April 2, 2010
Both the Senate and the House have moved quickly to introduce legislation that would substantially limit who can bring suit under the false-marking statute, 35 U.S.C. § 292. The legislative activity no doubt traces back to the Federal Circuit's decision in Forest Group v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009), which rewrote the case law for false-marking damages. Would this be welcomed relief? Or unwarranted congressional action?
More than 110 false-marking suits have poured into federal district courts in the three months since the Federal Circuit handed down its Forest Group decision. That unprecedented flurry of new false-marking cases raised concerns in Congress, and all the attention now being lavished on this heretofore obscure area of patent law may only accelerate a decision by Congress to legislatively blunt the effect of the Federal Circuit ruling. But until that happens, companies that may have mismarked their products and become ensnared in a suit need to take action and understand the available strategies.
Marking the word "patent" on a product, or "any word or number importing the same is patented," is—if the product is not in fact covered by a U.S. patent—a violation of the false-marking statute. The financial lure in these cases is a statutory "penalty" of up to "$500 for every such offense," which, under Forest Group, must now be levied on a "per article" basis. The panel in Forest Group rejected the practice that many lower courts had followed, under which a continuous period of false marking could be considered a "single" offense. Recognizing the potential for serious monetary awards, the latest species of plaintiff—the so-called "marking troll"—thinks established manufacturing lines are printing presses churning out $500 notes.
Predictably—and the Forest Group panel so predicted—the decision attracted a "cottage industry" of new plaintiffs in search of a windfall to be gained from unsuspecting manufacturers caught off guard by the sudden change in the law. The road to riches may not be so clear though. Subtle and often underappreciated areas of the law, such as Article III standing and the requirements for pleading fraud, as well as the relatively undeveloped law of calculating false-marking penalties, may mean that no one will get rich off of Forest Group. For its part, Congress is already considering legislation that would limit the pool of potential plaintiffs to only those who have suffered "competitive injury." While the flood of suits will certainly recede if that legislation becomes law, companies who mark their products may still be at risk of incurring new liabilities. Below, we discuss strategies for litigating these suits as well as how to avoid them.
Who May Bring Suit. Section 292 states that "[a]ny person may sue for the penalty." This qui tam provision authorizes anyone to file an action on behalf of the government. This seemingly open invitation for the public to file suit may soon be closing. A provision added to the Senate's patent reform bill, S. 515, would expressly limit the class of potential plaintiffs to those "who ha[ve] suffered a competitive injury as a result of a violation" of the false-marking statute. The House itself recently introduced a resolution, H.R. 4954, with the same language. (Currently this resolution has not been added to the House's own patent reform measure, H.R. 1260). While "patent reform" encompasses far more than just this issue of false-marking penalties, Congress may well choose to quickly shut down the growing false-marking cottage industry.
Notably, the proposed legislation states that the amendment applies to all cases pending on the date of enactment "without exception." While passage would mean that many of the recently filed false-marking suits would vanish upon presidential signature, patent reform may stall. And courts generally do not stay actions for pending legislation, yet case deadlines must be met. The question therefore remains, what strategies can be applied to these suits?
A Plaintiff Must Have Standing. While Section 292 states that "any person" may sue, a plaintiff must nevertheless possess Article III standing in order to maintain an action. The defendant in Stauffer v. Brooks Brothers, Inc., won dismissal on the basis that Stauffer lacked standing. Stauffer's appeal is fully briefed and awaiting oral argument before the Federal Circuit.
Brooks Brothers successfully argued that Stauffer lacked Article III standing because he did not establish an injury-in-fact. Abstract injury, such as harm to the United States' sovereign interest in seeing the law obeyed, is likely insufficient to confer standing. Nor will naked allegations that merely parrot the elements of a statutory violation suffice. A Section 292 injury, which may be assigned to anyone, is harm that arises from false marking done with the "the purpose of deceiving the public." Witness Stauffer, in which the district court found that the complaint failed to allege an actual injury "to any individual competitor, to the market for bow ties, or to any aspect of the United States economy." A pleading that alleges an actual injury from false marking (e.g., pecuniary harm suffered by a competitor in the marketplace) is the surest way to survive a motion to dismiss. The Federal Circuit's ruling in the Stauffer appeal should be handed down later this year.
