Best Practices to Dealing with Demand Letters
Updated May 2017
Copyright Troll lawsuits in the apparel and footwear industry are a growing problem. In 2014, hundreds of footwear and apparel copyright related lawsuits were filed by Non-Practicing Entities (NPEs) and thousands more demand letters were sent on cases that never reached the courts. AAFA and the industry strongly support the protection of individual design and creation, but also support defending members from frivolous lawsuits filed for the sole purpose of monetary gain on vague or generic copyrights. To help members avoid lawsuits and protect their intellectual property, see the Copyright Protection Best Practices.
For members who, despite their best efforts, have received a demand letter or a cease and desist letter, below are steps that should be taken in your defense.
☐ Contact your Counsel
- The very first thing that you should do is to contact in-house counsel and make them aware of the situation.
- Forward any correspondence (i.e., cease and desist letter) or notice of a lawsuit to your attorneys as soon as you receive it, noting when and how you received the notice.
- If in-house counsel does not have the necessary expertise, seek the advice of outside counsel.
☐ Review the Facts
- Go over the details of the demand letter with your counsel. Review the copyright that is allegedly being infringed and to what extent. Perform a detailed comparison between your design and the infringed copyright. Consider the following:
- Does your design appear to be substantially similar to the allegedly infringed design?
- How confident are you that your design was independently created (not copied), and can you prove it?
- What is the internal history of your design? Was it created in-house? Was it sourced from a reputable designer? Was it provided by a factory that assured you that it was an “open source” design? Have any of your designers previously performed design work for the plaintiff?
- What documents do you have to show the internal history of your design? Be sure to provide those documents to your attorneys.
- Identify which individuals at your company would have personal knowledge regarding the creation and use of your design.
- Are there still goods bearing the allegedly infringing design in the market that can be pulled back? Are these goods still in production or in transit?
- What are the likely damages attributable to your company’s use of the design? How many yards of fabric were produced and sold, or how many garments were assembled and sold using the allegedly infringed copyrighted design? What were your company’s profits, and your customers’ profits, from selling the allegedly infringing goods?
☐ Gather and Retain all Documentation of the Design
- Retain all documentation of each step in the design process. Each version of the design should be saved separately (this will allow the designer to visually demonstrate each step of the design process). Don’t discard any of the paper or electronic files. If designing on a computer, don’t overwrite any files; always save each step as a new version.
- Do not destroy any cease and desist or demand letters. All documentation relating to the alleged infringement must be collected and maintained. This includes documentation relatingto any applications for copyright registration filed and any registrations issued in your name.
- Provide all documents to your attorneys showing where and when the allegedly infringing design or product was acquired.
- Did your company register its design with the U.S. Copyright Office? If so, pull a copy of your copyright registration and any supporting/related documents.
☐ Know the Person on the Other Side
- Is the claimant active in the industry? Do they manufacture and sell the print they are accusing you of violating, or are they a Non-Practicing Entity (NPE)? Knowing this will set the tone for negotiations.
☐ Consider Temporarily Pulling your Products
- If it appears the matter may not be resolved expeditiously, consider ceasing production of any products incorporating the allegedly infringing copyright until the matter is resolved.Damages in most copyright troll cases are awarded based on the number of infringing products that were sold, so keeping that number low helps mitigate damages.
☐ Check your Exposure
- Copyright infringers are potentially liable for disgorgement of profits attributable to the sale of infringing goods or statutory damages; plaintiff’s attorneys’ fees; defendant’s attorneys’ fees; indemnification of the infringer’s customers; damages to the infringer’s reputation, in addition to the distraction that litigation creates within the corporate environment.
- Determine if your company has any insurance policies that may provide a defense to the infringement claim, for example, a Commercial General Liability (CGL) policy providing coverage for claims of advertising injury.
- Consider whether your factories or other lenders must be notified.
☐ Consider Settling
- Even if you are innocent or believe you have a winnable case, the ultimate goal is to spend as little money as possible. While regrettable, this may involve settling thematter expeditiously to avoid costly litigation.
☐ Compile Potential Defenses
- Every demand letter provides a deadline for response. If early settlement is not an option, a company can ignore the demand letter (which is not recommended), ask for additional time in which to respond, handle in the matter in-house, or refer the matter to outside counsel.
- Witness experts are crucial in determining originality or public domain aspects of a copyright case. AAFA is currently developing a list of potential witness experts.
☐ Find Industry Partners
- If a copyright troll is targeting you it is almost assured that other companies are getting hit with the same or similar lawsuits. Search out potential partners with whom you may share costs and create unity in order to strengthen your case.
☐ Prepare for Other Trolls
- Simply because you were able to avoid or overcome one troll does not mean you won’t be hit again. Once you have been identified as a target, ensure that you take extra precautions to defend yourself from future troll lawsuits.
Executive Vice President
Learn about AAFA's Brand Protection Council.
This document is provided by the American Apparel & Footwear Association (AAFA) for informational purposes only. Determination of whether and/or how to use all or any portion of this document is to be made in your sole and absolute discretion. No part of this document, you should review it along with applicable laws and regulations, with your own legal counsel. Use of this document is voluntary.