After years of dreaming, saving and planning, you did it! You opened your own small business! A few weeks into operation, however, you receive a cease and desist order in the mail because you are being accused of violating the intellectual property rights of another business – either a patent violation or a trade dress (trademark) violation.
You are convinced that this lawsuit is meant to intimidate and drive you out of the market. But what do you do next?
Some businesses are choosing to fight back, and this winter their cases have gone all the way to the U.S. Supreme Court.
In the first case, Octane Fitness, LLC (Octane) v. ICON Health & Fitness, Inc. (ICON), ICON accused Octane of infringing on their elliptical design patent. Octane fought back, accusing ICON of filing a frivolous lawsuit that was only meant to harass and hamper an upstart company with an expensive, frivolous lawsuit. As part of the countersuit, Octane asked the court to order ICON to pay for all attorney fees in defending against the suit. Because this case has been appealed many times, the amount being requested is substantial.
In the second case, Highmark, Inc. v. Allcare Health Management System, Inc., (Allcare), Allcare accused Highmark of infringing on their patent which covered a computer-based method of generating treatment options based on symptom data entered by a physician. The lower district court found that Allcare had willfully pursued frivolous infringement claims and ordered it to pay Highmark’s attorney’s fees and costs. The decision was appealed and is also being reviewed by the U.S. Supreme Court.
Both cases show that some small businesses are choosing to fight back against frivolous suits.
“There are certainly people out there that threaten a lawsuit hoping that they will be granted a royalty or the business will shut down rather than defending against a lawsuit,” said Steven Rinehart, a patent attorney practicing in Salt Lake City. “It is too easy to use the courts to force competitors out.”
Rinehart recommends that small business owners take immediate action when threatened.
“Do not ignore it. The best thing to do is to try to respond to a demand letter or a cease and desist order before the lawsuit is filed. You can hire a lawyer to respond in an assertive matter that creates the impression that you will fight, and it would only cost a few hundred dollars. This aggressive response may dissuade them from suing,” said Rinehart.
Above all, Rinehart recommends that a small business owner not respond to any communication personally.
“If a small business owner responds themselves, it shows fear and a lack of money to fight the claim. It almost galvanizes the person that is threatening to sue. And since it is a legal matter, you cannot respond to it yourself because you are not supposed to practice law on behalf or your business.”
If the lawsuit does proceed, Rinehart says that there are still steps a small business owner can take.
“If you respond aggressively in the discovery phase of the suit, it could dissuade them from proceeding. They are trying to scare you. They are trying to extort money from you. But they may give up,” said Rinehart.
If the lawsuit continues, a small business owner can file a countersuit and ask for attorney fees and other court costs, like Octane and Highmark.
“In the case of an unjustified suit, the judge may make the plaintiff pay attorney fees and court fees as a way to sanction the plaintiff. Judges are more inclined to grant these fees because they may realize that the patent system is broken. It seems like it is happening more and more.” said Rinehart.
Small businesses can also file a countersuit claiming an antitrust violation. Because the lawsuit was brought to drive competition from the market, Rinehart believes that this is a violation of antitrust law and is one of many ways to fight back against a harassing suit.