Cease and Desist Letters for Counterfeit Goods

First Impressions Matter

Delivery of a cease and desist letter is typically the first interaction between a rights holder and an infringer. It enables the rights holder to set the tone and frame the issues. It can be your best first shot at achieving a quick and relatively inexpensively negotiated resolution. There is no guarantee, however, that the cease and desist letter will produce the result your client desires. Often in the context of counterfeiting cases, these letters are ignored, the bad actors relocate and/or hide and future anti-counterfeit enforcement becomes even more challenging.

Not to be deterred by the prospect of being ignored and a “waste of time”, there are additional benefits that can extend beyond this first engagement. By way of example, in the context of a criminal case, continued counterfeiting after service of cease and desist letters has been used to support the “knowledge” requirement needed for a conviction of criminal counterfeiting. Also, in the civil context, continued counterfeiting after service of a cease and desist letter is a fact that the courts have considered in awarding punitive damages. Harley-Davidson Motor Co. v. Manoukian, [2013] F.C.J. No. 219 at para. 49,Chanel S. de R.L. v. Lam Chan Kee Co., [2016] F.C.J. No. 368 and Canadian Standards Association v Pharma Plastic Industries Inc., [2021 FC 136] at para 35.

Content

Cease and desist letters should use language that is understandable to the intended recipient. Additionally, the tone and substance of the letter should convey the significance of the issue to the infringer. In a counterfeiting case, cease and desist letters should delineate the following:

• specify manner of delivery;
• identify who is writing the letter and in what capacity (e.g., counsel, brand owner or Canadian licensee);
• clearly state the purpose of the communication;
• clearly delineate the rights in issue;
• identify the rights that have been breached;
• provide a sample (typically an image) of the counterfeit product (if available);
• state the remedy requested and the time line for compliance; and
• explain the consequence of failure to comply with the requested remedy.

Manner of Delivery

The most effective manner of service is personal delivery and explanation, preferably by a licensed private investigator (and/or bailiff, if in Quebec). Personal service allows for evidence to be obtained, contemporaneous with the service, which includes: details about the size and scope of the enterprise being served, and the ability to record admissions or representations made which can subsequently be relied upon at trial. Personal service also provides you with a person who can testify (at a subsequent proceeding) as to the evidence from the service, which as stated above, can assist in proving the requisite knowledge component of any criminal counterfeiting offence and/or to bolster a claim for exemplary damages in the context of a civil action.

In addition, if the service is personal, consideration should be given to having the person served acknowledge the service in writing. The nature of such a recording can take the following form, and be appended to your cease and desist letter or set out on the bottom of the letter as follows:

I,_________________________(name of person served), have read this letter and agree to comply with its content.

Signature of (name of person served):

_________________________

Accepted for (name of client/rights holder) by:

_________________________

In addition, whenever property is transferred, the best practice is to record the transfer. Accordingly, if delivery-up is requested in the cease and desist letter and complied with at the time of service, a receipt should be provided to the person served (with a copy for your file). For expediency, a chart can be included in the materials being served to record the transfer and/or other information obtained at the time of the service, as follows:

List of Counterfeit Products Voluntarily Delivered Up upon Service of Cease & Desist Letter
Quality	Trademark/Copyright	Description of Goods
Supplier Information:

This information can be transcribed in duplicate, or photographed and emailed to the person served contemporaneous with the event itself.

Delivery of the cease and desist letter by registered mail, ordinary mail courier or otherwise is more cost effective in the short term, but less effective should you need to rely upon the service in a subsequent proceeding.

Who is writing the letter and in what capacity

Multi-national companies with on-going counterfeiting issues, often have centralized offices dealing with anti-counterfeiting enforcement in multiple jurisdictions. Letters are often generated internally or from general counsel, however, preference should be given to using local counsel to ensure that the appropriate (jurisdictionally specific) rights and remedies are referenced. In addition, anecdotally, the impact of letters sent by local counsel conveys the impression that the rights holder has its team in place, should next steps be needed.

The identification of the rights holder and the capacity in which it asserts rights must be clearly stated. By way of example:

We are counsel retained on behalf of (name of trademark/copyright owner), the owner in Canada of the trademarks and copyrights set out in the attached schedule (hereinafter, the “X’s intellectual properties”)).

We also act on behalf of (name of exclusive distributor or licensee, the exclusive distributor or licensee etc.) of goods bearing X’s intellectual properties.

The Purpose of the Communication

At its most basic level, the purpose of the cease and desist letter is to notify the intended recipient that:

• the rights holder has intellectual property rights;
• those intellectual property rights are protected at law;
• the intended recipient is violating those rights;
• the violation of those rights by the intended recipient is wrongful conduct;
• the wrongful conduct is causing harm to the rights holders and must stop;
• the wrongful conduct entitles the rights holder to seek injunctive relief to prevent the continued importation, sale, offer for sale or distribution of the counterfeit products, and to recover damages from the intended recipient including but not limited to the disgorgement of its profits from such sales, or the rights holder’s lost profits, punitive damages, costs and legal fees; and
• failure to stop has consequences.

