You just started taking advantage of a new business opportunity by selling or supplying a new product or service and things are going really well, when out of nowhere you are served with a cease and desist letter from a lawyer alleging patent infringement. The letter instructs you to cease doing business now, surrender all your inventory, reveal your customer list to the lawyer and pay some large fee to the lawyer's client. Most distressingly, you have to do all of this within 10 days of the date of the letter or they will sue you. Doing the things required in the letter may result in the loss of your business, but being sued exposes you and your business to uncertainty and large legal expenses with no guarantee of success. What do you do?
1. Keep Calm....
Cease and desist letters are a normal part of business. While it's not fun being on the receiving end of one of these, there is at least a reasonable chance that the issues involved in a cease and desist letter can be resolved without the need for going out of business or going into bankruptcy. There is a chance that your product is not covered by the patent. Even if your product is covered by the patent, there is a chance that the patent is not enforceable against you. Also, even if your activities are covered and the patent is enforceable, it's possible that you can tailor your activities to "get around" the patent sufficiently for you to carry on business. Finally, even in the worst case scenario, it's often possible to negotiate your way out of a patent dispute if you approach the problem in the right way. So don't panic and don't reply to the letter right away. Get legal help.
2. ...And Get a Patent Lawyer
Patent law is a highly specialized area of law and most lawyers aren't experienced enough to know when you have a problem and when you don't. Get legal help from a lawyer as soon as possible, but make sure that lawyer practices in the area of patent law. Don't wait too long before retaining that lawyer - if the cease and desist letter gives you a time by which you are to reply, make sure you talk with your lawyer well before that deadline. Chances are your lawyer will probably tell the opposing lawyer that they were just retained and that they will send a reply to the cease and desist letter shortly. This buys you some time to consider your options.
3. Get a Copy Of The Patent
The patent infringement letter should have included a copy (or a link/reference to) a patent. If it didn't, then that's your first clue that there is something fishy. If the letter does not specify a patent by it's patent number (or include a copy of it) and instead makes vague references to "my client's intellectual property rights and patents", then the first thing your patent lawyer is likely to do is to search for the patent. This can be done by either calling up the lawyer who wrote the cease and desist letter and demanding a copy, or by performing a quick patent search for patent's owned by the company that hired the opposing lawyer. If no patent can be found, then its likely that the cease and desist letter is just smoke and mirrors.
4. Preform a Preliminary Infringement Opinion
Now that your lawyer has a copy of the patent, the first step is to determine if there may be a problem or not - i.e. is there a chance that your activities infringe on the patent. Before proceeding with a full blown patent infringement opinion, it's always a good idea to do a quick analysis to rule out the possibility of a false flag. Firstly, is the patent in the correct jurisdiction. Patents are national in scope, so you can't infringe a US patent by selling a product in Canada, for example. Secondly, is the patent still in force. Patents require periodic maintenance fees to be paid, and failing to pay those fees will cause the patent to lapse and expire. Your patent lawyer should check to see if the patent is fully paid up or if it has lapsed. Finally, your patent lawyer should do a quick review of the patent to determine if what you are doing is something which may be covered by the patent and not something totally unrelated to the patent. This preliminary analysis can take anywhere from half an hour to an hour or two depending on the case.
5. Detailed Patent Infringement Opinion
If your lawyer determines that the patent is still in force, is in the right jurisdiction and is for substantially the same sort of thing that you are selling, then a more detailed and in depth analysis of the patent in comparison to your product is required. This takes a bit longer and can get complicated. At the end of the analysis there will be a detailed opinion as to whether or not you infringe the patent.
6. Do an Invalidity Search
Assuming the worst case scenario, that the patent analysis shows that your activities are an infringement of the patent, then there is still hope. It is possible that the patent might be invalid. The patent office, both in Canada and the United States, grant invalid patents all the time. To be granted a patent, the invention must be new and non-obvious and to make that determination, the patent office always conducts a search for relevant patents in their records. In many cases, the patent search the patent office conducts is not as extensive as it could be. It's important to "pull the file" for the patent (the record of how the patent office examined the patent application) and see what patent references were searched. Its possible (likely even) that the patent office missed an important reference which, if found, could indicate that a patent never should have been granted. Additional searching can be done to find that missing reference. Searching European or Japanese patents may find the missing reference. Furthermore, if the patent owner publicly disclosed the invention or put it on sale more than one year before the patent application was filed, then the patent would be invalid. If the search reveals that the patent is invalid, then you are in a much stronger position.
If the patent infringement analysis indicates that you don't infringe, or if the invalidity search shows that the patent is not valid, then it's important to respond in the right way to the cease and desist letter. To ensure that the matter goes away, it's important that the reply letter specifically points out not only that your sale/distribution of the product doesn't infringe on the patent, but why. The wording of that letter requires some finesse, since you don't want to inadvertently give the patent owner the ability to go back to the patent office and amend the patent before coming at you again. Done right, the reply should end the matter. If it's not clear that you are infringing the patent, or if it's not clear that the patent is valid, then you can raise the ambiguous nature of your opponent's case to negotiate a favorable settlement.
If the analysis and search reveals that their patent is valid and infringed, then what can you do? Surprisingly, it's still not the end of the game. Even if you do infringe, it may still be possible to negotiate your way out of the problem by agreeing to sign a license or by agreeing to change you product in order to avoid infringement (more on that below). If worst comes to worst, you can still negotiate a settlement which may allow you to extract yourself from the situation without going bankrupt or losing all your assets. It may be possible to negotiate a license to use the patent in exchange for a royalty payment. It may even be possible to negotiate with the patent owner to act as a distributor for the their product or conversely have them distribute your product. At the very least, you may be able to negotiate a settlement which allows you to avoid costly litigation.
9. Design "Around" The Patent
If you just can't afford to abandon your product line or business, you can always attempt to sell a product (or provide a service) that does much the same thing but which does not infringe the patent. In short, you can attempt to design around the patent and produce a product which does not infringe. This will require careful analysis of the patent and close cooperation between your patent lawyer and your design/engineering staff. In some cases the result will be a product which, while perhaps not as well performing, can still do the job. If you can make up for the new products shortcomings by providing additional features or better value, then you still might be able to compete effectively. In some cases, designing around a patent may not be possible because the patent owner has cleverly put up a “shield” of related patents specifically to make it difficult to get around the original patent. Also, care must be taken with the new design to avoid the possibility of expectantly bumping into a different patent from a different competitor.
10. Look Before You Leap
Of course, the best way to deal with cease and desist letters is to avoid them entirely. Before jumping into any project, conduct proper patent and trademark searches and, if required, secure proper licenses.