated to assume responsibility to the patent owner. If current agreements with sourcing partners do not include an indemnification clause, consider updating them to include one. Third, consider obtaining rights in the patented product. A favorable license agreement with the patent owner may ultimately cost far less than patent litigation and may be less disruptive to your business. Fourth, do nothing and wait to see how the patent owner responds. While a calculated risk, if the patent owner is seeking a quick monetary payout, this approach may force the patent owner to expend more money to enforce patent rights or simply retreat. Also, consider more proactive and offensive strategies against the patent owner. First, if you have a legitimate reason for non-infringement of the asserted patent, consider filing a Declaratory Judgment of Non-infringement. This may be less desirable as it is more costly, but it allows for a quicker resolution and has benefits in selecting venue. Second, consider a claim to invalidate the patent, whether through a Declaratory Judgment of Invalidity or by way of challenge under the Post Grant Review process available through the United States Patent and Trademark Office (USPTO). Third, review your own company’s patent portfolio for patents that could be asserted or used to promote an agreement of “mutual non-aggression”.

Be Mindful Of Insurance Coverage

Presented with the possibility of patent litigation, your first instinct should be to check your corporation’s general liability insurance. Though contentious, a clause therein known as “advertising injury” could necessitate your insurer accept liability for the claim. For instance, in Hyundai Motor America v. National Union Fire Insurance Company of Pittsburgh, PA (2010), the Ninth Circuit found that a third party’s patent infringement claims—related to the automobile manufacturer’s “build your own” vehicle imaging feature on its website—constituted a “misappropriation of advertising ideas,” which the insurer had a duty to defend. Cautious business owners may want to consider purchasing a discrete patent infringement policy. Providers such as RPX offer low-cost insurance plans with the express intent to reduce the financial risk for the small- and medium-sized businesses, which litigious patentees often target. Responding to a patent demand letter could affect your coverage under your policy, so seek counsel prior to taking action.

Scope The Field For Allies

The ubiquity of asserted patent infringement claims is also their greatest weakness. If you receive a patent infringement claim, despite all efforts to verify proper legal standing of all your IP assets, chances are high you are not alone. Look for other parties who may be involved in litigation with the claimant: who else has been down the same road? You may find a big net of allies and potential co-defendants. The USPTO offers a collection of links to websites that can tell you more about the company making the claim, which other organizations have been involved, and what legal outcomes have occurred in similar cases. Find USPTO’s resource list here. If you have received a patent demand letter or would like more information about preparing for one, make sure to consult a trusted legal professional. Your written response to a demand letter carry implications in any potential future litigation around the asserted patent, and so any response must be well-crafted after a careful consideration and alignment of the risks involved and your business objectives. Learn more about Offit Kurman’s Intellectual Property (IP) group here. To get in touch with an attorney, click here.