Responding to a Cease-And-Desist Letter

By: James Juo

 

The medical device industry is one of the more litigious when it comes to patents. The legal scenario described next is all too common. A competitor sends you a letter asserting that your company's new medical breakthrough device infringes its patent. In all likelihood, it will be one of your blockbuster products. The letter may include a request to begin negotiations to license your device. More often than not, the letter demands that you cease making and selling the product in question under a threat of patent litigation if you do not comply. Immediately.

 

After reading this cease-and-desist letter, you check to see the current orders and sales projections for your accused product. Orders are coming in from the factory, and your device is being shipped to customers.

 

This device is the lifeblood of your company. How should you respond?

 

First, ignoring a cease-and-desist letter is a perilous decision. It could provide a basis for the plaintiff to seek a tripling of the monetary damages if he wins at trial and you are found to have “willfully” infringed the patent. If the monetary damages do not wipe out your profits, the trebled damages for willful infringement almost certainly will.

 

The best course of action is to have a patent attorney assess the patent, form a well-reasoned and informed opinion as to whether the accused product infringes any valid claim of the patent, and then advise you on how to respond to the cease-and-desist letter.

 

Monetary Damages

 

A patent can cover a product, its method of manufacture, or its method of use. It is an important and powerful form of intellectual property for protecting a company's technology. But a patent does not give the patent owner, or patentee, the right to make, use, or sell an invention. Instead, a U.S. patent gives the patent holder the right to exclude others from making, using, importing, offering for sale or selling the invention in the United States until the patent expires.

 

The “claims” in a patent define the scope of protection for the invention disclosed in the patent. If a patent claim covers the disputed product, then that product is said to infringe that patent claim.

 

The patentee can file a lawsuit to enforce the patent against accused infringers. Sometimes the patentee will send a cease-and-desist letter beforehand to give notice of the patent, but there is no requirement that the patentee give any such warning. If a cease-and-desist letter is sent, the patentee in later litigation can claim monetary damages for each accused product sold afterwards because the letter gave actual notice of the patent to the accused infringer. Even where no actual notice was given, a patentee can still claim damages for past sales if the patentee's own products were marked with the patent number. The patentee also can seek to obtain an injunction to force the accused infringer to stop selling the accused device. A preliminary injunction may be obtained before the case even goes to trial if the patentee can convince the court that his patent case is so strong that he is likely to succeed at trial. Even if the patentee does not seek a preliminary injunction, when the patentee prevails at trial, courts traditionally have awarded a permanent injunction afterward.

 

The monetary damages that can be awarded for this infringement may be computed as a royalty (i.e., a percentage of your sales revenue) or as lost profits (i.e., the sales the patentee lost). A cease-and-desist letter that puts the accused infringer personally on notice of the patent can provide a basis for a later finding of willful infringement, especially if the accused infringer ignored the letter and did nothing until a patent lawsuit was filed against him. Sales of the accused product after receipt of the letter may be branded as willful infringement, and be subjected to enhanced damages. For example, monetary damages can be increased up to three-fold if the patentee proves willful infringement, and compensatory damages could also triple, which could more than wipe out any profit made the accused infringer.

 

Willfulness

 

To determine willful infringement, the judge or jury examines whether it would have been objectively “reckless” for a hypothetical “reasonable person” in the accused infringer's shoes to have continued selling the disputed product under the circumstances. The legal test for willful infringement includes both objective and subjective factors.

 

If they are sufficiently compelling, the objective merits of the defenses raised in the litigation—even if unsuccessful—could establish that there is no willful infringement. Another factor often considered is whether, after receiving notice of the patent, the accused infringer investigated the scope of the patent and formed a good-faith belief that the patent was invalid or not infringed, or both.

 

This investigation usually is performed by a patent attorney who has the legal and technical training to give a competent opinion. The timing of the opinion is another important consideration, because an opinion prepared before the start of litigation is often given more weight by a court than an opinion prepared after the lawsuit has been filed. Other factors affecting the legal outcome of willfulness include:

 

• Whether the company withheld any critical incriminating information from the patent attorney in arriving at his opinion.

• Whether the accused infringer deliberately copied the patented product or design.

• Whether the accused infringer took any remedial action.

 

Assuming that the accused infringer has obtained a timely and independent legal opinion from a patent attorney clearing the disputed product, the defendant in a patent lawsuit may rely on a competent opinion of counsel to show that it was operating in good faith in respecting the patent rights of others. This advice of counsel defense against a charge of willful infringement, however, requires that the defendant waive the attorney-client privilege with respect to its patent opinion counsel. The waiver of this fundamental right should not be taken lightly.

 

A patent attorney's opinion that no infringement exists does not free the accused infringer from blame, however. If litigation proceeds, a judge or jury may come to a different conclusion and find that the patent is valid and infringed and award damages. In this situation, however, good faith reliance on a competent opinion of patent counsel to continue making and selling the accused product often will provide a successful defense to defeat a charge of willful infringement, thereby avoiding enhanced damages.

