How to make the best use of a cease & desist letter?
In China, the cease and desist letter is commonly used to warn infringers. Experience showed that you may have 50% of chance to get a reply to your cease and desist letter. The cease and desist letter usually works well with straightforward counterfeit case and against small infringers. When it comes to complicated case and big infringer, it is critical that you carefully evaluate the risk of being sued before sending out the cease and desist letter.
The recognition of non-infringement lawsuit:
The recognition of non-infringement lawsuit was first accepted in a patent case in 2002. Then Article 18 of the SPC's Judicial Interpretation on Several Issues Concerning the Hearing of Patent Infringement Cases (2010) set up the procedural requirements: 1) the right owner sends the cease and desist letter; 2) the recipient urges the right owner to file the civil lawsuit; 3) the right owner does not withdraw the cease and desist letter or does not file the civil lawsuit within a reasonable period; 4) the recipient can then file a recognition of non-infringement lawsuit.
Now, the recognition of non-infringement lawsuit extends to all IP cases, and the courts are lowering the procedural requirements: the recipient is sometimes allowed to file a lawsuit as soon as it receives the cease and desist letter.
The biggest inconvenience of being sued for non-infringement is that, you lose the control of the lawsuit: 1) you have no more choice of the jurisdiction which is very important in a lawsuit strategy; 2) you have limited time to prepare the evidences, and sometime even worse, the evidences will disappear if you did not secure them before sending the cease and desist letter.
In the Honda case (selected in the 2015 top ten IP cases by the SPC), Honda sent cease and desist letter to Shuanghuan, a Chinese car maker based in Shijiazhuang city, and its distributors, asking for immediate cease of design patent infringement. Shuanghuan filed non infringement lawsuit in Shijiazhuang in October 2003. Hongda then filed infringement lawsuit in Beijing in November 2003, claiming huge damages (RMB 3.4 billion). According to the SPC's first-file principle, Beijing High Court transferred the infringement case to Shijiazhuang Intermediate Court in 2004 for a combined trial.
In the meanwhile, Shuanghuan filed invalidation action in December 2003, and successfully cancelled Honda's patents in September 2007.
In April 2008 and then in April 2013, Shuanghuan lodged additional claims requiring Hongda to pay RMB 3.6 billion for the damages caused by the cease and desist letters.
Finally, in December 2015, the SPC decided that Hongda shall pay RMB 16 million for the damages caused to Shuanghuan.
How to use the cease and desist letter:
It is recommended to make a website notarization and/or notarized purchase before sending a cease and desist letter.
If the infringer ignores the cease and desist letter, you can arrange another round of notarization to prove the infringer's bad faith, and then file the lawsuit.
For complicated and important case, it is advisable to do the forum shopping and directly file the civil action without sending the cease and desist letter.