Warning letters may be more trouble than they are worth: a cautionary tale

In 2014, a global pharmaceutical company filed a patent infringement action against a manufacturer of generic drugs or a Gx company. It asked that the IP Court request and examine the related evidence; namely, the marketing authorisation dossier of the company’s drug filed before the Ministry of Health, and to stop and prevent the infringement if so determined. Before filing the action, the patent owner requested the company to provide the relevant characteristics of the product to assess patent infringement. The entity did not comply with this, and the patent owner requested the IP Court to examine the marketing authorisation dossiers of the product and assess the infringement. The infringement action against the company was rejected after the court expert panel examined the dossiers and concluded that the patent had not been infringed.

However, while the patent infringement action was ongoing, the patent owner sent a warning letter to a different company, stating that it was manufacturing potentially infringing products and informing it of the ongoing legal action. As the act of manufacturing infringing products also constitutes patent infringement, the patent owner explained the scope of protection of its patent and why there may be a risk of infringement. After referring to the ongoing patent enforcement action against the Gx company, the patent owner requested the manufacturing company “to watch out for the patent rights”. It is important to underline that the manufacturing company was not threatened, and the letter did not state that there could be a court action if the patent rights were infringed. Further, the manufacturing company was neither requested to cease manufacturing activities, nor to take any other action concerning the potentially infringing products.

On receipt of the warning letter, the manufacturing company contacted the Gx company and requested information proving that the patent holder’s right had been infringed. However, the Gx company did not respond. The manufacturing company subsequently suspended its manufacturing process.

After finalising the infringement action, in 2016 the Gx company filed an unfair competition action before the Commercial Court claiming moral and material damages against the patent owner. It alleged that the manufacturing company had ceased the production process due to the letter sent by the patent owner, which was also one of the customers of the manufacturing company, and alleged that this letter had prompted the manufacturing company’s decision to cease doing business with it unless it stopped manufacturing the products.

In its defence, the patent owner stated that the tone of the letter was appropriate and objective. The letter was limited to informing the manufacturing company of its patent rights, the risk of patent infringement and the ongoing action without any kind of threat. More importantly, the patent owner was driven by the Gx company to file a patent infringement action and the manufacturing company was driven to cease the manufacture of the Gx products as no information was provided to them about the supposed infringement.

Referring to case law from the European courts, the patent owner explained to the court that it was not negligent in the aspects of the wording, scope of recipients or time of delivery when sending the letter. It emphasised the case law of the Madrid courts that even if there is a threat in the warning letter that a lawsuit may be filed against the recipients, it cannot justify actions of unfair competition when the content of the letter is accurate.

The Commercial Court examined the evidence and determined that the content of the letter reflected the facts and, as of the date of the letter, it was not known whether the Gx company was infringing the patent. The court acknowledged that the tone and wording of the letter was accurate and the Gx company did not provide any information to the manufacturing company about non-infringement actions.

The court evaluated that the patent owner had made the manufacturing company believe that there was a patent infringement and, therefore, the Gx company was acting contrary to the law, which led the manufacturing company to halt its production of Gx products. In addition, the court considered that the patent owner filed a patent infringement action, although it should have known that the patent had not been infringed. Consequently, the patent owner, in informing the manufacturing company of the ongoing action, should be deemed to have acted against the principle of integrity.

Consequently, the court decided that the act of sending a letter to the manufacturing company constituted unfair competition and, therefore, the Gx company’s moral damages should be compensated. The court rejected the material damage claim of the Gx company, since it had not been solidified and proven.

Many professionals hold the view that the Commercial Court’s decision is problematic since it was the Gx company that failed to explain to the manufacturing company why it was not infringing the patent, which led the manufacturing company to believe that it might be committing an illegal act. It is erroneous to blame the patent owner with creating a pejorative environment against the Gx company by filing a patent infringement action and informing relevant third parties of this action, as the patent owner had no other choice but to file a court action to have the patent infringement risk assessed. As well, there were no grounds to argue that the patent owner should have known of the (non-)infringement, as the characteristics of the Gx product may be known by the Gx company only.

The Commercial Court’s decision has been appealed before the relevant district court by both parties and the appeal is ongoing.