Responding to an NPE Demand Letter

A non-practicing entity (NPE) is a patent owner that doesn’t make or sell products using its patents. It generates revenue by licensing or litigating them instead. A patent assertion entity (PAE), sometimes called a “patent troll,” is a specific type of NPE whose primary business model is acquiring patents to assert against operating companies, often across many unrelated defendants.

No. A demand letter alleging patent infringement does not mean the patent is valid or that your product or system actually infringes it. It’s a claim, not a final decision. However, every demand letter should be taken seriously and reviewed carefully rather than ignored.

Depending on the facts, your attorney may evaluate several possible defenses.

Invalidity. Whether prior art or other grounds could support a challenge to the patent’s validity. This position questions whether the patent being asserted against you should never have been granted in the first place, and therefore could not be enforced.

Non-infringement. Whether your product or service actually falls within the patent’s claims as written, which often turns on how specific claim terms are construed.

Licensing or standing issues. Whether the entity actually owns the rights it claims to be enforcing, or whether your company (or a supplier) already holds a license that covers the accused product.

Settlement or license negotiation. Whether resolving the dispute makes business sense based on the strength of the claims, potential exposure, and cost of litigation.

The appropriate strategy will depend on the patents, facts of the infringement allegations, and your business circumstances. Your patent counsel should determine which defenses and next steps warrant further investigation.

As early as possible, and this is might be the single most important step. A patent attorney can:

1. Assess the patents and infringement allegations
2. Verify ownership, enforceability, and validity of the asserted patents
3. Outline potential defenses
4. Advise on how communications should be handled

Early advice helps you avoid missteps that are hard to take back later, and gives you a clearer read on how serious the claim actually is.

For example, it is important to avoid making technical admissions or explaining how your product works without proper counsel. Statements made in an early response may later become relevant in litigation, particularly if the court interprets the patent claims differently from the position taken in your correspondence. This is a common claim construction “trap” that you want to avoid. When appropriate, counsel should handle communications with the patent owner.

Prior art is evidence that predates the relevant patent date and can be used to test whether a patent’s claims are truly new and inventive. It may come from earlier patents, technical publications, industry standards, products, manuals, and other source materials.

If counsel determines that patent validity should be investigated, they may recommend a prior art or patent invalidity search. These searches look for earlier disclosures that may be relevant to the asserted claims and could support a potential validity challenge.