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Cease-and-Desist Letters: What to Do When Your Business is Accused Of Patent Infringement

Written by: Jeremy T. Walker

With the number of patents being issued today, it is not surprising that many businesses find themselves the recipients of cease-and-desist letters accusing them of patent infringement. Although most companies take cease-and-desist letters seriously, others dismiss them as nothing more than a heavy-handed tactic from a spirited competitor. Simply ignoring cease-and-desist letters is not a good business practice, and doing so may prove to be a very costly mistake.

Patent infringement in the United States occurs when someone makes, uses, sells, offers for sale, or imports a technology or product that is the subject of a patent. Whether an accused infringer knew of the patent at issue is irrelevant to a court's determination of whether there was infringement. The accused infringer's knowledge of a patent, however, may be relevant to the assessment of monetary damages for infringement of that patent, and cease-and-desist letters often play an important role in laying the groundwork for increased damages.

A patent owner can recover monetary damages for another’s past infringement only if the infringer had constructive or actual knowledge of the patent at issue. Infringers are considered to have constructive knowledge of a patent if a patent owner had consistently marked its products covered by the patent with the patent number. Thus, a business that had adequately marked its products with the relevant patent number can recover monetary damages from an infringer even if the infringer did not have actual notice of the patent.

Actual notice is just what the term implies, and businesses commonly receive actual notice by way of a letter accusing it of infringing a particular patent. Upon being accused of infringing a patent, a business then has an affirmative duty to exercise due care to determine whether or not it is infringing the patent. If a business fails to exercise due care, and continues with activity that is later found by a court to be infringing, it may be found liable for “willful” infringement. Companies found to have willfully infringed another's patent may be ordered to pay triple (treble) damages and attorneys fees to the patent owner.

So what should a business do if it receives a cease-and-desist letter or a similar letter notifying it that its technology or products may be infringing a particular patent? Certainly it should not just ignore the letter. If the business intends to continue using the technology or product at issue, it must exercise due care to investigate in good faith whether doing so would infringe the patent.

What is due care in this situation? There is no precise answer as courts in patent infringement actions generally look to all the relevant circumstances to determine whether a party, upon actual notice of a patent, took adequate steps to ensure that it was not disregarding the rights of the patent holder. Although the courts look to the individual facts of each case, the courts consistently have held that when a party has actual notice of a patent relevant to its business, it must seek the advice of competent legal counsel as to whether it is infringing the patent. If a business had received competent legal advice that it was not infringing the patent, it likely has a legitimate defense against a claim of willful infringement even if it turns out that the advice was wrong and that the business had been infringing the patent.

Reliance on an opinion of non-infringement, however, serves as a defense to willful infringement only if the opinion of non-infringement came from competent legal counsel. For a legal opinion of non-infringement to be competent, it must be based on all pertinent facts and it must have been rendered by someone skilled in the assessment of patent infringement.

The first reaction of many businesses upon receiving a cease-and-desist letter is to seek the opinion of their in-house engineers or scientists. Others will seek the opinion of their in-house counsel or their corporate attorney. Although the engineers and the corporate attorney may be very familiar with the technology or product accused of infringing, they likely are not skilled or experienced in determining whether the technology or products infringe. Indeed, many courts have found willful infringement even when a business had relied upon an opinion of non-infringement given by its in-house engineers or by attorneys not skilled in patent infringement law.

In sum, it is critical that businesses accused of patent infringement take the charge seriously and obtain the opinion of competent legal counsel as to whether they are infringing the patent at issue. By doing so, businesses can determine whether there is merit to the claim of infringement, and if so, consider the potential for a license arrangement or some other response to the cease-and-desist letter. If their patent counsel renders an opinion of non-infringement, the opinion may well protect them from a later finding of willful infringement and increased damages by a court.

Jeremy Walker, a director of the Manchester-based McLane, Graf, Raulerson & Middleton, focuses his practice on commercial litigation, with a particular emphasis on intellectual property and construction litigation.

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