Should I be worried about a cease and desist letter?

Receiving a letter demanding you stop certain business activities to avoid legal action can be worrying, particularly if the activity is integral to your commercial operations.

In this edition of Ask the Expert, our business dispute solicitors, explain what a cease and desist letter is, when one is likely to be used and what you should do if you receive one.

What is a cease and desist letter?

Cease and desist letters are an essential part of the dispute resolution process. As their name suggests, they demand that the recipient stops their allegedly unlawful activity and does not repeat it in the future. Cease and desist letters are generally sent before any formal legal action starts, to give the recipient an opportunity to put right their wrongs before the situation escalates.

Whilst the contents of a cease and desist letter are varied, legal guidelines state the type of information that should be included.  The letter should identify the allegedly unlawful activity, summarise the facts and explain the basis of the claim. The Claimant should explain what they want from the recipient, notably to stop the unlawful activity, but other demands, such as the payment of damages or the return/destruction of information/goods, might also be made.The letter should give the recipient a deadline to comply and state the likely consequences of failing to do so. 

Should I be worried about a cease and desist letter?

Receiving a cease and desist letter is a serious issue. It indicates the sender’s intention to pursue you for the alleged wrongdoing if you do not follow their demands.

Receiving a cease and desist letter does not necessarily mean you will end up in Court. In fact, the letter is a useful opportunity for the parties to settle their issue, avoiding costly litigation.

 Is a cease and desist letter enforceable?

No, cease and desist letters are not enforceable on their own. They are something that is used before someone starts legal action.

When are cease and desist letters typically used in business?

Cease and desist letters can be used in any situation involving ongoing wrongdoing. In practice, they are most commonly used in the following cases:

Intellectual property infringements

The value of a business’s intellectual property can be significant, and any unauthorised use of it requires urgent attention. If, for example, an unauthorised third party uses a brand’s trade mark in connection with their own goods and services, the brand can become diluted, its consumer base eroded, and its reputation harmed.

Brand owners regularly use cease and desist letters to counter the ongoing brand damage caused by intellectual property infringement. The letter usually includes a series of ‘undertakings’, which the recipient must enter into to avoid litigation. Undertakings are legally binding promises to do, or not to do, specified acts.

In intellectual property matters, the undertakings usually demanded by a sender include the following:

• The recipient immediately stops their infringements and agrees to refrain from infringing the intellectual property in future.

• The recipient agrees to destroy, or deliver up to the sender all infringing items, including advertising and promotional material, to take them out of circulation.

• The recipient agrees to pay damages to the sender, or account to the sender for all profits made from the infringements.

Misuse of confidential information

A business’s confidential information and trade secrets give it an edge over competitors and can be crucial to its success.

The law recognises the importance of confidential information and prevents its use by anyone who has received the information in confidence, if the use would be damaging to the owner. The types of information that might be seen as ‘confidential’ include recipes, formulas, technical specifications or software code.

Given the commercially sensitive nature of confidential information, it being shared publicly can have serious consequences for its owner. As soon as a business becomes aware of a third party misusing confidential information, it must act swiftly to minimise the damage. The first step is often sending a cease and desist letter demanding the immediate end of the misuse, the destruction or delivery up of any physical or electronic embodiments of the information, and assurances that it will not be used going forward.

Restrictive covenants

Restrictive covenants limit what a party to a contract can do. They are commonplace in employment and land contracts. For example, an employment contract might contain restrictive covenants preventing an ex-employee from competing with the business for a period of time. In the context of a lease, a restrictive covenant might prohibit the tenant from using the premises for specified purposes.

Restrictive covenants are often critical to a contractual relationship. If they are breached, a cease and desist letter is a valuable tool in persuading the wrongdoer to correct or stop their wrong and avoid legal action.

Defamation

Defamation is when someone makes untrue statements about a third party that damages their reputation. Most defamation disputes begin with a cease and desist letter. The letter’s main purpose is to stop the further publication of the defamatory statements and make the other side their removal their statement.

What should I do if I receive a cease and desist letter?

Firstly, don’t panic. When dealt with properly, a cease and desist letter can be a quick, effective way of resolving a legal issue at an early stage. If you receive one, you should take the following steps:

Seek legal advice

Timely legal advice is crucial. If you ignore a cease and desist letter or do not deal with it effectively, the matter can escalate to court proceedings and you will be on the back foot. If the cease and desist letter may have no sound legal basis, so you should not comply with its demands without first speaking with a solicitor.

Keep the letter for your records

As we have stressed, you must not ignore a cease and desist letter. If, after seeking legal advice, you decide not to follow the the demands, the issue may resurface. You must keep the letter to refer back to, should you need to. It may be best to reply in writing to explain why you are refusing to comply with its demands.

Collect evidence

The more evidence you have to support your position, the better placed you will be to address the allegations made against you. The types of evidence required will depend on the circumstances but will invariably include your account of the facts, so it is vital that you make a detailed note whilst they are fresh in your mind.

Any correspondence you send in response to the cease and desist letter will be disclosable in future litigation, so you should not do anything without speaking to a solicitor first.

What happens if a cease and desist letter is ignored?

The main purpose of a cease and desist letter is to stop the alleged wrongdoing. If you ignore a cease and desist letter, the sender may seek an urgent interim injunction to stop the unlawful activity. An interim injunction is a Court Order preventing the party against whom the injunction is made from carrying out the actions contained in it. It usually remains in place until the dispute has been resolved.

If you ignore a cease and desist letter and the matter proceeds to litigation, you may be penalised, regardless of the outcome of the case. For example, you might be forced to pay a higher percentage of the other side’s costs, or the percentage of your costs they are ordered to pay might be reduced.

How should I respond to a cease and desist letter?

Your solicitor will carefully consider the contents of the cease and desist letter with you, and prepare a response based on the facts of the dispute, the legal position and your business needs.

Agreeing to temporarily stop the actions complained of removes the threat of the sender seeking an interim injunction and gives you a chance to settle the matter. This is often a sensible step If the acts complained of are not central to your business operations. However, if the legal basis of the allegations is based on false information, the Court might be unlikely to grant the injunction, in which case it might make little sense to follow their demands.

If the acts complained of are integral to your business, the long-term consequences of complying with the cease and desist letter may be severe. Deciding on the appropriate course of action in these cases requires a delicate balancing act between protecting your business interests and minimising your exposure to litigation.

Summary

Cease and desist letters are not legal proceedings, and you are not obliged to respond. Often they are a precursor to litigation, so it is essential that you engage with the sender. Your response should be prompt to avoid the matter escalating but must not be so hasty that it prejudices your position. You should not respond before you have taken legal advice. Your solicitor will help you develop the best strategy to respond to the cease and desist letter, in a way that will will seek to protect your business interests whilst minimising the risk of litigation.