Recently, a word went around among the media that ZTE and Huawei have sent attorney letters to some cell phone manufacturers, including Xiaomi, OPPO and Vivo, claiming infringement of their WCDMA patents. However, when asked to verify, ZTE gave a typical evasive answer: “ZTE is a leading enterprise in China in building patent protection, and we respect any move of IP protection toward healthy development in the terminal industry.”

Of course, it will not be surprising that if ZTE and Huawei indeed issued “infringement warning letters”. Although big companies can do whatever they want, it will be unlikely for them to bring a lawsuit in a radical way or at the very beginning of every infringement. Therefore, it has been a common practice to send such letters or issue infringement warning letter before such action.

I. Considerations for the Issuing of Warning Letter

It is one alternative for a right holder to send a warning letter issued by an outside lawyer or inhouse legal counsel to warn the infringer. The letter may be written in a flexible way according to different conditions and its tone may be tough or mild.

Generally speaking, the infringement warning letter should contain the following:

— the rights enjoyed by the holder, such as the particulars of a patent or a registered trademark;

— the desire for the other party to stop the infringement or make compensation therefor;

— the desire for the other party to make response before a certain date; or

— the possible measures to follow in the absence of response, and so on.

Typically, infringement warning letter would be appropriate for:

(1) Minor infringement. Where the right holder believes some infringements are not serious, or such infringements are not intentional, or without bad faith (such as good faith distributer), the right holder may send a mere warning letter to the infringer to have a rapid solution to the minor or unintentional infringement so that the efficiency of right maintenance be served, with minimum cost, injuries and negative impact of the infringement.

(2) Minimal value for infringement litigation. For example, it is unnecessary to make a big fuss and if so, the loss will outweigh the gain in economy or time if a lawsuit is brought against a small seller at taobao.com, the most popular online shopping website in China, for selling infringing products. However, a-stitch-in-time-saves-nine effect will be achieved if a warning letter is sent in advance or directly give such warning by use of Wangwang, an instant messenger software developed by and widely used at taobao.com. Most infringers understandably will take serious considerations to stop selling infringing products after receipt of such warning.

(3) Quick solution to infringement. A right holder may consider it very urgent to stop infringement and hope to send a signal to the other party as soon as possible in order to have such infringement stopped. Since it takes a long time for litigation or administrative measures, which may not even satisfy the company’s expectation of a quick suppression of the spreading of infringing products, an infringement warning letter may serve as the only vanguard.

(4) Non-litigation solution to infringement. Infringement warning is a preferred method used by some companies that have no strong desire for litigation and intend to avoid being dragged into litigation war, or selected by some companies to make a contact in advance for the exploration of negation possibility because it has an intention to grant license to the patent. The most appropriate is to have a peaceful solution to infringement by way of authorization, cooperation, symbolic damages and other methods, or a pure stopping of infringement and the purpose can be basically served.

However, it should be noted that prelitigation investigation and evidence gathering must be thoroughly conducted in cases where the right holder intends to seek damages or other special purposes in addition to a mere stop of infringement. Otherwise, the infringer may be startled to take defensive measures upon its receipt of warning letter, making it difficult to collect evidences.

Of course, both the right holder and the attorney in reality will give adequate assessment over specific cases for whether, when and how the infringement warning letter be sent, or whether to send before the litigation. In practice, there would be other considerations for sending such letter sometimes. For example, when there is an infringer who commits infringement through e-commerce platform such as taobao.com, there may be an observation of the other party’s response after receipt of the letter and a combination of other factors such as the facts discovered by other investigations, in order to make a comprehensive assessment of whether it is worth to bring a lawsuit.

In addition, the company’s internal legal counsel should promptly sent infringement warning letter that is required by the company for its support division position at the company, which is also a gesture or attitude to support the company’s business sector. Where there is feedback of infringement from other divisions of the company such as marketing, selling and others, or the managerial level has paid much attention to such infringement, the legal counsel should make response in a timely manner. Otherwise, the legal counsel may be faced with a poor rating or even be criticized within the company. Obviously, the sending of warning letter is one of the ways with lowest cost, fastest response and easiest performance in comparison with litigation.

