Canada: So, Your Company Just Received A Cease And Desist Letter...(Part 1)

The first questions that typically come to mind in such events are: do you have to respond to the letter, particularly if you don't know anything about the sender?  What are your options for a response?  And, what steps should you take in formulating a response to such a letter?

Receiving a cease and desist letter that alleges patent infringement is becoming more common in today's competitive business markets and may come as a shock to the recipient, particularly if the sender is unknown to them and the recipient is unaware of the patents referenced in the cease and desist letter. That shock may quickly evolve into an emotional reaction based on an assumption or suspicion that the sender may be a "patent troll", which may result in the letter being tossed into the garbage.

However, sound business decisions are rarely made based on emotional responses. Cease and desist letters are a first step that a patent owner is legally entitled to take toward enforcing its patent rights. Ignoring a cease and desist letter, or alternatively, an inappropriate response may result in expensive and protracted litigation.

A better approach is to take steps to understand who the sender of the letter is, the patents on which they are basing their cease and desist demand, and whether or not your company's activities potentially infringe the referenced patents.  Depending on the results of these initial steps, a formal and timely (e.g., within two to four weeks after the cease and desist letter is received) response to the sender may be warranted.

The first step to take is to determine if the sender is a company that is actively carrying on business by way of producing and/or distributing a product, running a process that captures or transforms inputs into refined outputs, or providing a service that is protected by the patents referred to in the letter. Alternatively, the sender may be a non-practicing entity that does not conduct business operations in the form of manufacturing or processing, or providing services, but does own the patents referred to in the letter. The next steps taken can then be tailored to prepare appropriate responses to a practicing entity or, alternatively, to a non-practicing entity.

Part 1 of this paper will discuss: (i) non-practicing entities (NPEs), (ii) patent assertion entities (PAEs), and (iii) the options you have for responding to an NPE cease and desist letter. Part 2 of this paper will be published separately and will discuss responses to PAEs specifically, and implications regarding PAE-initiated litigation in Canada.


NPE is a broad term that captures several different categories of business.  The categories discussed below are general summaries intended to reflect our view that these categories can be fluid.  Some business entities may embody one category of NPE at one time and another category at another time.  Additionally, one entity may fall within one category vis-a-vis dealings with one third-party and at the same time fall within a different category vis-a-vis dealings with another third-party. 

For the purposes of this discussion, practicing the invention protected by a patent occurs when the patent owner designs, manufactures  or processes a product or is offering a service that falls within the scope of the issued patent claims.  We refer to such patent owners as practicing entities (PEs). One feature that is common to every NPE is that it owns one or more issued patents but does not practice the invention(s) protected by the patent(s). 

In one category, an NPE may be a patent-holding company within a corporate family of companies, wherein the NPE licenses its patent rights to a related company within the corporate family that then practices the licensed invention by selling products or offering services.  A corporate family may use such NPE holding companies for tax reasons and also to shelter valuable patent assets from any liability that the related practicing company may incur.  For example, the practicing company may face a damages award from a product liability law suit that will be satisfied up to the limits of the practicing company's assets, instead of being based on the  total value of the patents owned by the NPE holding company.

In another category, an NPE may aggregate patent rights through strategic acquisitions of patent portfolios from one or more third parties.  These acquired patents are often in a similar field of technology which allows the aggregating NPEs to monetize the acquired patents through licensing a bundle of patents to practicing entities.  These aggregating NPEs may also bring further value to their licensees by providing them with opportunities for cross-licenses and promises not to sue each other.      

In yet another category, an NPE may be a post-secondary institution or a government research organization that aggregates patent rights through contractual relationships with its employees and contractors.  Most institutional NPEs from this category have internal technology transfer offices that seek to commercialize their patent portfolios by actively pursuing licensing revenue. Additionally, some institutional NPE technology transfer offices seek to spin-out their patented and patent-pending technologies into new start-up businesses. In such cases, the institutional NPEs typically maintain the IP rights in the underlying technologies and may additionally take an ownership position in the new start-up businesses.  Typically, the technology transfer office mandate is focused on realizing new revenue streams for the institutional NPE by identifying those innovations with the greatest potential to result in a successful new business.   

The final category of NPE in this discussion is a patent-assertion-entity (PAE), which may be pejoratively referred to as a "patent troll".  In our view, many PAEs are different from the aforementioned categories of NPEs because such PAEs typically rely upon a threat of litigation as an incentive for entities to enter into license agreements with the PAE.  Some PAEs acquire patent rights by recognizing opportunities that arise when a distressed innovation-focused company needs to raise capital.  As such, some PAEs may never have contributed to the innovation that resulted in the patents they intend to assert.  PAEs are also sometimes characterized as owning rights in patents that may be overly broad and, therefore, the allegation of patent infringement may be untenable before a court.  This is a particularly common characterization in cases where a PAE's patents are alleged to cover technology that may have not even existed or been contemplated at the time the patents were filed. 

