Dispelling The First To File Rule Myth - Part I

Tuesday, February 1, 2005 - 01:00

Intellectual Property law, like every discipline, contains certain "common wisdoms" or "myths" which simply do not correspond to the established precedent. One such common misperception is that when writing a cease and desist letter it is important not to be overly aggressive. The concern is that if one sends a letter threatening a law suit and the alleged infringer doesn't capitulate, one creates a case and controversy giving the alleged infringer standing to file a declaratory judgment action. This can be especially important if the parties are in different states and the intellectual property owner does not want to litigate its claim in the infringer's home state.

The weight of judicial precedent on this issue, however, suggests that, contrary to the myth, a plaintiff may best preserve his choice of forum and right to be the "plaintiff" by sending a forceful cease and desist letter. Indeed, some courts have suggested that sending a "mild" cease and desist letter may in fact make it easier for the defendant to successfully avoid the well-established "first to file" rule, i.e., avoid having to litigate in the alleged infringers chosen forum.

We explore these issues by reference to the following hypothetical:

C&D, Inc. (referred to as "C&D"), a start-up company, recently invested millions to promote its "CD" trademark, including extensive advertising campaigns and careful monitoring of the use of its distinctive CD trademark. C&D just discovered that D&J Company (referred to as "DJ") started to use the distinctive CD trademark for a similar product line.

The First to File Myth: If C&D does not file a lawsuit in the forum of its choice immediately, and sends a cease and desist letter to DJ, DJ will file a lawsuit in its own favorable forum and preclude C&D from litigating in the forum of C&D's choice.

Of course C&D needs to stop DJ's infringing activities, but since it just spent millions on promoting its CD brand, it cannot afford the expense associated with preparing and filing complaints and making motions to the court to obtain preliminary injunctive relief. C&D wants to avoid these excessive litigation fees for what appears to be a clear-cut case of trademark infringement.

C&D's attorneys advise that the first step in halting this infringing activity (without incurring too much expense) is to first file a complaint in a favorable forum to C&D, and then send a cease and desist letter to DJ demanding that they cease and desist all infringing activity. The attorneys advise that hopefully this will lead to settlement talks to resolve the dispute without litigation, but if the settlement talks prove futile or DJ refuses to halt the infringing activity, C&D may have no choice but to take further legal action.

Lastly, in conformance with the prevailing myth, C&D's attorneys advise that if C&D does not file its complaint first, sending the cease and desist letter could result in DJ first filing a declaratory judgment action before C&D files its suit. C&D, therefore, may be stuck litigating in DJ's choice of forum, which could place C&D at a disadvantage and/or inconvenience to C&D, the injured party.

Dispelling the Myth: Attorneys and clients need not fear sending a cease and desist letter without first filing a complaint in their chosen forum. The fear that without doing so will give rise to a declaratory judgment action filed by the recipient of the letter is simply unwarranted. While it is certainly advantageous to avoid this result by first filing a complaint in the forum of the client's choice, as under the first to file rule, this will generally prevent the recipient of the cease and desist letter from initiating a later filed declaratory judgment action in another forum; the fear articulated by C&D's attorney's is not supported by the case law. The courts have set forth several ways to successfully implement cease and desist campaigns without relinquishing C&D's right to choose an appropriate forum as opposed to being forced to litigate in DJ's chosen declaratory judgment forum.

The First To File Rule

The "first to file" rule is a myth that attorneys and clients must overcome when considering a cease and desist letter. While the first to file rule generally prevails,1 it is by no means a reason not to send a cease and desist letter. Indeed, as discussed herein, several courts have recently decided not to apply the first to file rule either because the first-filed complainant (the accused declaratory judgment infringer) knew it would be sued by the intellectual property owner in another forum, or that the declaratory judgment filing was conducted in an underhanded manner (usually during ongoing settlement talks) expressly for forum shopping purposes.2

Before turning to the cases which dispel the first to file myth, let's discuss the rationale for the first to file rule. The first to file rule provides that where proceedings involving the same parties are pending simultaneously in different federal courts, the first-filed action takes priority over the second.3 Judicial economy and avoiding forum shopping are the guiding principles of the first-filed rule.

