Responding to Cease-and-Desist Letters

 

Consider this:

You had a great business idea, and after developing a business plan and a viable budget, you went to the Secretary of State’s Office and filed Articles of Incorporation to start a new company.  The Secretary of State accepted your Articles of Incorporation without any questions, so you purchased insurance for the company and applied for any licenses you are required to have.  You invested significant amounts of money to develop a website, marketing materials, and paid the other start-up expenses for the company.  Now, six months later, your business is growing and you are on the road to success.  Then the unexpected happens:  you open the mail one day and find a threatening letter from an attorney.  The letter says your company’s name is infringing on the trademark rights of another company (perhaps in the same town or perhaps on the other side of the country), and if you don’t stop using the name immediately, you’ll be served with a lawsuit.

What do you do?  Here are some tips:

1.  Don’t panic.

Unfortunately, many business owners panic, fearing the business for which they’ve worked so hard may have to suddenly change its name, losing the reputation and public recognition they have worked to build up.  In some cases, a company may be infringing on another’s trademark rights and may need to change its name.  However, you may be able to negotiate terms under which your company may continue to the name.  Even in the worst circumstances, when you do need to change your company’s name, you may be able to negotiate favorable terms for transitioning to the new name.  For example, having several months to notify customers of your name change will be much better for your business than suddenly changing its name without notice.

2.  Note any deadline for response.

Believe it or not, one of the most common mistakes businesses make is ignoring the cease-and-desist letter.  Too often, companies that receive cease-and-desist letters put them aside, thinking either that the letter has no merit or that they’ll deal with it later.  However, when deadlines pass, the lawyers sending the letters will take further action, incurring additional cost, and therefore decreasing the likelihood of reaching a satisfactory resolution to the dispute.  Instead of putting a cease-and-desist letter aside, make sure you take note of any deadline for responding.  Seek advice right away, or if necessary, contact the attorney who sent the letter to receive an extension.

3.  Don’t assume a cease-and-desist letter is meritless.

Many business owners assume that cease-and-desist letters have no merit.  They assume that since the Minnesota Secretary of State accepted their Articles of Incorporation, they have exclusive rights to their business name.  This is a common myth.  The Minnesota Secretary of State only checks its own registers to make sure another company does not already exist in the state with the same name.  This is problematic because the Secretary of State will accept business names that are slightly different, but that may be similar enough to infringe on another company’s trademarks.  Furthermore, the Secretary of State will not search federal trademark records to determine whether your company’s name infringes on the rights of companies located in other states.  Therefore, you should evaluate whether the letter has merit.

4.  Evaluate the strength of the infringement claim before responding to the letter.

Before responding to the letter, you must evaluate the strength of the company’s infringement claim against your company.  There is rarely a clear answer to this question.  Whether your company’s name infringes on the trademark rights of another company depends on the circumstances, and really comes down to whether there is a likelihood of confusion between your company and the other company.  Whether a likelihood of confusion exists is determined by weighing a large number of factors, including:

  • the similarity of the trademarks used by each company,
  • the extent of the overlap in the geographic regions in which each company uses its mark,
  • the similarity of goods and/or services provided by each company,
  • the number and nature of similar marks in use with similar goods or services,
  • the nature and extent of any actual confusion between the two companies,
  • the length of time during which both companies have used their marks without any evidence of actual confusion between them, and
  • the extent of the potential for confusion.

Even after weighing these and other factors, you could be free from liability due to a number of defenses.  Possible defenses include prior use, waiver, laches, estoppel, use consistent with prior agreement, and many others.  Therefore, if you need advice regarding you company’s potential for liability, you may want to consult an attorney.

5.  Weigh your company’s risk of liability with the potential costs.

After determining your company’s potential risk of liability and the strength of the trademark infringement claim against your company, you must determine how to respond to the letter.  I suggest considering the costs your company would face if it complied with the cease-and-desist letter as well as the costs for disputing the letter.  You must decide whether the risk of being held liable for trademark infringement is worth the potential cost.

After determining whether you can accept the risk of potential liability, you can determine the approach for responding to the cease-and-desist letter.  For example, you could decide to immediately comply with the demands of the letter without any objections.  Alternatively, you could flatly deny the claims made in the letter and refuse to take any action to change your company’s name.  Another option would be to try to resolve the matter amicably and settle on terms agreeable to both sides.  This would include potentially negotiating restrictions to allow your company to keeps its name and logo, provided it complies with certain terms.  Even in the worst-case scenario, you can try to negotiate terms for a smooth transition.  For instance, negotiate for additional time before changing your name, or negotiate to keep your web domain and email addresses.

There are endless possibilities for resolving a trademark dispute.  However, you cannot determine the best strategy for responding to the letter without first determining your potential liability for trademark infringement.  While you may not immediately know whether your company has infringed on another’s trademark, it is important that you do not panic.  Consider the tips above, and you will be well on your way to structuring a solid legal response to the cease-and-desist letter.