II. How to Respond to an Infringement Warning Letter?

It must be understood that infringement warning letter does not mean infringement is established, as there are right holders of less than good faith who, by wielding the powerful IP club, go around threatening and molesting others for infringement allegations. In fact, many allegations of IP infringement are pure imaginations. Good news is that many of the so-called infringement allegations have never been brought to court.

Then, what should a company do after receiving the infringement warning letter?

Some warning letters have no details in terms of specific infringement because they just focus on threat or intimidation. Under such circumstances, the following measures may be taken as response:

— to request the right holder provide evidence of validity of its intellectual property or specify the scope of protection;

— to request the right holder itemize specific rights being infringed, or

— to request the right holder itemize the allegedly infringing products or services, etc.

For warning letters whose contents are clear and certain , the following measures may be taken:

(1) Get an in-depth understanding of the true intention of the other party. Investigations should be made to find out the other party’s identity and history of litigation from news so that appropriate policies and measures may be adopted. For example, the true intention may be to obtain a patent license fees or transfer the trademark by this opportunity if it does not produce the relevant products by itself.

(2) Do not rush to respond. Some warning letters may have words like that “there should be response within X days”. However, there should be no rush response in general. In fact, the right holder may not be so anxious; otherwise, it may be in a disadvantageous position in negotiation. Of course, there shall be no ignorance of such letter regardless of specific considerations.

(3) Make an appropriate response in procedure. It is the best way to make a procedural response to the warning letter. For example, the response may be that it needs time to investigate and don’t answer any important question directly related to the case.

(4) Contact a professional lawyer. Reasonable solutions should be found and appropriate measures taken according to lawyer’s professional advice. Although this requires a sum or even a lot of money as legal fee or consulting fee, interests can be protected in a better way under the condition that professional things are done by professional people.

Of course, a mere procedural response is far from sufficient for the handling of an infringement warning letter with clear and certain contents. Particularly, there are more actions and measures to be taken where great interest is concerned. The following is some alternative suggestions:

(1) Get a preliminary assessment of whether there is infringement. It requires an analysis of validity of the other party’s IP rights, the possibility of infringement, and any plausible defense. If the other party’s IP rights may be subject to invalidation or cancellation, or absence of infringement, such counterargument should be indicated in the response.

(2) Stop any apparent infringing activities. If a company believes it may have been involved in infringement, the best way is not to issue a written opinion which may be used as evidence in litigation. However, the company should make good preparation of stopping infringing activities at that time and even stop apparent infringing activities immediately.

(3) Find out the source of infringement. Investigation should be made to find whether the products or services suspected of infringement comes from its own business activities or from its suppliers and other manufacturers, in order to adopt different strategies to deal with infringement issues. If the dispute arises from external procurement of products, a letter should be sent to the other party that the company is not an appropriate defendant, or invite suppliers of the suspected infringing products to co-deal with infringement issues.

(4) Assess negative outcome of the litigation, e.g. by locating concrete loss from infringement, the specific adverse effect on the company’s business and cooperation with other companies in the future, the possible amount of damages ordered by court in litigation, etc.

(5) Consider settlement. If infringement is inevitable, consider a possible license or assignment through negotiation.

(6) Preparation for litigation. In addition to hire lawyer(s) and develop action programs, the company should make a good handling of the adverse information related to the alleged infringement. For example, a company may have puffed its production scale, sales volumes, the number of its franchise stores and distributors, geographical distributions, etc. on its official website, which may be collected by the other party through notarization and submitted to the court as evidence for a higher compensation.

(7) Seek declaratory judgment. If, upon careful analysis, there is sufficient reason to believe that infringement allegation is unfounded which the other party refuses to back off, leading to possible adverse effect on its business operation and sales channel, the company may take the initiative of declaring noninfringement in court.

(Translated by Yuan Renhui)