What to do when your business is accused of patent infringement

Steps to take if a cease-and-desist letter arrives in the mail

Several large verdicts for patent infringement against household names such as Apple, Groupon and Samsung illustrate the potentially severe consequences that companies face when accused of patent infringement. Ignoring notices of patent infringement and continuing behavior that later is found to be infringing may result in enhanced damage awards that can devastate businesses.

For example, in a recent case in a federal court in California, a jury awarded a verdict of $130 million for infringement of patents related to ear implants used by the hearing impaired. After protracted litigation that extended a number of years, the judge ultimately found willful infringement by the accused and then doubled the jury verdict.

Patent infringement litigation is often preceded by the accused party receiving a “cease-and-desist” letter. With the proliferation of patents granted to high-tech, pharmaceutical, electronic and other manufacturing businesses, it is not surprising that many companies 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.

But simply ignoring cease-and-desist letters is not good business practice, and doing so may prove to be a costly mistake.

‘Willful infringement’

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 an enforceable 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 a business commonly receives 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 under the circumstances, 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 up to triple damages and attorney’s fees to the patent owner.

Due care

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 should take reasonable measures to assess in good faith whether doing so would infringe the patent.

What is due care in this situation? The law has fluctuated over the past two decades, and there is no single answer that fits all situations. Generally speaking, 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 so as not to recklessly disregard the rights of the patent holder.

Under earlier legal precedent, the law essentially required accused infringers to seek the advice of competent patent counsel to determine whether it was infringing the patent. Recent decisions by the U.S. Supreme Court and changes to federal law have relaxed the requirement of obtaining a legal opinion of non-infringement to avoid a finding of willful infringement.

That being said, it is still good practice in most circumstances to seek the opinion of patent counsel if a potentially viable claim of patent infringement is received.

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 a particular patent. 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.

On the other hand, if a business had received competent legal advice from patent counsel that it was not infringing the patent, it likely has a legitimate defense against a claim of willful infringement even if a judge or jury determines that the business had indeed been infringing the patent.

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 in the Litigation Department at McLane Middleton with an emphasis on intellectual property litigation and construction litigation, can be reached at jeremy.walker@mclane.com.

Categories: Legal

Comments

comments