Dear Sir, this is not a fishing expedition

One-minute read

Patent infringement letters are sent as standard practice by patent holders to infringers, in order to inform them of the patent and avoid any defence on the basis that the infringment was innocent. But they have also been used recently by patent trolls and others as a form of speculative enforcement of a patent, using vague terms and implicity threats. As a result, particularly in the UK and US, courts have taken a dim view of the way such letters are phrased. Best practice on writing them varies between jurisdictions, so five local lawyers give their recommendations on how to draft a warning letter - and what to do if you receive one.

Questions

1. Under what circumstances do you recommend that clients send out patent infringement warning notices? 2. What are the possible risks in sending out these letters? 3. What are the important rules to follow when drafting them? 4. How effective are warning letters? 5. Has their importance ever been tested in any court cases? 6. What advice do you have for an accused patent infringer that receives a vaguely-worded warning letter?

Global Practice

Companies should consider sending a warning letter in China when: the infringers are small in scale; there is clear case of infringement; where the patent holder demonstrates it has a good case and has the disposition to enforce, for example the company has a record of taking action against infringement to support that the warning has teeth; or to put infringer on notice that it is infringing.

Regarding putting infringers on notice, according to Article 70 of the Patent Law, a seller of the infringing products is exempted from the liability of damages provided that:

• he sells or offers for sale the product without knowing that it is an infringing product; and

• he can prove that he obtained the product from a legitimate source.

A warning letter serves as a notice, so that the infringing seller could not argue that he has no knowledge and thus is not liable for damages.

A potential risk of sending a warning notice is that the patentees might be deprived of their opportunities for forum shopping and instead have the case heard in the threatened party's home court. PRC Patent Law does not have a provision on groundless threat such as in the UK where the threatened party can file a claim for damages. However, in China the threatened party can lodge an application for declaration of non-infringement in its home town.

Effective warning letters convey that the patentee has prepared and is prepared to act. A convincing warning notice should contain a basis for patent infringement. This should be balanced against providing too much detail that could hinder future patent infringement constructions.

Since China does not have groundless threat provisions, one does not need to be concerned that language will trigger grounds for such action and there are not many hard and fast prohibitions in warning letters. However, before sending the warning, a patentee should have collected evidence sufficient to bring a legal action in China. If the infringer is alerted and refuses to settle the dispute, it might become difficult for the patentee to collect evidence at that stage.

In addition, the right owner should assess the validity and any vulnerability in the patent before sending the warning letter. It is very likely that a party (other than a small scale infringer) will file an invalidity action against the patent in response to a serious warning letter. Finally, one should also be conscious that if you include non-China patents, such as equivalent patents to the Chinese patent, in the warning letter you should consider if they may allow the infringer to bring threat actions in other jurisdictions.

We have had successes with warning letters we have handled for clients. As mentioned above, such letters are effective to defeat a defence of lack of knowledge on the part of the seller. Also, warning notices often deter infringers in simple patent cases involving design and mechanical patents against small-scale infringers.

However, for most cases and especially for cases involving complex technologies, large companies, or when the infringer has invested a significant amount in the product, warning letters are generally not an effective means to resolve dispute. For example, with a process patent for a drug, the alleged infringing pharmaceutical company is unlikely to settle considering its investment, including the efforts to obtain market approval, and the challenges the patentee will encounter in collecting evidence and establishing infringement.

For cases in between, backing up your notices with preparation and a willingness to act, and demonstrating that preparation and conviction, for example developing a history of taking action, make them more effective.

In OuLianWeiYe Wall Thermal Insulation Materials v TeRuiKe Wall Technology, the Beijing Higher Court upheld the lower court, the Beijing Second Intermediate Court's decision. The defendant, a seller, had its innocence defence to damages claim rejected on the basis that it received a warning letter from the patentee and thus knew that the products it had been dealing with were infringing products.

