PATENT INFRINGEMENT CEASE-AND-DESIST LETTERS TO CUSTOMERS OF AN INFRINGING MANUFACTURER
- UNFAIR COMPETITION OR FAIR NOTICE?

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To control the perceived patent troll "problem" of mass mailings of cease-and-desist letters to customers of manufacturers whose products infringe, States have enacted or are seeking to enact legislation that make such mailings illegal. What apparently makes the mailings illegal is the lack of good faith belief in the existence of infringement on a customer-by-customer basis. Some of the active States include Kentucky, Maine, Oregon, Vermont, and Virginia.

Others oppose these limitations. The Innovation Alliance says that proposed federal legislation against these mailings impact the legitimate exercise of First Amendment rights.

For patent holders, and for alleged infringers, a question is: can a patent holder legitimately send cease-and-desist letters to customers of the maker of the infringing product?

A patent holder may choose to send cease-and-desist letters to customers, rather than the manufacturer, for different reasons. One reason is that the manufacturer is overseas and obtaining legal process over the manufacturer may be difficult. For example, the manufacturer may be in a country that is not a member of the Hague Convention which enables service of process over a foreign manufacturer. Another reasons might be that customers represent a larger pool of potential damages in comparison to the manufacturer. For example, damages based on retail prices rather than wholesale prices may afford larger potential damages.

It has been said by the US Supreme Court: "[p]atents would be of little value if infringers of them could not be notified of the consequences of infringement."

Therefore, broadly speaking, patent holders have the right to publicize their patents in the marketplace. They have the right to enforce their patents, including the right to threaten suit. In fact, the law presumes that a patent holder who asserts a duly granted patent has done so in good faith. Moreover, patentees engage in fair competition when they make accurate representations, even if they later turn out to be inaccurate.

The foregoing encompasses communications and threats against customers of infringing manufacturers.

However, there are limits - and those limits are largely based on good faith.

Cease and desist letters to potential infringers, including customers, is not improper when the patent holder has a good faith belief in the accuracy of the communication. Bad faith cannot exist when the information in the communication is objectively accurate. It also does not exist, simply because the communication was sent to achieve a commercial purpose.

For liability based on some type of unfair competition, there must be in the cease and desist letter some incorrectness or falsity about the patent rights. And, the sender must have acted in bad faith - by having knowledge of the incorrectness or falsity, or having a disregard for either.

In court, the accused infringer asserting unfair competition for the sending of cease and desist letters to customers must prove - by clear and convincing evidence - that the sender acted in bad faith.

COMMENT:
Whether a patent troll or practicing entity, a patent holder must exercise good faith in the accuracy of cease and desist letters to customers of the infringing manufacturer. This seems to extend to both validity and infringement. The commercial motivation (which appears to underlie anti-troll legislation) for the letters does not seem determinative of whether good faith was exercised.

 

© Michael A. Shimokaji, 2014
The contents of this article represent the opinions of the author and not those of the author's law firm or clients

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