Small business owners sometimes see more than their share of IP infringement and takedown notices, cease and desist letters, and outright threats. Invariably, these come from business competitors. Whether valid or not, they can be a massive drain on the resources of a small company. So what can be done about them?

A What letter?

First, it helps to decode the language a bit. A "takedown notice" usually refers to a notice under the Digital Millennium Copyright Act that alerts a website owner to copyrighted material put on their site by somebody else and demands that they take the infringing material down. If they comply, then they cannot be sued for the role they played in publishing the infringement.¹

A "cease and desist" letter is a letter, usually sent by an attorney on behalf of an IP owner, demanding that someone who is allegedly infringing on the IP stop doing so. Whereas takedown notices are specific to copyright, C&Ds are commonly found in copyright, trademark, tradedress, trade secret, misappropriation, and patent cases. In short, any time IP is at issue a C&D may be the first formal step toward resolution.

A "litigation threat letter" is usually the last step before litigation. It is not always sent - for most kinds of litigation there is no requirement that it go out. But when it does, it is intimidating: usually it comes from an attorney with a draft of a Complaint that the attorney claims will be filed if no satisfactory response is given within a fixed timeframe.

So What Do We Do About It?

Of course, if you receive one of these letters you will care much less about what to call it and much more about how to respond. Not surprisingly, the answer is, "it depends." Your best bet is to take it to a knowledgeable attorney and get some guidance.

The trouble with that suggestion is that it is expensive and distracts you from your primary professional interest: running your company. Rather than spending thousands of dollars on legal fees, you may decide that it is better to simply comply, or else to contact the sender and negotiate a resolution yourself. Unfortunately, those are not winning strategies.

A. The Errant Takedown

Say you have a website that hosts content that other people post. A good example of this might be a photo community, where users upload digital photographs and share them with groups of other users, create albums, modify them, etc. Say your terms give you a generous license to use the photos for the purpose of hosting them. And say one day you get a takedown notice from an alleged content owner who claims that a one of your user's photographs infringes his work: he claims to have made the painting that hangs on the wall behind someone's model. He demands you take down the infringing photograph or face his wrath. You comply.

Check your terms of use and notices: do they permit you to take down in this circumstance? What notice do they require you to give the user who uploaded the purportedly infringing content? Check the provisions on copyright - does it include rights to deface modified works? Does it include waiver of "moral rights"? Does it require compliance (on the part of the user) with the Copyright Act as amended by the DMCA? Is there an appeals process in which the user may engage?

What about the user? Where in the world is the user? What country? What state? Are there rights that the user has under their own state's or nation's laws to maintain the content once it is uploaded?

What about the content itself? Does your site host the only copy of that content? The only publicly available version of it? By taking it down, do you interfere with the user's commercial purposes? Was the use fair?

Depending on the answers to these questions, you may find yourself in hot soup after taking down the allegedly infringing content. Perhaps the painter won't sue you (and perhaps he had no right to do so in the first place,) but the user who posted the allegedly infringing content might just.

B. The Impossible C&D

Or say you have a business making motorcycle gear called "Sugar Valley Riders Clothing Company, LLC" based out of Sugar Valley, Alaska and you get a C&D letter from "Sugar Valley Snow Riders, Inc.", a company that leads people on backcountry ski and snowboard adventures in Sugar Valley, Utah. The C&D claims that SVSH owns a trademark and that your company's name infringes the mark. It includes details about the registration of the trademark, and cites to the Federal Lanham Act. It alleges specific acts of infringement. And it claims that (whether or not you cease and desist your use of the mark) you owe thousands of dollars for your infringement. The letter claims that SVSH is willing to discuss a mutually beneficial resolution (which is code for waiving any past damages,) but only if you immediately cease and desist your use of the mark.