Consider whether the letter presents a serious patent infringement case. If it does, prepare your defences. In China, many companies in China are becoming more litigious and are bringing patent infringement actions. Receiving a vague letter does not mean a company is not prepared to act in China and home court can be a terrible thing to lose in China. However, there is also a rise in patent harassment, where companies threaten action or harass their competitors' customers by flashing unexamined utility model patents that are likely invalid. If the case is groundless, a strong response will likely be enough. Citing a good piece of prior art in the response is better.

Geoffrey Lin Hogan Lovells Shanghai

In general, I always recommend that we – as the client's attorneys – send out a warning letter (Abmahnung) before filing a patent infringement action in Germany. This is for three reasons. First, in many cases the matter can be settled without having to litigate. Second, there is a cost risk. If the plaintiff files an action without sending a warning letter, the defendant could acknowledge the claim immediately – and the plaintiff would have to pay the defendant's attorneys' fees and the court fees. Third, if the warning letter is justified, there are no extra costs for the client: under German law, the infringer has to pay the costs of the warning letter, in other words our fees.

If the matter is urgent, especially if there is a risk that the infringing products could disappear as a reaction to a warning letter, I would recommend to directly file a motion for preliminary injunction.

If I have serious doubts if the client's claims are justified, I would recommend sending out a request in which the infringer is asked why he feels entitled to ignore the patent (Berechtigungsanfrage).

The target of the warning letter can file an action for declaratory judgment. Therefore, the client should be prepared to litigate. Within Germany, in the end, the plaintiff can still choose the forum. In international cases within Europe, the risk of a so-called torpedo must be kept in mind, too.

Sending out an unjustified warning letter may result in damage claims against the client if he asserted patent infringement claims at least negligently. This risk is especially high if the warning letters are sent to customers of the producer of the alleged infringing products. An injunction against further unjustified threats is possible.

• Make sure the addressee is the right one: the addressee is the company (of a group) that is liable for the infringement.

• Make clear which patent you assert. Add a copy of the patent specification.

• Describe the infringing act.

• Demand clearly to cease and desist from the infringement and not to interfere with the patent in future.

• Set an appropriate deadline for a cease-and-desist declaration (Unterlassungserklaerung), under which the infringer will be obliged to pay a contractual penalty in the event of any recurrence.

• Make clear that you will consider filing an action without further warnings if the infringer does not comply.

• Add a power of attorney (for the avoidance of discussions).

In our experience, warning letters are very effective. In most cases the matter can be settled without litigation.

A warning letter can also help to constitute the addressee's liability for infringement. A person who has received a warning letter cannot claim he had no knowledge about the infringement. This is especially relevant for carriers: the carrier has no general obligation to examine whether the carried goods infringe patent rights. A duty of the carrier to gather information and, where appropriate, examine the goods himself, can however arise if he has concrete indications – received in form of a warning letter – of an infringement of patent rights.

There are many court cases regarding warning letters, especially on the question under what conditions the costs of the warning letter have to be reimbursed by the infringer. Nearly all the answers I have given above are based on German case law.

The liability of senders of unjustified warning letters was confirmed by the Grand Senate of the German Federal Supreme Court in a decision Unberechtigte Schutzrechtsverwarnung on July 15 2005.

I recommend that we check if there might be a basis for the allegation of patent infringement. Depending on the details of the case, I would recommend that we answer on behalf of our client that we cannot understand the allegations and that we assume that they are unjustified unless the warning party specifies its claims.

Karsten Königer Harmsen Utescher Hamburg

It is important to recognise that plaintiff's success rate in Japanese patent litigation is not high. Statistics show that out of 125 court judgments (Osaka District Court and Tokyo District Court) on patent infringement litigation between 2006 to 2008, plaintiff's success rate was only 24% and 49% of the plaintiff's patents were held as invalid. So when a patentee finds infringement, he needs to first go through due diligence to examine the chances of success if the infringement is going to be litigated before a Japanese court. It should also be noted that due to a lack of formal discovery equivalent to that in the US, it may be difficult to identify accused products and infringement. In addition, because of that lack of formal discovery, litigation costs tend to be substantially lower, which may provide less incentive to early settlement.

