Patent Attorney、Attorney at law

When disputes arise, the first thing we would recommend is negotiating with the opposite party. Negotiation is far more time-efficient than litigation. Sending warning letters is considered the first step of negotiation in patent disputes.

■Sending a warning letter to a suspicious infringer may prevent the infringer from asserting an innocent seller defense in an infringement lawsuit.

In Chinese practice, use, offer to sell, or sell infringing products without knowing that the products are infringing others’ patent rights is not liable for compensation if the products are proved to be obtained from a legitimate source. However, if the patent owner has sent a warning letter to the person who uses, offers to sell, or sells the products, the innocent seller defense cannot be used since the patent owner has already informed the person about potential infringements.

■Sending a warning letter helps the patent owner obtain evidence of intentional infringement.

As a recent amendment on the Chinese Patent Law, the amount of compensation is 1-5 times higher for an intentional infringement than for a normal infringement. If the warning letter was sent to the suspicious infringer, the patentee could say that the defendant continues to commit infringements after being warned by the patent owner, as an evidence intentional infringement.

In a 1st instance case in Guangdong province, the court upheld punitive damage based on a proper use of warning letter written by Foundin IP. In this case, the court found that the warning letter sent by the patent owner contains clear comparison between patent contents and the infringing products, that the infringers possess patents in the similar technical field and are able to understand the patent content, and that the infringers continuously conduct infringing actions after receiving the warning letter. In this case, the proper use of warning letter helps the judge to determine the intentional infringement and the use of punitive damages.

■The suspicious infringer, after receiving the warning letter. may file a lawsuit to confirm that the patent is not infringed.

In particular, after sending out the warning letter, if the patent owner does not file a lawsuit within a certain period of time, the suspicious infringer can file a lawsuit, requesting the court to confirm that his/her actions do not infringe the patent rights.

Case Study

A warning letter sometimes can be a double-edged sword. With improper use of the warning letter, this action may be considered as unfair competition. The following case study provides examples on both proper and improper uses of warning letters.

The dispute was between Shuanghuan Automobile and Honda. Honda is the design patent holder who asserts that Shuanghuan Automobile infringes its design patent rights. In view of this, Honda sent several warning letters to Shuanghuan and its distributors. The first round of warning letters was sent at the very beginning when Honda noticed the potential infringement actions. The second round of warning letters was sent to Shuanghuan’s distributors after Honda filed patent infringement lawsuit against Shuanghuan.

The first round of warning letter was sent in September, 2003, before any lawsuits were filed. In the first round of warning letters, Honda informed Shuanghuan’s distributors that they are selling/displaying Honda’s patented products; that no reply has been received after their previous correspondence; and that Honda reserved the right to sue the companies. The patent number was also included in the warning letter. As part of the court’s decision, the first round of warning letter was considered legitimate.

Then, in January 2004, after the parties have filed relevant lawsuits, Honda sent a second round of warning letters to Shuanghuan’s distributors in various cities, indicating that Shuanghuan is infringing Honda’s patent rights and Honda therefore reserves the right to file a lawsuit. This round of warning letter, however, was considered improper. The court considers that product distributors are more vulnerable to warning letters and may easily end the collaboration with manufacturers when receiving such warnings. Without solid evidence to prove the infringement and without indicating that there are lawsuits in progress, Honda sent warning letters with vague statements to a large number of distributors, which fails to exercise reasonable duty of care and violates the anti-unfair competition law.

Be cautious with the warning letters

As a lesson learnt from the above case, before sending out the warning letter, we need to make sure that the patent rights are authentic and in force, the infringement facts written in the warning letter is precise and specific, and the warning content is sufficient and clear. In addition, the patentee may consider collect evidence (by himself or by a professional investigator) prior to sending the warning letters. Please bear in mind that without discovery, the patentee bears the burden of collecting evidence and the potential infringer, after being alerted by the warning letter, may hide relevant evidence or even change its entity name， making further investigations rather difficult.

Importantly, the sender has different levels of duty of care when sending out warning letters to different recipients. In the Shuanghuan vs. Honda case, the manufacturer knows more details about the dispute and the status of ongoing litigations while the distributors have fewer knowledge about what is going on. Therefore, the warning letters sent to the distributors may need to include more details to facilitate their understanding of the current situation. If the vague statement in the warning letter is considered one reason that the distributor refuses to sell the products or ends collaboration with the manufacturer, leading to certain loss on the manufacturer, the court very likely will consider the action of sending the warning letter as improper and violates unfair competition law.

On the contrary, here are some tips for those who receive warning letters:

■Firstly, read the warning letter thoroughly to see whether the facts are clear and the contents are understandable.

■Secondly, the recipient may conduct a self-assessment to see whether there is truly an infringement or there is a risk of infringing others’ rights. If the infringement risk is relatively high, consider stop the suspicious actions in the relevant jurisdiction.

■Meanwhile, the recipient can actively communicate and negotiate with the sender to have a better understanding of the current situation and also to have an idea of possible resolutions. It is understandable that the involved parties tend to settle the disputes peacefully rather than suffering from years of litigation processes.

■If a settlement cannot be reached, the recipient may initiate further actions such as filing a patent non-infringement litigation when the sender is lazy to enforce the right, filing an unfair competition litigation when the sender improperly sends out warning letters, or filing a request for invalidation as a response to the infringement litigation filed by the sender.