Trolls (and other bad news) Lurking in Your Mailbox

If you haven't received one yet, you will. It can come from your competitor down the street, or a company you've never heard of. No matter what industry you are in, chances are good you will eventually receive a letter from a patent owner "informing" you of their patent. Whether it demands that you stop selling a particular product or service (a true "cease-and-desist" letter), or merely suggests that you might be interested in a certain patent (we can call it a "notice" letter), the sender's goal is to force you to pay license fees. Such a letter can end up costing you a lot of money. It can cost you even more if you do not handle it with care.

More than likely, you would call your attorney immediately if you received a threatening letter from a lawyer accusing you of infringing one of your competitor's patents. But those types of letters are becoming rare. Ever more frequently these days, the cease-and-desist letter is disguised as a friendly and non-threatening communication from someone pretending to be helpful. It may be from a company with an unfamiliar name suggesting that you review or consider certain patents it claims to own, and perhaps promising a follow-up call. While you may be tempted alternatively to respond to or to ignore such seemingly harmless letters in the hopes that the patent holder will simply go away, doing either without first being properly informed and taking necessary precautions would be a mistake. The patent holder is rarely persuaded to drop the matter so easily, especially when the patent holder is a so-called "patent troll." The term "patent troll" has been used by some commentators to refer to a company set up solely for the purpose of owning patents, asserting infringement of those patents (often without basis), and then extracting license fees in settlement of its claims. The troll knows that it is cheaper for an accused infringer to buy a license (even one costing well into six figures) than to defend an infringement suit, so the troll is not likely to go away without some payment. Therefore, at the first sign of a potential infringement issue, your initial step should be to call a patent attorney who can guide you through the complexities involved.

It will be important to determine whether your company must act immediately to protect itself. Receiving a notice letter, depending on its contents, may be a legally significant event that triggers your duty to take action, and receipt of a cease-and-desist letter certainly is such an event. For example, as the law now stands, a company notified that it may be infringing a patent has a duty to avoid further infringement. This may require you (usually through your patent attorney) to make a detailed inquiry into the merits of the infringement allegation and take appropriate action if the claim has merit. If a court later finds infringement, the failure to have acted appropriately upon receiving initial notice of the claim may expose your company to a finding of willful infringement, which can lead to liability for treble damages and the patent holder's attorneys' fees. In addition, the mere receipt of a cease-and-desist letter alleging infringement may require your company to institute specific measures to ensure that all relevant information is retained for later discovery – even electronic information that would otherwise be routinely destroyed, for example, by the recycling of backup tapes. Click here for a brief discussion of the rules regarding electronic discovery.

If you ever receive a communication that refers you to another party's patent, whether or not it actually threatens or accuses you of anything or makes any demands, you should promptly contact counsel you know to be experienced in patent matters. Your attorney can help you make informed business decisions regarding your handling of the letter and the accompanying issues without jeopardizing your rights.

If you would like more information about responding to notice and cease-and-desist letters, please contact Jay Taylor, John Prescott, Mike Swift, or Greg Duff.

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This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.