The Ideal Cease And Desist Letter – Informative And Only Covertly Threatening?

The oft-used cease and desist letter ("C&D letter") may have significant implications for both intellectual property ("IP") owner and alleged infringer alike. Although the test for an improper C&D letter may be well-established, there have been relatively few cases where such letters have been held to be improper, and no reported cases dealing with actual quantification of resulting damages. This fact, combined with the reality that interlocutory injunctions remain a difficult remedy to obtain in Canada, may very well mean that IP owners should consider taking the risk of sending out threatening communications to an infringer's customers. In certain circumstances, improper/threatening letters may practically provide IP owners with a remedy that is otherwise unattainable in Canada, and the closest thing to an interlocutory injunction. At the same time, lawyers must be vigilant to ensure IP owners are aware of the risks of sending unlawful cease and desist letters. Lawyers themselves should also ensure compliance with ethical obligations regarding due diligence evaluations that should be conducted prior to sending out any such letters (whether improperly threatening or not).

Analysis

A recent (and perhaps rare) example of an impeacher successfully bringing a misleading advertising claim against an unsuccessful patentee aptly illustrates the particular circumstances that assist in making such a claim. In Excalibre Oil Tools Ltd. v Advantage Products Inc.1, the court found the patentee had violated section 7(a) of the Trade-marks Act by sending overtly threatening letters to Excalibre's mining customers. Section 7(a) states:

7. No person shall

(a) make a false or misleading statement tending to discredit the business, wares or services of a competitor;

The seminal C&D case from the Supreme Court of Canada ("SCC"), S & S Industries Inc. v Rowell2, established the test for section 7(a) as follows:

A false or misleading statement; Tending to discredit the business, wares or services of a competitor; and Resulting damage. Significantly, this SCC decision held that no malice was required for section 7(a) (unlike common law actions of injurious falsehoods and trade libel). The court rationalized that an abusive patentee without malice should not be permitted to avoid the "forthright course" (of actually carrying out a lawsuit) and instead rely on empty threats against a purchaser. The SCC found a section 7(a) violation3 based on a warning notice in a magazine following settlement of an infringement case against a bra wire customer, and warning letters to a customer:

You are hereby advised that unless you inform us within the week that you will immediately cease and desist from the manufacture, sale and use of such flat arcuate wires for use in brassieres, you will leave us with no other alternative but to forward the matter to my Canadian associates for institution of legal proceedings for infringement of the aforesaid patent. Your reply is awaited.

...

that in order that we may best protect our interests, we would be forced to go to the stores and involve them in law suits

The patented products in Excalibre related to mining production accessories (anchors) that assist with pump stability. The court easily characterized the patentee API's letters as "contain[ing] explicit threats of litigation":

API demands...