 

Indirect Infringement

 

An opinion by a competent patent attorney also can provide a defense to a type of indirect infringement known as active inducement of infringement. A patent may be infringed directly or indirectly, and a claim of active inducement of infringement may arise where the defendant does not directly infringe the patent, but instead sells a product with instructions that would induce someone else to use the product in a manner that would infringe the patent.

 

This type of indirect infringement often arises when patent claims for a method or system are asserted against medical devices. By law, namely 35 U.S.C. § 287(c), patents cannot be asserted against doctors for practicing a patented medical or surgical procedure, but a medical device manufacturer may be liable for damages and subject to an injunction for selling a device that can to be used to practice that patented medical or surgical procedure.

 

For example, a patent claiming a new method of using a medical device such as a catheter may be indirectly infringed by a catheter that is sold with FDA-approved instructions for use that include the patented method. Such instructions for use by the manufacturer are often critical evidence in active inducement of infringement claims. While the doctor performing the patented surgical procedure using the catheter in accordance with its packaged instructions for use (IFU) cannot be sued for patent infringement, the medical device manufacturer that sold the catheter with the IFU could be liable for active inducement of the doctor's infringement.

 

To prove active inducement of infringement, the patentee must show that the defendant's actions induced infringing acts and that he knew or should have known his actions would induce actual infringements. Because a charge of active inducement of infringement requires that the defendant specifically intend to cause another to directly infringe the patent, an opinion of counsel that such use of the product would not infringe a valid patent claim may be relied upon to show that accused did not intend to cause infringement. In a recent court decision, Broadcom Corporation v. Qualcomm Inc., 543 F.3d 683 (Fed. Cir. 2008), the failure to obtain an opinion of counsel was used as circumstantial evidence of an intent to infringe, and the jury's finding of active inducement of infringement was upheld on appeal.

 

An opinion of counsel can be an important shield for medical device manufacturers against patent claims for a surgical procedure. For cases involving such surgical methods, a claim of active inducement of infringement against the medical device manufacturer is often the only available legal theory for liability. In addition to the good general business practice of obtaining a competent counsel's opinion to help navigate the thicket of patent issues, an opinion of counsel also can help medical device manufacturers avoid liability for active inducement of infringement.

 

The Gold Standard

 

As previously discussed, you should contact a patent attorney immediately after receiving a cease-and-desist letter, and invest the necessary time and resources for a proper investigation by the patent attorney into the patent and accused product. The patent attorney then can provide a reasoned and informed opinion of counsel and advise you on how to proceed, including possible strategies for settling or otherwise resolving the dispute.

 

The gold standard for dealing with a cease-and-desist letter is to have a patent attorney assess the patent and form an opinion as to whether the accused product infringes any claim in the patent. Patent attorneys have specialized skills and knowledge that other attorneys do not have. A patent attorney typically has both a law degree and a technical degree in engineering or science. Furthermore, in addition to the state bar license to practice law, a patent attorney is registered to practice before the U.S. Patent and Trademark Office (USPTO), which requires passing a separate patent bar examination. An attorney who is not registered with the USPTO is not a patent attorney.

 

The patent attorney will require a significant amount of time to properly study and investigate the patent and the accused product. This often includes obtaining and studying the patent's prosecution history, which is the written record between the USPTO and the patentee leading up to the issuance of the patent. The patent attorney often will inspect a sample of the accused product and obtain relevant technical information about the accused product. It is important for the patent attorney to have access to the relevant technical information regarding the accused product when preparing the legal opinion. The more complex the technology, or the more convoluted the prosecution history of the patent, the more time may be required to properly study and investigate the claim.

 

While damages may accrue in the interim, this investigation by the patent attorney is necessary in order to make an informed decision on how to proceed. During this investigative phase, the company engineers, in conjunction with the patent attorney, can also work at trying to redesign the product in order to circumvent the patent. If commercially feasible, these redesigns will give the company options in dealing with the patent infringement claim. Sometimes, designing around a patent leads to a better product having its own patentable improvements. In the end, the patent attorney's opinion will be invaluable for trying to design around the patent claims, and will be helpful in determining a case's settlement value and providing critical guidance for the company.

 

Good Faith Defense

 

If the patent attorney comes to the conclusion that the accused product is not covered by any patent claim, the patent attorney can provide a written opinion explaining why the patent is invalid or not infringed. The opinion may be written in letter form addressed to an executive or other decision maker of the company. The opinion letter should be well reasoned and state the basis for each conclusion, including a discussion of how the accused product is different from the invention claimed in the patent (i.e., non-infringement), or how the patent should not have issued because the claims cover something that is already in the public domain (i.e., invalidity).

 

A manufacturer may rely on a competent opinion of patent counsel to continue making and selling the accused product in good faith with respect to the patent rights of others. This is true even if a court ultimately disagrees with the patent attorney's legal conclusion of non-infringement or invalidity.

 

Moreover, a good faith belief provides a defense for a medical device manufacturer against a charge of active inducement of infringement of method patent claims covering surgical procedures. Because an opinion of counsel can be relied upon as a defense to avoid liability for this type of indirect infringement, opinions of patent counsel may be especially valuable for manufacturers in the medical device industry.