Threatening Letters

D Manufacturing Company recently received a letter from P Technology, Inc., accusing D of infringing three P patents on computerized credit authorization systems. P has a reputation as a vigorous enforcer of its patents. Indeed, P is currently involved in a fierce patent infringement action on the same patents against C Manufacturing Company, a competitor of D. The letter invited D to take a license for future use at a fee ($5,000,000) that might reflect damages for past infringement. D makes and sells credit authorization systems but utilizes technology developed by its employees. Nevertheless, D's general counsel asked a patent attorney to look into P's charge and draft a reply. Before he mails the reply, the general counsel would like your advice as to the effect on any subsequent patent infringement litigation of sending such a letter. The draft letter reads as follows:

Dear P Technology, Inc.:

This is in response to your letter of February 16 regarding U.S. Patent Nos. 3,212,062, 3,407,388, and 3,498,069.

We have reviewed these patents and considered our need for a license under them in light of our present and future products. We have concluded that we have no need for a license under any of these patents at this time. However, to show our good faith, we would be willing to take a fully paid license of these patents at a nominal rate ($50,000 to $100,000 range), if accompanied by a general release for past acts.

Please let us have your response within 10 days.

Sincerely,

(Signature)

General Counsel,

D Manufacturing Company

The legislative history indicates that the House Committee was very concerned that factual admissions might be excluded under Rule 408. Its amendment to require that parties protect themselves from future use of their statements by couching them in hypothetical form was opposed by the Senate Committee and ultimately rejected in conference. However, as finally enacted, the rule only excludes evidence relating to a claim that is disputed as to either validity or amount. Moreover, the Advisory Committee's Note to this rule states that the rule does not apply "when the effort is to induce a creditor to settle an admittedly due amount for a lesser sum. McCormick § 252."

Is D's general counsel trying to induce P Technology to accept a lesser sum for an amount that is due? Is P Technology's claim the liquidated sum-certain type of claim that the Advisory Committee's Note seems to have in mind? Will the prudent lawyer still use cautionary qualifying language referring to Rule 408 when negotiating?