You click on an email. It looks like some sort of letterhead, maybe a law firm. You scroll down a little, in all caps and bold says “VIA PDF EMAIL AND US MAIL AS CERTIFIED LETTER.” You dismiss it, maybe glance at the RE: line, but you are busy. It may be junk or a scam. A few days later, the morning mail comes and there is a certified letter. You Google the firm, it’s looking more legit. Etched in your mind, you recall the operative words: “cease and desist,” “infringement,” or perhaps the more affable, “invitation to license.” The pejorative term “patent troll” sometimes unfairly groups together four groups: (1) attorneys acting on behalf of their client’s interests enforcing intellectual property (IP) rights; (2) intellectual property portfolio managers whose valid business model is to enforce their hard-won intellectual property rights; (3) collection agents with a vague notion of what intellectual property is but a clear understanding of two things: (i) their contingency fees and; (ii) the anatomy of a shakedown; and (4) scam artists. All such letters should be filtered using the eleven-step decision-making process outlined below.
Step 1: Take All Letters Seriously
Commonly, the recipient simply ignores the letter, hoping the sender goes away. Often this is because they may not know whether the sender is real or the letter is from a scam artist. Alternatively, some letter recipients choose to negotiate and “just pay them off.” Both approaches are flawed. First, take all letters seriously. Consider every action you take from the point you receive a letter as evidence that may be used against you in a negotiation or trial. Gather as many facts as you can before you act. Know that if you say anything to the alleged rights holder, that is part of the record and you may say things against your interests that could be interpreted as an admission of infringement. Not good.
Step 2: Who to Hire: Beam Me Up Smarty
For this reason, to “go it alone” could be a mistake. There are clients who can cite Supreme Court intellectual property cases, have IQs hovering around 135, and are excellent advocates, but they are rare (and even they have attorneys). But a law degree may not be an absolute resource. Calling up your sister-in-law who is a domestic relations attorney is probably not the best move, unless she refers it out. General legal knowledge militates against acceptable negotiated settlement in cases like these. You need an experienced team member who can pull you out of an unproductive dispute from anywhere.
I recently was referred a matter from an attorney who “did not like to write, negotiate, or get into conflicts.” Engaging an experienced and an intellectually aggressive IP attorney is essential. Often the default is to get a general litigator, which can work, and the best are quick studies and can get enough to push a settlement through, especially litigators who have been in practice for 20-plus years with a business background, as they have a sense of when a fight is worth having. Dealmakers with Malcolm Gladwell’s 10,000 hours in pocket or thousands of closings are the “A team” you want. Most inexperienced litigators just annoy everyone and increase costs.
Step 3: Keep the Business Settlement Going (But Know When to Leave It)
Clients are often on the path to a smart negotiated business settlement when one pulls the “I want my day in court” card as a tactic. Things go awry fast. Using attorneys to review the final document or “paper the deal” is common, but mention that on the front side. Often, attorneys are enabled by client emotion and demands. This can potentially derail a business settlement, especially with complex facts, which lend themselves to longer resolution times. It then takes months to get back to the intellectually rational business settlement that was so close, until one party had a bad day. You can use your attorney to support the negotiation to keep down the balkanization factor, but do not go off script, especially if you are influenced easily. At some point, especially when a large company is enforcing against a small one, attorney-to-attorney communication is required to obtain negotiation and compromise protections in civil procedure rules (e.g. Rule 408) that favor non-litigated disputes. Generally attorney-client privilege is not covered in business-to-business discussions, nor is the work product rule protection involved in litigation preparation communications. The best facts come out during “friendly” discussions – someone is always more friendly than the other in disputes. I know…paranoia stinks.
Step 4: Recognize the Nuance of Insourcing v. Outsourcing the Response Team
Larger or publicly traded companies have general counsel, and high-volume licensors may have people dedicated to the function, such as “Certified Licensing Managers” (certified by the Licensing Executive Society) who are delegated such duties from their legal departments, much like certified purchasing managers or certified privacy professionals. These professionals may be on either the license receipt side or the demand letter generation side. Super aggression is best outsourced, as internal general counsel may have to negotiate a deal with an infringer, meaning bridge burning may not be a good long-term strategy.
Step 5: Authoritative Demanders Get More
As an innovator, creator, or other holder of rights, before you send this type of letter, avoid being labeled a “troll” by getting all of your facts straight. Dates of creation and good facts related to a history of innovation or trademark use are essential. An audit and review of the intellectual property right enforced can be complex. There are thousands of innovators out there and the last thing a legitimate right holder wants to do is to end up on the opposite side, defending a declaratory judgment action. Like other firms who specialize in pre-litigation intellectual property conflict, we have successfully turned the tables, transferring the intellectual property from the demand letter generator to the recipient. Cash demands can reverse 180 degrees with the demander eventually being the payor. This requires a unique combination of good facts, capitalizing on mistakes, an informed and unwavering conviction by the creator, and an expert negotiation team that understands the people, probability, payoff, and possibilities. There is hard data showing that an authoritative cast to the interaction yields a higher probability of greater settlement dollars, without litigation.