As you think about the costs of compliance, your head spins. You would have to burn all of your existing inventory (which has the company name emblazoned across the chest,) change the website, get a new domain name, print all new promotional materials, start a mass-email campaign to alert customers to the change, and even after doing all of that you are still likely to lose tons of business. It seems impossible to comply, but if what the C&D letter says is true it is also impossible to continue with the business. Maybe the only solution is to close shop altogether - maybe it is time to be out of the clothing business.

But doing so won't win you much. You will still have the problem of the existing inventory: your costs there are sunk, and that inventory may create a massive loss. If you sell it off, you will be treated as having violated the C&D. You will lose your leverage to negotiate a decent settlement with regard to the alleged past infringement. You will lose the ability to generate any additional profit from the business. And if you have existing obligations, you will be in breach of them.²

You Can Get What?

The situation can feel hopeless. It appears to be easy for a competitor to send such a letter, and when it comes it can bring your business to its knees. Those costs and risks associated with compliance are not trivial. The costs and risks associated with non-compliance are threatened to be massive. And neither option presents a winning scenario - either you lose and take risks by complying or you lose and take risks by not. You cannot come out ahead or even break even.

Of course, the first step to making a Hobson's choice like this is to avoid it in the first place. If you carefully choose your business name, marks, and dress you can avoid most trademark claims. If you carefully draft and frequently review your agreements you can shift most of the liability for copyright claims. And if you are extraordinarily lucky, you will never infringe a valid patent. Avoidance of this stuff is the first step, and it usually can be done.

But what if it is too late to avoid it? In that case, the best that can be done is to make a bad situation less bad. And that starts by getting excellent advice, even at some cost.

For instance, with regard to the takedown example above the notice is almost certainly incorrect. The alleged infringement likely is not one. But if it is, you likely can avoid any liability to either side for the alleged infringement by taking the appropriate steps. In this case, those steps likely include partial compliance and return of the allegedly infringing material. In the C&D example there is almost certainly no infringement - the right response is probably to ignore the letter, or else to send a letter back disputing all of the claims.

Even better, there may be a way to come out no worse off after obtaining the advice. On November 6, 2014 the FTC announced a settlement in In Re MPHJ Technology Investments, LLC, et al. The case was an administrative complaint by the FTC against a company and its law firm that sent threat letters to people (including business owners in Alaska) claiming they were infringing a company-owned patent and demanding a payment to avoid the litigation. In fact, the company never filed suit against anyone regardless of compliance. The FTC claimed that threatening to sue without any intention of doing so was a deceptive practice, running afoul of § 5 of the FTC Act.

Who cares? In Alaska, there exists a law called the Unfair Trade Practices Consumer Protection Act which is roughly co-extensive with § 5 of the FTC Act. Among other things, it gives individual Alaskans the right to sue for unfair and deceptive acts and practices. If they win, they may recover tripled damages, as well as full reimbursement of their attorney fees. The UTPCPA is expressly intended to permit companies to defend themselves from the deceptive conduct of competitors.

Although it has yet to be meaningfully tested, this provides an outstanding defense for Alaskans against misguided and unsupported C&Ds and threat letters. If you receive one of these letters and it is unfounded, you may be able to recover the costs and fees you pay out to investigate it and get advice.

This should level the playing field somewhat. There should be no disincentive to get excellent guidance on receipt of a C&D, takedown notice, or threat letter. After all, if the letter is correct and compliance is required, getting advice will help you respond it with the lowest risk and cost. And if compliance is not required, getting advice may end up being free.

¹ As with seemingly everything in the law, it is much more complex than this. Among other things, complying with a DMCA takedown demand can itself create liability. And even complying with the takedown without more is generally insufficient to avoid liability. If you own or operate a website that hosts content (including in the form of blog posts or comments) talk to an attorney about how to comply with the Copyright Act as amended by the DMCA.

² For example, say you got a volume discount on zippers based on your historical and projected volume. If you close shop before buying the required number of zippers, you may (retroactively) be ineligible for the discount. The zipper distributor may demand that you "true up" and pay the difference or face an action for breach. Incidentally, while nonetheless common at least some of these discount programs are illegal in Alaska.