ARTICLE Walking the Tightrope of Cease-and- Desist Leers June 2018 Intellectual Property & Technology Law Journal By Jason E. Stach; Nathan I. North Cease-and-desist letters, and less aggressive notice letters, can serve several purposes for patent owners. Among other things, they can open licensing negotiations, serve as warnings to competitors, create notice for damages, and establish knowledge for indirect infringement. But sending these letters can also be risky. Following the U.S. Supreme Court’s MedImmune v. Genentech decision,1 the letters may more easily create declaratory judgment (DJ) jurisdiction, allowing a potential defendant to select its preferred forum and to control the timing of an action. Despite the tension between these competing doctrines, courts have acknowledged that it is possible to send legally effective cease-and- desist letters2 while also avoiding DJ jurisdiction. To do so, patentees must carefully approach these letters to minimize risks while still achieving their goals. A closer look at these issues reveals several ways to minimize this risk. Declaratory Judgment Jurisdiction: A Look at the Totality of the Circumstances In MedImmune, the Supreme Court evaluated DJ jurisdiction under a totality-of-the-circumstances test, where there must be “a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant relief.“3 Looking to the totality of the circumstances, courts analyze the contents of a cease-and-desist letter as a key factor—but often not the only factor—in assessing DJ jurisdiction. Other factors include the relationship of the parties, litigation history of the patent owner, actions of the parties, and more, as discussed below in the context of the MedImmune test. Creating a “Substantial Controversy” through Cease-and-Desist Letters The “substantial controversy” requirement allows potential infringers to challenge infringement claims and patent validity without “betting the farm”4 by requiring potential infringers to make (or continue to make) a potentially infringing product. But when do a patentee’s actions create a substantial controversy? In SanDisk v. STMicroelectronics, for example, the U.S. Court of Appeals for the Federal Circuit’s analysis searched for an act by the patent owner indicating it would enforce its rights. The court found that the patent owner provided a clear intent to enforce its rights by, among other things, providing detailed infringement charts explaining how the accused infringer violated its patents. But patentees rarely provide such clear accusations when they want to avoid DJ jurisdiction, and the court refused to define the boundaries in this case. The court extended its analysis in decisions following SanDisk. The Federal Circuit has consistently stated that “a communication from a patent owner to another party, merely identifying its patent and the other party’s product line” is not enough for a definite and concrete dispute.5 Still, simply avoiding Walking the Tightrope of Cease-and-Desist Letters | Articl… © 2021 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP 1 specific threatening phrases, such as “you are infringing my patent,” generally does not inoculate a patent owner’s letter from creating DJ jurisdiction. Instead, the language of the letter usually must connect the patents with an accused product, and the language or circumstances surrounding the letter must suggest that the patent owner will assert its patent rights. While a strongly worded letter may be sufficient alone to trigger DJ jurisdiction, many letters use less threatening language. In those instances, courts do not stop their analysis at the words of the letters. All communications become relevant, with courts considering informal conversations,6 the history of the parties (e.g., whether they have a litigious history),7 later discussions between the parties about the contents of the letters,8 and more. Courts analyze these facts collectively to determine whether a patent owner signaled an intent to assert its rights, creating a definite and concrete dispute. As an example where the court found no DJ jurisdiction, in Element Six v. Novatek9 the patent owner worded its letter as an information gathering tool. It requested information on the accused infringer’s products so that it could determine potential liability. The court did not consider this to be a demand or accusation. Instead, the court viewed it as an attempt to gather information to determine the rights of the patent owner. Further, the patentee did not provide additional information on its patents or a potential infringement analysis until the accused infringer requested the information. The court did not find this later-arising information to contribute to DJ jurisdiction because the accused infringer asked for it as opposed to the patent owner using it to threaten filing suit. The court focused on the information in the original letter and determined that a request for information was not a definite enough threat to enforce the patent owner’s rights and did not create a substantial controversy. “Sufficient Immediacy and Reality” in the wake of Cease-and-Desist Letters Some view the “sufficient immediacy and reality” requirement to be more straightforward than the “substantial controversy” requirement. In general, if a recipient allows time to pass between receiving a cease-and-desist letter and filing a DJ action, the delay will undermine the immediacy and reality of the dispute. Patent owners seeking to avoid DJ jurisdiction can further bolster this argument by showing that the accused infringer has not taken any corrective action in response to the letter or other communications.10 But even with the passage of time, courts might still find sufficient immediacy and reality if the patent owner has taken other actions in the interim. For example, a potential infringer might believe they are a target of the patent owner if the patent owner has sued others in the same market after sending similar cease-and-desist letters. The potential infringer may believe that the patent owner simply has not gotten around to suing it, creating an immediacy and reality to support DJ jurisdiction.11 An accused infringer can also retain the immediacy and reality of a controversy if it temporarily takes corrective action to avoid the accused conduct but is still prepared and wanting to revert to its original accused conduct. This is true even if the alleged infringement had abated for many years. In Myriad,12 for example, the patent owner sent a letter demanding that the accused infringer refrain from performing its patented tests. The accused infringer refrained from performing the tests for 10 years but then filed a DJ action. The court found sufficient immediacy and reality based in part on the fact that the parties’ legal positions had not changed during the abatement. The patent owner had continued asserting its patent rights by demanding that accused infringers run their tests through the patent owner, suing those who violated these terms. The accused infringer in this case succumbed to these threats and did not provide accused services to his patients. The court also noted that the accused infringer wanted to provide and was ready to provide the patented tests. The court even compared this with the fact that it affirmed the dismissal of claims by other accused infringers who stated they may want to provide the tests. Because these facts did not change over the 10 years between the letter and the DJ action, the immediacy and reality of the suit did not dissipate. It is important to remember that this is not a rigid, formulaic analysis. Courts have said that attorneys cannot simply prevent DJ jurisdiction by avoiding “magic words” such as “litigation” or “infringement.” Instead, courts evaluate the totality of the circumstances and determine whether the accused infringer is reasonably concerned about being sued to the point of satisfying these two requirements. Walking the Tightrope of Cease-and-Desist Letters | Articl… © 2021 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP 2 This dynamic prevents the courts from clearly defining a universal set of language that would always avoid DJ jurisdiction in a cease-and-desist letter, further complicating the balancing act that patent owners must perform when sending letters to create notice for damages or knowledge for indirect infringement. The Interplay Between DJ Jurisdiction and Notice for Damages To recover damages for patent infringement, a patent owner must provide actual or constructive notice to the accused infringer.13 A cease-and-desist letter may provide actual notice, but to do so it must “assure that the recipient knew of the adverse patent during the period in which liability accrues.“14 The courts focus on the acts by the patent owner to put the accused infringer on notice, not any independent knowledge the accused infringer may have separately developed regarding the patent. To provide this notice, the Federal Circuit has stated that “the actual notice requirement of § 287(a) is satisfied when the recipient is informed of the identity of the patent and the activity that is believed to be an infringement, accompanied by a proposal to abate the infringement, whether by license or otherwise.“15 At first glance, this appears to create a binary choice either to avoid DJ jurisdiction and fail to create notice for damages, or to create both DJ jurisdiction and notice. But courts insist the rules are not coextensive. For example, the Federal Circuit noted the distinct requirements and purposes of these doctrines in SRI International v. Advanced Technology Laboratories: The criteria for actual notice under § 287(a) are not coextensive with the criteria for filing a declaratory judgment action. These statutory purposes are distinct, serve different policies, and are governed by different laws. The requirement of actual notice under § 287(a) is designed to assure that the recipient knew of the adverse patent under the period in which liability accrues, when constructive notice by marking is absent.