The Rights in Issue

Sometimes the rights in issue are limited to a few and they can be described with sufficient clarity (trademark or copyright) and status (registered and registration number) or (unregistered i.e., common law) within the body of the letter. Other times the letter will become too encumbered by listing all the intellectual property rights. Instead, schedules are used which can enumerate all the rights being relied upon and which provide ease of reference to the intended recipient.

While certain favourable evidentiary presumptions exist upon registration of trademarks and copyrights, unregistered rights require greater specificity in description. By way of example, if your cease and desist letter is relying on unregistered copyright rights, sufficient detail should be included in the letter to satisfy the conditions for subsistence of copyright and to ensure the recipient knows what the work is that you are claiming rights in. Equally, if the trademarks being relied upon are unregistered, consideration to the existence of goodwill in the jurisdiction where the recipient is carrying on business may be included.

The Breach

The particulars of the alleged wrongful conduct should be specific enough to convey that your client has verifiable evidence that the intended recipient of the letter is engaged in conduct that violates your client’s rights, but not be so detailed as to provide disclosure of all of the particulars you are relying upon. In addition, images of a sample of the counterfeit product should be included within the letter.

By way of example:

Client/rights holder has evidence that you are advertising, selling and/or offering for sale merchandise bearing the client/rights holder trademarks or bearing trademarks or trade names confusing therewith, without the authorization, approval or licence of the client/rights holder (hereinafter, referred to as “Counterfeit Products”). Your Counterfeit Products are not, and never were, authorized, approved or licensed by or on behalf of client/rights holder. Attached are digital image of a sample of Your Counterfeit Products. This sample is representative of the Counterfeit Products you are offering for sale and selling.

The Remedy

The nature of the offending conduct will dictate the selection of the remedy. The requested remedy should be clearly stated and easily able to be satisfied.

By way of example, remedies may include:

Client/rights holder hereby demands that you agree to:

1. immediately provide a copy of your business permit or vendor’s permit [helpful if you are in a flea market or have conflicting information respecting the legal status of the business];
2. immediately and permanently cease and desist from further purchasing, offering for sale and selling the counterfeit products;
3. immediately and permanently cease and desist from advertising wares or services in association with the client’s trademarks without the consent or authorization of the client;
4. immediately relinquish any right, title or interest you have in or to the counterfeit products;
5. immediately provide to the undersigned, the full name, address and contact information of the person or entity from which or from whom you obtained the counterfeit products; and
6. immediately provide to the undersigned:

(a) a complete accounting respecting the quantity of the counterfeit products ordered, as well as the quantity sold and profits realized. Please ensure you provide all supporting documentation such as invoices, purchase orders, shipping documents, cancelled cheques, sales receipts and any other documents pertaining to the importation, manufacture, purchase and sale of the counterfeit products; and

(b) copies of any catalogues, promotional brochures or advertisements for any of the counterfeit products.

In respect of a demand for monetary compensation, options include some or more of the following:

• include a request for a monetary payment and quantify it;
• forgo a request for monetary compensation to elicit compliance with other terms; or
• reserve your right to request a payment of monetary damages in an amount to be determined following compliance with your requests or receipt of certain requested information.

The letter should include a date within which a response to the letter or compliance with the requested remedies is required. The letter should also articulate the consequences of the failure to meet that deadline which may include commencement of legal proceedings.

Typically, timelines for compliance should be commercially reasonable but relatively short, since delay in protecting intellectual property rights will have a direct impact on the kinds of remedies the rights holder may be entitled to.

In addition, it is advisable to reserve all rights in the cease and desist letter because the full extent of the case is typically not known at this early stage.

A WORD OF CAUTION REGARDING SENDING CEASE AND DESIST LETTERS

Recent cases have held that where cease and desist letters make allegations of infringement that are later found to be unsubstantiated, these would be considered “false and misleading statements” that are actionable. See for example: the decision of Justice Manson of the Federal Court in Excalibre Oil Tools Ltd v Advantage Products Inc, 2016 FC 1279, aff’d [2019] F.C.J. No. 561, applying subsection 7(a) of TMA and the decision in S&S Industries Inc v Rowell, [1966] S.C.J. No. 22 at p. 422. A decision of Justice McHaffie of January 20, 2019, granted an injunction to prevent the further service of cease and desist letters on suppliers in a patent infringement action, holding that “cease and desist letters that threaten litigation, and all of its associated risks and costs, can be used tactically in a way that avoids a determination of the true merits of a claim. Sending infringement allegations and threats of expensive patent litigation to customers or suppliers of an alleged infringer can result in the defendant being significantly harmed in the marketplace, and even forced from it entirely, long before a determination of infringement is made. Where such letters are untrue, in that the patent is not valid or not infringed, they may themselves be actionable. Where the requirements for an injunction are met, they may be enjoined.”

Materials reproduced with the permission of LexisNexis Canada. http://www.lexisnexis.ca/en-ca/products/practice-advisor.page