- Posted on: Aug 23 2022
By: Daniel Finnegan [8/26/22]
Receiving a patent infringement cease-and-desist letter can be heart-stopping for the uninitiated and a burr in the saddle for even a seasoned business pro. Many cease-and-desist letters frequently come with an “offer” to resolve the dispute by entering into a license agreement with the patent holder. Similarly, for sellers on Amazon® and other online marketplace platforms, who receive their platform’s patent infringement takedown notices typically are given the option to unfreeze the accused listings by entering into a license agreement with the patentee. To the recipient of such proposals, this option smacks of coercion or even extortion, and so the proposal of becoming a licensee of a patent holder is frequently dismissed reflexively.
This blog considers the alternative – entering into that ‘deal with the devil’.
First, by just initiating licensing negotiations in a good faith manner, the accused will most likely buy themselves time, deferring more drastic actions and threats on the part of the accuser.
Second, there are upsides to being a licensee to a strong patent besides the promise not to be sued by the patent holder. As evidenced by the innumerable patent license agreements voluntarily entered into by fortune 500 businesses every year. One possible benefit is that an authorized licensee may be empowered with many of the rights and associated benefits of the patent holder. For instance, if the product is within the scope of the patent, being able to mark one’s pre-existing product with the word “Patent” or abbreviation “Pat.”, bestows that product with the cache and uniqueness associated with a Patent, which in turn helps to market the product. Such marking can also scare away other competitors (and possibly enable you, the licensee, to send your own nasty cease-and-desist letters in the case of an exclusive license). Of course, the price for the license must be right. But the patent rights that can be transferred to the licensee can be valuable. Why else did that patent holder spend tens of thousands of dollars and plow through most likely multiple years of uncertainty to acquire the patent at issue? And the licensee may be able to get their hands on some of those exploitable rights and/or benefits after a few days of negotiations, and possibly for less than was spent on obtaining the patent.)
Third, a licensee may negotiate the right to make and use an upgraded version of their product embodied to the full extent and scope of the patent without fear of reprisal, thereby affording the licensee with ‘design freedom’.
As noted above, many recipients of cease-and-desist letters feel bullied and thus assume a hyper-defensive posture and an adversarial mentality after being accused of patent infringement. Thus, they may fear that even starting a conversation about a license agreement is an acknowledgment of guilt and/or a sign of weakness that the ‘patent troll’ will exploit. Though, be mindful that negotiations regarding settlement agreements (as the license agreement would be) are not admissible as evidence in court as a confession or acknowledgment of guilt or liability. Furthermore, the patent license is like any other contract, the terms can be bargained for and thus tailored upon mutual agreement. Accordingly, one of the provisions of the license may be that the licensee does not acknowledge patent infringement. In fact, a tactful and tactically sound way to initiate negotiations for a possible license agreement can start with a non-committal statement like, “I read your cease-and-desist letter, and even though I don’t need your proposed license agreement, I may want some design freedom as I may want to change my molds in the future.” Additionally, it is common to negotiate assurances in the license agreement that the patent holder’s other patents or future related patents will not be used against the licensee.
And, if you were contemplating a patent on a newly minted product that received the disagreeable cease-and-desist letter, entering into a license agreement does not foreclose you from pursuing your own patent protection (assuming you have not made the product publicly available for more than 12 months prior to filing a U.S. patent application).
In sum, indignantly rejecting a license agreement solely because it’s couched in an unpleasant cease-and-desist letter may not be the right move – but reaching out to us at Dunlap, Bennett, and Ludwig PLLC to further discuss the possibility of such a license agreement and your other options is the right move.