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When Cease-and-Desist Means Start Right Now

A Federal Express envelope arrives addressed to you as the head of your business. However, it is from a law firm that you have never heard of. You already have counsel – you spoke to them just last month. As tempting as it is to throw the entire envelope, unopened, into the recycling bin, you open it and find a letter addressed to you. You have received a cease-and-desist letter, also known as a “C&D letter.”

You learn that the law firm is telling you to cease and desist from doing something that infringes upon the intellectual property rights of that law firm’s client. It might be a patent issue, or perhaps it has to do with their client’s trade secrets. The C&D letter may claim that your firm is infringing upon their client’s copyright, or their trademark. You are sure your firm hasn’t done anything wrong – you know your business. As tempting as it might be to resume the pitching of the envelope into the recycling bin, this C&D letter means you have to start doing some things right now.

Quickly Acknowledge the Letter. One of the chief causes of increased damages is willfully ignoring claims to stop. A mistake about using someone else’s intellectual property can elevate a minor problem into a serious disaster. Even if you are sure that you are doing nothing wrong, make sure a response is promptly sent, saying that you are beginning an investigation. Give yourself a generous end date for a comprehensive response of two weeks to a month. Don’t wait on sending the initial response letter until the conclusion of the investigation, and do not make any representations that may come back to haunt you later. The response can be from yourself or be from your counsel. Counsel’s response shields you from directly communicating with your adversary, and decreases the possibility of something being used against you. Counsel is usually better placed to investigate the overall reputation of the party and counsel claiming intellectual property infringement, and can smooth the way for you.

Begin a Low-Key, Objective Investigation of the Facts. If someone in your organization messed up, that person will not want to reveal his mistake, but your company’s survival may depend on learning that right away. Be low-key but objective in the investigation. Eeven if those employees used the intellectual property your adversary claims, there may be many reasons why your firm could do so. Again, counsel can be of great assistance, because counsel can frame the issues early on that maximize your advantage.

Consult Your Insurance Policy. Depending on what happened and how your business liability policy is written, your firm may qualify for insurance coverage for the legal costs associated with the dispute. Some business liability policies cover allegations of “advertising injury,” and might thus cover claims like trademark infringement, copyright infringement and trade secret misappropriation. Notify your insurer right away – that is what the insurance is there for. Informing your insurer about an event is not an admission that your firm did anything wrong, and the insurer cannot begin bearing part of the cost until the insurer learns of the claim. Have your counsel review the policy as well – some insurance companies like to avoid the need to pay on claims until they are called on their bluff by counsel.

Can Your Firm Seek Indemnification? Someone else may be liable for your alleged wrongdoing. If a product (including things like software) that your company purchased is alleged to contain infringing elements, your firm may have a claim against the seller. The Uniform Commercial Code (codified in California as 2312(3) of the California Commercial Code) imposes a warranty that products are free of claims by third parties. Like insurance, the sooner the seller learns of the claim, the sooner the seller can begin assuming financial responsibility.

Begin Protecting Documents, Both Paper & Electronic. As your firm now knows of an alleged infringement, you need to take whatever steps are necessary to preserve documents. That includes electronic documents like invoices, emails, and electronic receipts. Besides being the law, it is common sense: those documents may clear you as much as they may hurt you. Electronic deleting of emails or shredding of files could both prevent you from recovering information that could help you, and could create a claim for spoliation of evidence. That leads to an assumption that whatever was destroyed was helpful to the other side your case could be over with before it starts.

Respond Fully. Once your firm has looked at all the facts by the deadline you previously gave, have your counsel fully respond to the original C&D letter in the time frame that you originally mentioned.

Confronting such claims head-on will be cheaper in the long-run than burying your head in the sand. A cease-and-desist letter is a code for starting things right away.

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