Once a patent issues, the patentee has a right to demand that others infringing on the claimed invention stop using, selling, offering for sale, manufacturing and importing the claimed invention into the United States. While not required, one of the first steps involved in exercising the patentee’s rights may involve sending a cease and desist letter to the alleged infringer or an offer to license the patent. The cease and desist letter may:
(1) provide actual notice to the infringer of your patent,
(2) demand that they immediately cease and desist in their infringing activity, and
(3) offer a license without any express threat of infringement, among other things.
However, the cease and desist letter may allow the alleged infringer to file a declaratory judgment action (“DJ Action”) against the patentee when the correspondence between the parties indicate that there is a threat of litigation. The DJ Action allows the alleged infringer to take the initial legal steps and prevents the alleged infringer from having to wait for the alleged infringer to initiate a lawsuit while the patentee continues to threaten litigation. The DJ Action requests the court to resolve the dispute between the parties.
In many instances, the DJ Action is undesirable for the patentee. The DJ Action may be filed in a different state forcing the patent owner to incur additional costs and burdens of litigating out of state, while providing a convenient, home town advantage for the alleged infringer.
Accordingly, it is important to carefully draft the correspondence to the alleged infringer so as to achieve the desired results – no DJ Action while opening the door to amicably resolving the dispute. In the following case, the patent owner did not want to litigate the patent issue but was dragged into court by the alleged infringer by way of the DJ Action.
Acceleron LLC (“Acceleron”), a patent holding company, sent a letter to Hewlett Packard Company (“HP”) providing notice of an issued patent that Acceleron owns, requesting that HP not file a DJ Action and requesting that HP agree to not file the DJ Action. Additional letters were sent between the parties. HP filed the DJ Action. Acceleron sought dismissal of the DJ Action. Hewlett-Packard Co. v. Acceleron LLC, 2009-1283 (Fed. Cir. Dec. 4, 2009).
For patent cases, a declaratory judgment action is appropriate if the patent owner asserts its rights under the patent based on certain ongoing or planned activity and where the alleged infringer contends that it has the right to engage in the accused activity without a license to the patent. HP contends that the DJ action is proper since Acceleron identified its patent and HP’s product line in the demand letter. The court disagreed. Rather, the court said that the propriety of the DJ Action is whether HP had a reasonable belief of litigation based on the totality of the circumstances.
In reviewing the totality of the circumstances, the court considered the content of the letters sent between the parties and also considered Acceleron’s business model. Acceleron is a patent holding company that generates revenues by enforcing its rights and obtaining licenses from infringers under its patents. The Court indicated that this fact favors a decision that there was a sufficient threat of litigation. Based on various items in the letters sent between the parties and the business model of the owner of the patent, the Court held that the DJ Action is proper.
It is thus important to consider the tone and content of the demand letter but also other circumstances that might allow the alleged infringer to file a DJ Action. In the Acceleron case, the patent owner’s business model of licensing patents for profit, while making no patented products, was a factor in the Court’s ruling that the DJ Action is proper.
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