Reducing risks of commercial libel in letters to cease infringement

By Frank Liu, Shanghai Pacific Legal
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Sending a lawyer’s letter or company letter to cease infringement is one of the common means used by an IP rights holder to defend its rights. However, in recent years, in certain cases there have been instances where the alleged infringer has countersued the rights holder for trade libel due to the latter’s imprudent wording of the letter sent by it, resulting in losing the case. Such a result can be extremely dispiriting to the rights holder, and even shake its confidence in defending its rights. In light of this, the author provides a preliminary examination of the matter below in light of his personal experience.

Frank Liu
Partner
Pacific Legal

Entity sending the letter

The legal department or business department of the rights holder will usually have an advantage over outside counsel in understanding the infringer, the infringement, and such facts as the harm incurred by the rights holder. The attendant expenditures may be avoided if the letter is sent by internal departments. However, if the letter is sent in the name of the rights holder itself, its deterrent effect will usually be relatively limited, because both it and the infringer are commercial competitors in the same market.

The rights holder will often use more aggressive language when sending the letter because of the direct conflict of commercial interests with the infringer, and although the company’s legal department will usually be more careful in its language when sending a letter, avoiding being influenced by the business department may be difficult at times. Under such a circumstance, some inappropriate wording could result in the rights holder losing in a commercial defamation action instituted by the infringer.

The author would recommend that a rights holder, provided that it has the budget, endeavour to engage outside counsel to send a letter in the name of the law firm, rather than sending a company letter. A letter from a lawyer, as a legal practitioner, will usually project greater gravity and have a greater deterrent effect, and a lawyer will generally have accumulated more experience in dealing with different infringers, and be more sensitive to legal market dynamics.

The wording of a letter from a lawyer will not only be more independent, but is also more likely to take into account the impact of the dynamics of the relevant market. Furthermore, from a practical perspective, the probability of an infringer instituting a legal action against a law firm for sending a lawyer’s letter is far and away lower than the probability of its instituting a legal action against a rights holder who sends a company letter.

Recipient and wording

Based on the author’s experience and his analysis of relevant commercial defamation cases, in terms of the recipient of a letter, if it is sent to the infringing party (which is usually also a business competitor) based on the facts, the instances of its being determined as being commercial defamation are relatively rare. However, if the recipients of the letter are broadened to include relevant downstream distributors and even customers, the risk of a finding of commercial defamation increases. Accordingly, when considering recipients, the scope should be limited to the direct infringer so as to avoid the risk of commercial defamation.

Great care is needed for the wording of a letter. First of all, it is crucial to be accurate and objective in describing the facts. Given that evidence of infringement (particularly online evidence of infringement) can easily disappear, it is generally recommended to send the relevant letter after the evidence is fixed. Furthermore, it is important to avoid overly subjective wording in the description of facts, in particular exaggerated or overly emotional language, so as to reduce the possible risk of commercial defamation.

The objective

We understand that some rights holders may wish to send letters with the aim of supporting their commercial competition, however, for the purpose of avoiding the potential risk of commercial defamation it is important, when drafting the letter, to limit the objective to halting the infringement. Although, objectively, halting infringement can also support commercial competition, if the letter itself, when drafted, contains too much of the objective of supporting commercial competition, it is more likely to be found to constitute commercial defamation.

The response

Even though the rights holder has exercised due care, there may still be instances where it will be charged for commercial defamation by the infringer, particularly when the wording of the letter is questionable. In such cases, the rights holder needs first to respond calmly to the commercial defamation as a separate legal action, rather than dwelling on the emotional factors brought about by the infringement. After all, it is in its best interest to deal rationally with a case that has already arisen.

When responding to a commercial defamation action, it is necessary to first treat the background of the letter, i.e., whether the fact of the infringement exists, as the focus of the case. Article 11 of the Anti-Unfair Competition Law, which is the fundamental basis for a commercial defamation action, is premised on the “fabrication or dissemination of false or misleading information”. Accordingly, the analysis and determination of the fact of infringement needs to be treated as the basis, and then the focus placed on whether there is “fabrication” or “dissemination”, and whether the information itself is “false” or “misleading” in refuting and arguing against the claim of commercial defamation.

Reflections and recommendations

After handling several cases in which rights holders were sued for commercial defamation by the infringers due to their carelessness in sending letters and paying attention to a relevant case search, the author feels that there may be individual cases in which the rights holder is subject to an excessive duty of care. Although the infringers clearly committed IP infringement, a judgment of commercial defamation was rendered simply because of the wording of the letter, which was difficult for the rights holders to accept.

Needless to say, IP rights holders genuinely need to be more cautious when sending infringement letters, but at the same time, as a judicial decision with a certain guiding force, we also hope that more consideration be given to the general trend and IP protection, so as to reduce the instances in which a rights holder, pressed to defend its rights, is somewhat negligent, ultimately constituting commercial defamation, which results in its being lax or lacking confidence in defending its rights subsequently.

Frank Liu is a partner at Shanghai Pacific Legal

Room 2709, 27/F, Plaza 66 II
1266 Nanjing Road West, Shanghai 200040, China
Tel: +86 21 6086 0199
Fax: +86 21 6086 0111
Email: frank.liu@shanghaipacificlegal.com
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