However, a PAE's selection of a prospective licensee may focus on those entities that are disinclined to participate in expensive legal challenges concerning the validity of the PAE's patent(s), and instead are inclined to settle for nominal license fees.  Other common targets of PAEs are very large entities.  In some cases, large entities may prefer to pay licensing royalties as a nuisance rather than participate in an intrusive and disruptive defence to allegations of patent infringement.  In other cases, large entities may prefer to forcefully defend the allegations of infringement for financial, precedential or other reasons. 

PAEs have also been known to set up multiple holding companies and threaten to sue many companies in a given industry at one time.  The use of multiple holding-companies may in some cases be akin to a shell game that makes it difficult for the multiple defendants to recognize that they may be fighting a common adverse-party. This approach may favour pre-trial settlement because it is difficult for the multiple defendants to align their defensive efforts within a short settlement window set out by the PAE. 

After you have determined if the cease and desist letter came from a PE, an NPE, or specifically a PAE, the next step should be contacting patent counsel as soon as possible. The cease and desist letter will typically include a relatively short timeline to reply.  In some cases, the timeline may be as short as a week after which if a license has not been entered into, or at least if negotiations are not underway, the patent-owning entity may commence suit against the accused company.

Responding to an NPE Cease and Desist Letter

By contacting patent counsel as soon as practicably possible, your counsel may be able to assess the strength of the NPE's claim of patent infringement, and advise regarding how best to respond, if at all, in view of the particular NPE in question (as not all NPEs should be treated the same).  Once you retain counsel, it demonstrates to the NPE that you are taking the matter seriously and so the NPE may be more willing to grant extensions of time to conduct any necessary reviews. 

The next step is to work closely with your patent counsel to analyze the allegations of infringement.  This may include providing insight in to how your industry would interpret specific terminology in the patent cited in the NPE's letter.  This process is important to understand the scope of the NPE's patent and to develop arguments regarding non-infringement.  This process may also identify potential modifications to the design, manufacturing or processing of your product or service that will not infringe the NPE's patent. 

Additionally, we suggest working with your patent counsel to help identify publications and prior uses in your industry that could be used to argue against the validity of the NPE's patent.  Any documents that were publicly available before the relevant date of the NPE's patent may be used to attack the NPE's patent.  While patent counsel are typically experienced in identifying relevant patent documents, your experience in the industry can be very useful in identifying non-patent documents such as industry publications, academic publications, conference presentations, prior uses and the like.  Your experience will be particularly helpful in your field of expertise because there are often many different areas within a field that contribute to innovation in a particular industry.  For example, in the context of the medical device industry, published documents from the fields of biotechnology, pharmaceuticals, mechanical engineering, electrical engineering and software may all be relevant to attack the validity of an NPE's patent. 

With an understanding of any specific terminology, industry-specific publications and any further relevant patent documents, it is important to analyze at least the following: (i) is the NPE's patent valid and in good standing in the jurisdictions where you carry on business, (ii) do you have the freedom-to-operate with your current business activities relative to the NPE's patent (i.e. do your business activities infringe, or is the NPE's patent invalid?), and (iii) are there elements in the NPE's patent that could significantly advance your business activities?  Items (i) and (ii) should be performed by qualified legal counsel with relevant technical expertise. Item (iii) can done by your internal corporate and technical experts.

The nature of the response to the NPE's letter, after completion of these analyses, will depend on whether your business activities are potentially infringing the NPE's patent and on whether the NPE's patent may benefit your business. 

In the case where the analysis indicates it is unlikely that your business activities are infringing and there is no potential commercial value in the NPE's patent to advance your business, then the response letter may simply include a statement that your business does not infringe.  The burden then shifts to the NPE to decide if it wants to go to court and try to prove that your business activities do infringe.  As discussed above, this decision cannot come lightly.  In the case where the freedom-to-operate analysis indicates that it is likely that your business activities do infringe the NPE's patent, then a response letter may indicate an interest in entering licensing negotiations. 

Ultimately, the decision on how to respond may be superseded by a strong business rationale to enter licensing negotiations, regardless of the infringement analysis, because there may be commercial value in the NPE's patent that your business may realize upon, or there may be value in a reasonably priced license that avoids costly litigation.  In all cases, it is advisable to have legal counsel draft the response letter and to forward an executed copy to the NPE.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.