If the warning letter is intended to cover infringement of both Japanese and foreign patents, the risks should be examined for multiple jurisdictions before sending a warning letter. There are also other factors to consider, such as the business relationship with the accused infringer. Market shares and the maturity of the relevant market are also factors. Compared to the US, it is much more difficult for a non-practicing entity to claim patent infringement in Japan.

As patents are so often held invalid, the patentee needs to examine the chances of the accused infringer litigating the case before the Japanese court. The patentee also needs to examine the risks of the accused infringer filing a countersuit in Japan or a separate patent infringement lawsuit overseas.

Japanese courts will only recognise actual damages, no punitive damages are awarded. Although sending a warning letter can be a proof of intentional infringement by the accused, such proof will not entitle the patentee to recover punitive damages in Japan. Thus, a warning letter can be less useful for Japanese patent infringement. Although not legally required, it is recommended that the patentee send the warning letter by special form of registered mail (naiyo-shomei-yubin).

Effectiveness depends on the purpose of sending the warning letter. If the primary purpose is for the patentee to bring the accused infringer to the table to negotiate licensing, a warning letter is likely to be reasonably effective. However, a warning letter may not be effective in having the accused infringer settle the case on the patentee's terms.

The case law on this issue is scarce in Japan.

If the warning letter specifies a patent number, I suggest that the client trace the patentee or registered exclusive licensee (senyo-jisshiken-sha) from the patent number and check the formal sender of the warning letter. Under Japanese law, only a patentee or a registered exclusive licensee can send an effective warning letter. If the warning letter is too vague in identifying the accused product or infringement, in general, it is recommended that the client request more specific information unless he is certain he is not infringing.

Etsuo Doi Foley & Lardner Tokyo

In respect of civil proceedings in the UK, the Practice Direction on Pre-Action Conduct requires that a claimant writes a pre-action letter setting out its case. This is part of the general expectation of the court that parties should act reasonably by exchanging information and considering alternative dispute resolution before embarking on litigation, or at least attempting to narrow the issues in dispute. Failure to comply with this requirement may invoke a sanction in relation to any award of the costs of the proceedings.

However, unlike other specialist proceedings, there is no pre-action protocol specific to patent cases. Moreover, in high-value patent cases, where both parties are sophisticated and legally represented, the requirement for a pre-action letter is often disregarded without criticism from the court. That said, unless one of the factors mentioned in section 2 below is present, writing a pre-action letter is advisable, not least since it may produce a response that avoids the need for litigation.

Applications for preliminary relief

A pre-action letter will obviously tip off an infringer, which may in turn frustrate an application for a search order or an asset-freezing injunction (which by their nature are usually made without notice). Whether notice to the defendant is a good idea in an application for a preliminary injunction will depend upon the circumstances, but extended pre-action correspondence may not be consistent with the urgency requirement of an application for such relief.

Pre-emptive proceedings by the recipient

Before writing to a potential infringer, a patentee should already have developed a strategy in case of a non-satisfactory response, and this could involve litigation in one or more jurisdictions. If there is a risk that the recipient of a warning letter could pre-empt the patentee by commencing proceedings first (for example, for a declaration of non-infringement) in the jurisdiction of its choice, this could frustrate such a strategy.

Groundless threats

If the recipient of a letter threatening proceedings for patent infringement is in the UK, then that person could have the basis for commencing proceedings for groundless threats under section 70 of the UK Patents Act 1977. Available remedies include damages and an injunction to prevent further threats being made. There is also the public relations aspect to consider, as although a patentee may claim that the threat was justified, it will be as a defendant to a threats claim rather than as a claimant enforcing its rights. This is a very complex area of law (and different to that relating to trade marks), but practical guidance on how to minimise a party's exposure to a groundless threats action is given in the next section.