Under the rule, "the court of the first-filing parties may enjoin the parties from proceeding in a later filed action."4 Dismissing or staying the later-filed action, allows the courts to avoid wastefulness and encourage efficiency.5 And while the first-filed rule is generally followed in a number of jurisdictions, the courts have discretion to deviate from the rule under special circumstances, including most prominently when the first-filed action is a declaratory judgment action filed by an accused infringer, such as DJ.

The Declaratory Judgment Act

Noted above is the likelihood that if DJ received the cease and desist letter from C&D, DJ will likely file a declaratory judgment action in a forum of its choice. The rationale behind such a filing would be to have a court settle the legal issues and any uncertainty where a party is concerned that there is the potential for litigation. The declaratory judgment action is best served when it prevents one party from constantly harassing and threatening another party, but never taking action against it.

Needless to say, the mere sending of a cease and desist letter, without more, does not rise to the level of harassment. And while it may constitute a threat, it should not always serve as the basis for a declaratory judgment action filed by an accused infringer who has knowledge that it will likely be sued by the intellectual property owner in another forum. .

The Declaratory Judgment Act, 28 U.S.C. § 2201(a), is "an enabling Act, which confers discretion on the courts rather than an absolute right upon the litigant."6 The Declaratory Judgment Act gives the district court power to hear declaratory judgment actions, but does not require the court to hear such actions.7 It is under this discretion which the courts have repeatedly dispelled the first to file myth and declined to exercise declaratory judgment jurisdiction over a first filed lawsuit filed in anticipation of an infringement action.8

1 Tempco Electrical Heater Corp. v. Omega Engineering, Inc., 819 F.2d 746 (7th Cir. 1987).
2 Id. See also Wilson Sporting Goods Co. v. Nicklaus Golf Equipment, 71 USPQ2d 1153 (N.D. Ill. Jan. 6, 2004); Design Tex, et al v. U.S. Vinyl Mfg. Corp., Civ. No. 04-CV-124 (N.D. Ga., Nov. 10, 2004); Mill Creek v. Kinkade, 2004 WL 2607987 (N.D. Tex., Nov. 16, 2004).
3 Citigroup Inc. v. City Holding Company, 97 F.Supp.2d 549, 555 (S.D.N.Y. 2000).
4 Id. at 555.
5 Id.
6 AmSouth Bank v. Dale, 03-5517(6th Cir. 2004), quoting Public Serv. Comm'n. v. Wycoff Co., 344 U.S. 237 (1952).
7 Zide Sport Shop of Ohio, Inc. v. Ed Tobergate Assoc., Inc., 2001 WL 897452 (6th Cir. 2001).
8 See, e.g., Tempco Electric Heater Corp. v. Omega Engineering, Inc., 819 F.2d 746 (7th Cir. 1987); Wilson Sporting Goods Co. v. Nicklaus Golf Equipment, 71 USPQ2d 1153 (N.D. Ill. Jan, 6, 2004); Design Tex, et al. v. U.S. Vinyl Mfg. Corp., Civ. No. 04-CV-124 (N.D. Ga., Nov. 10, 2004); Mill Creek v. Kinkade, 2004 WL 2607987 (N.D. Tex., Nov. 16, 2004).

Stephen W. Feingold and Marc A. Lieberstein are both Partners in the New York office of Pitney Hardin LLP's Intellectual Property and Technology Group. Danielle R. Mendelsohn is an Associate in the Group. This article represents only the authors' opinions and does not necessarily reflect the views of Pitney Hardin or any of its clients. Questions concerning the article or Pitney Hardin's practice may be directed to Mr. Feingold or Mr. Lieberstein at (212) 297-5800.

Please email the authors at sfeingold@daypitney.com, mlieberstein@daypitney.com ordmendelsohn@daypitney.com with questions about this article.