The first thing to remember when you’ve received a cease and desist letter, or any other threatening letter from a lawyer: Don’t panic. You’ve developed your business to the point that you’ve ended up on someone’s radar. These things happen. The important thing now is to weigh your options and figure out how to respond.
Types of Demand Letters
There are three primary motivations for a person or company sending a cease and desist letter:
1. “Scare Tactic” letters:
For some cease and desist letters, the name of the game is intimidation. If a company or individual can scare you away from competing with it by spending a few hundred dollars on a “lawyer letter,” it helps their bottom line to do so. These letters tend to identify very few facts about how you allegedly wronged the company, but have a laundry-list of legal claims the sender says his or her client “might” have against you.
What to do? Unless you have a legal degree, you should talk to a lawyer. It’s difficult to tell when a claim is an empty threat, or when it may have substance, unless you know the law and you’ve dealt with these threats before.
2. “Not Worth Litigating” letters:
A person or company may have an arguable legal claim against you, but the amount involved is not worth litigating. For example, if someone claims you owe them a few thousand dollars, it is often unlikely it will be worth it for that person to pay an attorney to litigate that claim against you.
That being said, there are sometimes other factors at play besides money—whether it is stopping an intellectual property infringement or simply a person who is dedicated to a lawsuit to prove a non-financial point. Some claims over relatively low amounts do get litigated.
Also, there is small claims court. That person may file a claim directly—without a lawyer—in small claims court. This is a system that has individuals file and argue their own claims, but caps the total value that can be recovered, generally to a few thousand dollars ($7,500 in Colorado, to be precise).
3. Pre-litigation letters:
Sometimes, cease and desist letters derive from a legitimate claim that you have broken the law and violated someone else’s rights. In some instances the damage has been done, and the letter is an invitation to negotiate a resolution prior to that party filing litigation. Other times, the letter is designed to prompt you to stop engaging in conduct that will later result in damages.
Either way, these letters usually start with negotiations and, if that fails, a lawsuit.
Consult legal counsel before you respond in any way. At this point, anything you say in response to that letter could be used against you. Seemingly innocuous or cooperative efforts could inadvertently result in you admitting to wrongdoing or otherwise assuming liability—even when you are not legally liable. Consult an attorney immediately.
Why a Good Attorney Can Help You Save Money in Responding to Legal Threats:
Let’s face it, you’re running a business. You have a bottom line; spending hundreds or thousands of dollars on consulting an attorney doesn’t immediately help that bottom line.
However, once litigation is filed, you are now likely looking at tens of thousands of dollars in legal fees (or more, if there is a long trial or an appeal). That is in addition to whatever damage award might be imposed against you if you lose. But even if you “win,” you’re still stuck with paying your attorney.
Having a pending claim or litigation against your business can also have additional, negative effects. For examples:
- If you are applying for loans or other credit, having pending litigation or claims can negatively affect your application.
- When raising capital, pending litigation or claims must be disclosed to potential investors. This adds an extra layer of risk for those potential investors, and thus may either discourage them from investing entirely or lead to them demanding more favorable terms.
- Silence does not mean the claim goes away. If you ignore a claim, and the person or company making the claim does not respond, it does not mean they may not reassert the claim later. Particularly if your business is in its early stages, a person or company may sit on its rights to sue, waiting to see if you make a good amount of money from your business. Then, the company or person can reassert that claim (for example, for an intellectual property violation), and claim much higher damages after your successful use of the disputed intellectual property. In such situations, negotiating a settlement before you have made your company a success through your hard work is often the best—and cheapest—way to resolve the matter.
Receiving a threatening letter is a stressful, unpleasant experience. These things are best addressed head-on, by consulting legal counsel early, getting informed, and making a decision based upon the risks involved in your particular situation.
If you’ve received a Cease & Desist Letter and need to speak with an experienced attorney about your options, please contact us.