IdeaEsq: An IP law blog and more since 2013
IP Law for Startups
Who is IdeaEsq
Stephen B. Schott
IdeaEsq Newsletter
For the Beginner's Mind
Patent Infringement: The letter you send could get you sued
2016-09-25 by Stephen B. Schott
By Stephen B. Schott
"They are infringing but I don't want to sue them: Let's just send them a letter." That's a common thought among patent owners but before sending a letter with accusations of infringement, it's important to understand that such a letter can itself be the basis for a lawsuit. And while you can send a letter and perhaps avoid getting sued, the threshold for being subject to a lawsuit, called a declaratory judgment action, is low.
The Declaratory Judgment Act provides that "[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). The Supreme Court has helped disentangle this gobbley-gook statute by clarifying that one party may seek a declaratory action against another (say, a threatening letter writer) when "there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality." Medimmune, Inc. v. Genetech, Inc. 549 U.S. 118, 127 (2007). What both the statute and the Supreme Court are driving at is that you can sue a threatening letter writer if the letter in question is actually threatening.
There's no definitive test elucidating the elements of a threatening letter that can get you dragged into court, but the Supreme Court and Federal Circuit have offered some guidance in the past.
[A] communication from a patent owner to another party, merely identifying its patent and the other party's product line, without more, cannot establish adverse legal interests between the parties.
Medimmune. The Federal Circuit gave another helpful piece of advice when it advised that an accuser may avoid a DJ action if it conducted pre-filing discussions under a confidentiality agreement, since discussions under such an agreement would be inadmissible. (3M Company v Avery Denison Corp.,Appeal No. 2011-1339 (Fed. Cir. 2012)).
The Federal Circuit recently served a reminder, however, of how low the threshold is for a threatening letter to give rise to a declaratory judgment action in Asia Vital v. Asetek Danmark.
In Asia Vital, the defendant patent owner Asetek's letter noted its ownership of a patent and some pending litigation with others but was careful to never mention any Asia Vital-accused product in its letter. Asetek argued that its omission of a specific product did not give rise to a threat of litigation required in a declaratory judgment action. The letter in relevant part read as follows.
Please be advised that Asetek believes that AVC is likely selling other infringing products in the United States. We are sure you are aware that Asetek enforced its IP, as it has in pending litigations against CoolIT and Cooler Master. Asetek has also been allowed a patent in the European Union with claims similar to the US '362 and '764 patents, with priority in 2003, and also has similar claims pending in China.
In particular, the Federal Circuit noted that a totality of circumstances gave rise to Asia Vital's belief that Asetek intended to enforce its patent.
Asetek (1) rehashed the volatile relationship between the parties, saying that poor experiences with AVC [Asia Vital] in the past have "sown distrust in Asetek for AVC"; (2) stated that it "does not license its patents" generally and, more specifically, that it would not license them to AVC due to the previous conflicts between the parties; (3) accused AVC of "likely selling other infringing products in the United States"; (4) warned AVC that it "enforced its IP" and noted its "pending litigations against CoolIT and Cooler Master"— companies that AVC alleges sell products similar to the K7 and K9; and (5) emphasized that it has been allowed a patent in the European Union with claims similar to the asserted patents and also has similar claims pending in China…Moreover, AVC alleges that Asetek made threats to its customers regarding AVC's infringement of the asserted patents.
The Federal Circuit concluded that "Such threats constitute affirmative actions by Asetek to impede and frustrate AVC's attempts to meaningfully participate in the liquid cooling market and further support our conclusion that a substantial controversy existed between the parties."
As advised previously, someone who wants to write a letter to a potential infringer without getting sued must walk on a tight rope to avoid being subject to a declaratory judgment. When formulating such a letter, consider these points:
Cease and Desist Letter Ingredients to Avoid a DJ Action
(1) Identify a patent but no product line, without accusation of infringement.
(2) Include a nondisclosure agreement, which would mean that any conduct after the nondisclosure agreement's signing (and during its term), such as a specific allegation of infringement, would not be admissible to support a DJ action.
(3) Include a provision to specifically not sue for a period of time.
If you have questions, contact me.
If you want IdeaEsq delivered to your inbox, sign up for the daily or monthly newsletter.
Filed Under: cease and desist letters, declaratory judgment, Uncategorized Tagged With: declaratory judgment action
How To Tell Someone to Stop Infringing Without Getting Sued
An Article in Schott, PC's IP Law for Startups Series
Dear Dr. Jones,
It has recently come to my attention that your product, the Gadgetron, may infringe our client's [patents, trademarks, copyright]. In order to avoid a costly lawsuit, during which you would have to pay large sums of money and which could result in the loss of your business, my client is willing to offer you a nonexclusive license under the attached terms. If you execute the license and send the payment mentioned in section 4, we will consider this matter closed…
No one wants to receive a cease and desist letter like this and few people are all that excited about sending them. But if you send a cease and desist letter, it's good to know the risks and how to craft one to avoid getting yourself hauled into court before you're ready.
Sue me? No, I'll sue you [for punitive damages you're giving me]
It may seem unfair that someone who is infringing your intellectual property could sue you—but the Declaratory Judgment Act allows a party to bring an action for non-infringement or invalidity when "a case of actual controversy" exists between parties. The rationale is that the accuser should be allowed to clear their name and the declaratory judgment action (or DJ action as they are often called) allows a person accused of infringing to do just that.