First, determine the nature of the infringing acts the intended recipient is carrying out, since an action for groundless threats cannot be brought in relation to a threat to bring proceedings for making or importing a product or of using a process (so-called primary infringement). If there is evidence that the intended recipient is a primary infringer, then threats of proceedings in respect of any acts of infringement will not be actionable (see Patents Act Section 70(4)). Note that in this context, retailers are secondary infringers.

If writing to a secondary infringer, you can:

1. Draw attention to a patent or provide factual information about it; or

2. Make enquiries as to whether primary infringement has occurred or to find out who has infringed.

There is a further defence if a patentee can prove that it has used its best endeavours to discover the identity of the primary infringer and notified the recipient of these endeavours. It is therefore advisable to write to the secondary infringer to make enquiries before writing the threatening letter.

Avoid language such as: "If you do not cease the activities set out above within 14 days of this letter, we will have to consider our legal options". Even if the initial letter is not threatening, the patentee can still fall foul of these provisions through its responses to a recipient asking why the letter has been sent. Note that the statutory rules for threats for registered designs and trade marks are materially different.

Do not publish any pre-action letter or send it to third parties, as not only could this increase the aggrieved party's claim for damages, it could also trigger an action in relation to libel, interference with contractual relations or malicious falsehood.

If the infringer is unaware of the patent then a pre-action letter may well prevent further infringement. However, if the infringer is knowingly infringing then litigation may be necessary, particularly if the infringer has taken its own view on the patent's validity when deciding to proceed with its activities.

However, in all cases the receipt of a pre-action letter will mean that the recipient can no longer claim to be an "innocent" infringer and so will be unable to rely on the innocence defence to a claim for damages in relation to its activities from then onwards.

Warning letters in patent cases almost always come to be considered by the courts in the context of allegations of groundless threats. The court has regularly held that language containing an implicit threat can found the basis of a groundless threats action. In Grimme v Scott [2009], the court found that a statement reserving a party's rights and making a reference to future contact from the patentee's solicitors was actionable, even though "the letter expressly state[d] that Grimme do not intend to commence proceedings".

In Zeno Corporation v BSM-bionic Solutions Management [2009] the following request to a retailer was actionable: "let us know why you are of the opinion that you need not take into consideration the patent of our client when marketing the product Zeno".

A claim against the patentee's solicitors is also possible if they wrote the letter (Brain v Ingledew (No 3) [1997]), although the court will not allow a tactical or retaliatory claim against the solicitors: Reckitt Benckiser (UK) v Home Pairfum [2004].

If you receive a letter, do not panic! Ask for time to consider the allegation and if necessary ask the patentee for further information, such as the exact product or process complained of. If the client disputes the allegation, be careful of making any admissions in any response to the letter – it is for the patentee to prove its case and the warning letter may be a fishing expedition.

The client should consider seeking advice in relation to the allegation of infringement (the patentee's view on what the patent claims cover is likely to be very broad and may not be the same as the court's) or the patent's validity.

A secondary infringer who is aggrieved by the threat of proceedings (have customers been told of the allegation and as a result cancelled orders?) can consider bringing an action for groundless threats (as discussed above).

David Wilson and Nicholas Ruesink-Brown Herbert Smith London

Only after considering a number of factors, such as the importance of the patent in question to your overall business, the desired outcome (such as licence and business relationship with the alleged infringer), your existing relationship with them, and the existence of good faith for believing there is infringing activity.

As a threshold matter, warning notices can be fraught with danger and are a potential minefield unless carefully considered. The patentee who fires off a warning notice without giving serious consideration to the basis of its claims or consequences may find itself endangering its patent rights rather than protecting them.

The most immediate risk to sending a warning notice is that you may escalate events between you and the alleged infringer. If a competitor, the company may bring a declaratory relief action without ever responding to your letter. Plus, the alleged infringer – now plaintiff – can claim in the lawsuit that the asserted patents are invalid. Moreover, the alleged infringer may seek an ex parte or inter partes reexamination of your patent at the USPTO, resulting in two battles, since reexamination and litigation can exist on parallel tracks.