Step 6: Identify the Right Enforced
If it looks like the letter deals with intellectual property, what type is it? Intellectual property demands may include patent, trademark, copyright, and, most recently, “unfair trade practices” where no patent, copyright, celebrity image right, or trademark is actually infringed. Our clients have received letters that do not clearly identify the right claimed. You may get a letter from someone claiming to enforce a trademark that was not a trademark at all, but a universal resource locator or “domain” on the internet. This can show the hand of a troll or phisher, who is gambling on your lack of knowledge. We also receive letters that essentially make no demand of any right we can identify. This may be attributed to poor draftsmanship or language barriers, ignorance, or fear of declaratory judgments such as in cases like HP v. Acceleron, where demanding a “non-practicing-entity” (right holder but not marketing or manufacturing the invention) party’s patent was successfully challenged by HP.
Step 7: There are Ethical Duties Involved in Finding Money
Trolls may take many forms, but no intellectual property portfolio manager should trust one with the corporate jewels or strategic technologies. These matters should be handled exclusively by in-house counsel or intellectual property law firms. Otherwise, great damage can be done. “Fallow IP” portfolios are often delegated to portfolio enforcers. This is viewed as “found money” to the right holder. However, these portfolio owners must choose the enforcer carefully as they may be less than professional and either detract from the goodwill of the right holder or undermine a strategic piece of IP. Attorneys in the heat of the conflict can violate the ethical standards of the bar association they belong to or the standards of the United States Patent and Trademark Office, United States Copyright Office, or consumer law. One serious ethical violation is to threaten criminal sanctions to obtain a civil reward. I see this all the time and am obliged to report the offender. Finally, note that one intellectual property right may require more legal scrutiny than another. For example, recent federal court decisions make patent demand letters more subject to triggering a declaratory judgment than before. Don’t do a face plant on your first communication with the infringer.
Step 8: Investigate the Demander’s Modus Operandi
A demand from an intellectual property law firm carries certain weight. Demands from a former real estate agent turned intellectual property enforcer may have less weight. The latter case is a true example of a letter we received. An investigation process using legal databases and even private investigators can help gauge risks and source legitimacy. Note that this is an international game and, in our experience, we view demands from Russia, China, and Africa with added suspicion as civil and property rights are less rigorous in those nations and regions.
Step 9: Know that Open Source is Ubiquitous AND Not Free
The “open source” license enforcer is not to be ignored. Some people believe non-commercial software is “free.” Open source is a collective software licensing regime where the source code must be shared and licensing fees may not be charged, among other terms. The Freedom Software Foundation is an enforcer of these licenses and has successfully obtained cash from profit and not-for-profit entities alike under threat of litigation. There is a false notion I have come across multiple times that if the software is used for the purpose of the scientific, religious, or public benefit, the license is waived. I do not know the source of this, but it is false. Many cases have been litigated and many checks written from non-profits to a licensor.
Step 10: Offensive Prevention: Policy, Practice
The more investigation you do on the front side of the enforcer or troll, the more effective your attorney can be. Diligently conduct patent, trademark, image, and copyright searches. A documented and robust evidentiary trail of investigation can support non-infringement or accidental infringement, and may save innovators money on re-inventing something. So not only does this limit the risk of infringement, but may also let you know if the enforcer is legitimate.
If you do receive, or plan to send, a letter, know you cannot go it alone. Know that patent infringement is not your only threat; there are also trademark, open source, moral right, copyright, and celebrity image enforcers as well. We have seen them all in the last 20 years. Creating an evidentiary trail of unique development, tight employment, independent contractor agreements, invention disclosure, intellectual property assignments, and corporate records is your best defense, as well as offense.
Step 11: Don’t Forget the “Software” to Close the Deal
Practice good intellectual property hygiene to achieve better recovery. Remember, while finances and logic drive the bulk of what I do at the firm, my team and I remember that ultimately, humans are emotional and messy. A self-awareness of the psychology and people involved is essential to defending or enforcing these rights and to miss the softer side of the negotiation may be a fatal flaw. Humans, and all their inconsistencies, close deals for now.
Martin Medeiros is President of the Medeiros Law Group and represents businesses and governments of all sizes enforcing, defending, and negotiating complex settlements for over twenty years involving thousands of negotiated transactions. He is the author of Negotiating Beyond Tomorrow and Negotiating in the Technocracy. martin@medeiroslawgroup 1-844-VALUE IP
© Martin Medeiros