The accused infringer has at least two advantages in a DJ action: (1) The DJ action allows the accused infringer to pick the court most convenient or advantageous to it, and (2) The accused infringer is suddenly on the front foot and may take the accuser by surprise.
What can you write in your cease and desist letter to avoid a DJ action?
If you own IP and want to send a cease and desist letter but avoid a DJ action, you must tread carefully: The courts have set a low threshold for what constitutes enough conduct to invite a DJ action. The Supreme Court's Medimmune DJ test asks whether "the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." That's a mush-mouth full of dependent clauses but the critical language is whether the accuser's conduct creates "sufficient immediacy and reality" about a legal controversy. In layman's terms: Are you afraid that you might get sued?
The courts have left a few breadcrumbs signaling how to avoid writing a letter that gives rise to a DJ action. The Supreme Court left a helpful hint in Medimmune:
The Federal Circuit gave another helpful piece of advice when it advised that an accuser may avoid a DJ action if it conducted pre-filing discussions under a confidentiality agreement, since discussions under such an agreement would be inadmissible. (3M Company v Avery Denison Corp.)
Thus, a letter written something like this could well avoid creating a "sufficient immediacy and reality" of a threat:
Dear CEO,
Our client is the owner of US Patent 6,332,840. While reviewing your website, we recently came across your product, the Awesome Toy.
We would like to discuss the patent and this product line and suggest that doing so would be best done under a confidentiality agreement [the confidentiality agreement should include a clause prohibiting either party from filing a lawsuit during some term—see Biomet, Inc. v. Bonutti Skeletal Innovations, LLC.], attached hereto. Please let us know if this is acceptable by returning the signed agreement to us, and we will countersign it and arrange a time to discuss this further.
Even a toothless letter like this might not avoid a DJ action because whether a case or controversy exists is decided on a case-by-case basis. But the above letter follows courts' specific advice on how to craft a letter to avoid a declaratory judgment lawsuit, namely:
(1) It identifies a patent but no product line, without accusation of infringement.
(2) It includes a nondisclosure agreement, which would mean that any conduct after the nondisclosure agreement's signing (and during its term), such as a specific allegation of infringement, would not be admissible to support a DJ action.
(3) It might include a provision to specifically not sue for a period of time.
A letter that includes these may be safe to send, although I can't say it enough: The bar for a DJ action is low and each case is decided on its own set of facts.
How low is the threshold to support a DJ action? Oh, it's low alright.
Take the case of Hewlett-Packard Company v. Acceleron LLC as a warning when crafting your cease and desist letters.
On September 14, 2007, Acceleron sent a letter to HP identifying its patent and certain products of HP. So far, so good under Medimmune. Acceleron also requested an agreement that "all information exchanged between the parties will not be used for any litigation purposes whatsoever…or [that it] otherwise created any actual case or controversy regarding the enclosed patent." Acceleron gave a two-week deadline for reply but did not specify what it would do if HP failed to respond.
On October 1, 2007, HP responded and suggested that it would not file a DJ action for 120 days in exchange for Acceleron agreeing not to file any action against HP during the 120 days.
On October 5, 2007, Acceleron responded with its own letter arguing that HP had no basis for a DJ action and again requested that HP respond within 2 weeks—again without threat of what it would do if HP failed to respond. Acceleron appears to be trying hard to avoid the DJ action in these letters, nevertheless, on October 17, 2007 HP filed a declaratory judgment action for non-infringement and invalidity of Acceleron's patent.
Weighing all the facts, the court held that "it was not unreasonable for HP to interpret Acceleron's letters as implicitly asserting its rights under [its] patent." According to the court, Acceleron's conduct permitted HP's right to bring the DJ action:
Acceleron asserted that a patent is "relevant" to the other party's specific product line
Acceleron imposed a "short deadline" for a response
Acceleron insisted that HP not file suit
Accelerant ignored HP's request to not sue for 120 days
Acceleron is a licensing entity (i.e., a patent troll)
As was suggested in Medimmune, the Federal Circuit noted that "a communication from a patent owner to another party, merely identifying its patent and the other party's product line, without more, cannot establish adverse legal interests between the parties," which supports the guidance that the toothless letter proposed above may avoid a DJ action.
What to do if you don't want to write the toothless letter
If you don't want to write the nonthreatening letter above but also don't want your accuser to choose the forum in which to file a DJ action, you can file your own lawsuit first in the forum of your choosing. You don't have to serve your complaint immediately, so if the accused infringer files a DJ action after your filing but before your filing expires, you will be in a lawsuit, but at least in a forum of your choosing.
© Davisales | Dreamstime.com – Indiana Jones Caricature Photo
Filed Under: cease and desist letters, declaratory judgment, licensing, patent basics, Uncategorized Tagged With: cease and desist, declaratory judgment, how to avoid declaratory judgment
Categories Select Category Alice v. CLS Bank Book Reviews cease and desist letters Claim Construction Claim Interpretation claim preamble Client Spotlight copyright damages declaratory judgment injunctions jurisdiction licensing madrid protocol means plus function Newsletter non practicing entities obviousness On-sale bar PA Model Rules patent basics patent litigation Patent Prosecution Tips patent trolls Patentable Subject Matter PCT applicaiton preliminary injunctions Professional Advice Prop Head Reads Standard of Review at Federal Circuit startups tax incentives Teva v. Sandoz trade secret trademark Uncategorized USPTO final office action venue