There are other risks to sending a warning notice. If your notice is not sent in good faith, then you may need to defend claims that you have engaged in unfair competition. Another concern that arises with sending a warning notice is equitable estoppel, which bars any recovery by the patentee, including the denial of an injunction against further infringement. For example, the Federal Circuit has affirmed a grant of summary judgment based on estoppel involving 3.5 years of inaction in bringing suit after the patentee's initial accusation of infringement (Aspex Eyewear Inc v Clariti Eyewear, Inc [Fed Cir 2010]).

This is a difficult area because there is no bright line test in the US for when a notice letter will trigger a declaratory relief action. In 2007, the Federal Circuit abolished its own "reasonable apprehension of suit" test prong of its former two-prong test for declaratory judgment (SanDisk v STMicroelectronics [2007]).

Prior to that case, the US Supreme Court in MedImmune lowered the bar for bringing declaratory relief actions. Therefore, warning notices must be carefully crafted to avoid triggering them. Clearly, you should not make any explicit threats of a lawsuit, or even direct allegations of infringement. While the patentee should specifically identify the patent at issue and the accused product or conduct (to fulfil any requirement of actual notice), allegations of infringement should be less definite and phrased to express concern rather than to make accusations of infringement. Language indicating the products "may fall within" or "may be covered by" is less problematic.

The efficacy of warning notices really depends on their purpose. They are less effective against a direct competitor or a sophisticated litigant, as a competitor is unlikely to cease its allegedly infringing activity because of a notice. However, if the warning letter does not address a core technology, or is minor to the company's business, then the warning notice may serve its purpose because litigating patent cases is expensive and not worth the fight for non-core or non-essential patents.

The notices also tend to be effective against smaller or emerging companies that don't have the stomach or resources for a patent fight. Aggressive companies can effectively use warning notices strategically to protect their market position. Of course, these same companies are prepared to litigate even before they send the warning notice.

A warning notice is not always negative and can be effective in opening up a dialogue between parties that may lead to new business ventures or licensing opportunities. Finally, a warning notice at least allows you to gauge the infringing company's resolve and can inform pre-litigation strategy.

The importance of these warning letters has been tested in US courts numerous times, although recent cases have shifted the landscape. In a closely watched case, the Federal Circuit found that declaratory judgment jurisdiction existed where the patentee (Acceleron) wrote to "call [HP's] attention to the referenced patent" (Hewlett-Packard Co v Acceleron [2009]). HP responded that it "would be willing to agree not to file" a declaratory judgment action for 120 days. Responding, Acceleron suggested that no basis for a declaratory judgment existed, but HP filed a declaratory judgment action rather than negotiate. The district court dismissed the case finding that the potential for litigation was "too speculative a prospect to support summary judgment jurisdiction". The Federal Circuit reversed this ruling and held that Acceleron's actions were sufficient to support a declaratory relief action. The court noted that its holding "undoubtedly marks a shift from past declaratory judgment cases".

Advice depends on what was sent and who sent it. For example, if a vaguely-worded letter came from a company with significant litigation experience, the recipient should respond in the time given by seeking more information. Further, if the vaguely-worded letter targeted a recipient's core technology, it should require greater attention. Any warning letter has to be sufficient enough to give notice (if the product is unmarked) so there should be sufficient information that one can conduct a preliminary investigation to determine what type of response is warranted.

If there is insufficient information and the letter does not target a key patent, a recipient could consider ignoring the letter. There is some risk to this approach, but it is not unusual for non-practicing entities to send out waves of letters to see who bites. You could be in a situation where you have received a letter and nothing further occurs, or you could find yourself in the scenario described above, in which a warning letter was sent and not acted upon, causing an equitable estoppel defence to exist. However, there is always risk in ignoring a letter because a patentee may simply file an action rather than send a follow-up letter. Ultimately, a company that gets many of these letters a year should have an internal process in place for evaluating them.

Bobbie Wilson Perkins Coie San Francisco