A Proper Complaint. A proper complaint must plead all the elements of a false-marking violation, which include both objective and subjective aspects, i.e., (1) a patent marking (2) falsely affixed to (3) an unpatented product (4) with intent to deceive the public.
With respect to element (4), Federal Circuit precedent requiring that charges of inequitable conduct (i.e., fraud on the Patent Office) be pleaded with specificity under Federal Rule of Civil Procedure 9(b) may lead to a similarly heightened pleading standard applicable to false-marking cases. Numerous defendants have sought dismissal on that ground, but the issue is yet to be decided.
Quantum of False-Marking Damages. Before Forest Group, courts often deemed long-term false-marking activity to be a "single offense," while others chose to adopt a "time-based" approach under which the penalty would be imposed for, perhaps, "each month" of false-marking. While the Federal Circuit has now held that the statute requires a "per article" fine of up to $500, whether district courts applying Forest Group will award significant damages remains to be seen.
On remand, the parties in the Forest Group case are briefing the penalty issue. Bon Tool presented a demand for the maximum penalty, i.e., $500 for each of the 123 falsely marked stilts, for a grand total of only $61,500. Quite unremarkable, but then again Bon Tool is an infringement defendant who counterclaimed false marking, whereas a false-marking plaintiff would likely not have set their sights so low. In exercising its discretion, the court might not balk at awarding the full $61,500, especially in view of allegations that Forest has continued to mismark its stilts, despite the Federal Circuit's decision. But what if there had been 123,000 falsely-marked stilts, where the maximum penalty would yield an award of $61,500,000? And what about Pequignot v. Solo Cup Co., in which the defendant is accused of falsely marking nearly 22 billion plastic lids? What factors should courts consider in levying the penalty?
The Forest Group decision mentions considering the quantity of articles at issue and the value, suggesting one type of discretionary balancing "in the case of inexpensive mass-produced articles." Should the value be set in view of price of an article or its profit, and what about intangible benefits to a company? The relevant economic factors are likely to be further balanced against the degree of culpability exhibited. One who flagrantly marks for years past expiry of his patent should arguably pay more than one who mistakenly authorizes reordering a marked part under a long-standing purchase order. Should the penalty also differ depending on whether the falsity is due to patent expiration or because a claim does not cover a product? These, and many other relevant questions stand unresolved at this point.
Section 292 After the Storm Clears. Right now, given the supersized penalty awards that some plaintiffs are no doubt expecting, it seems that any colorable charge of false marking warrants filing suit. These suits are largely based on products marked with expired patents. But once the proverbial storm clears, and/or Congress enacts reform, the majority of cases may involve unexpired patents and claims that allegedly do not cover the marked product. In that case, the calculus for false-marking actions will change.
For example, circumstances may warrant hauling a competitor into court on a charge of false marking. A suit under Section 292 might serve as an alternative to a traditional declaratory-judgment suit against a patentee, providing a new means for attacking a patent. Properly strategized, the case might yield a claim construction that, in the end, insulates the plaintiff's competing product from infringement. A favorable claim construction may be far more valuable than splitting an award of false-marking penalties with the government.
Even where a competitor does not bring an action under Section 292, a counterclaim of false marking may be lurking in an infringement case. That , in fact, was the procedural posture in Forest Group. In such cases, claim construction will likely provide the basis for a ruling on infringement and false marking. The patentee will seek a construction that reads on the accused products and on any of its own marked products. The pursuit of a construction favorable for both may have to yield, however, to a practical choice for minimizing loss. Even where the potential infringement damages outweigh the false-marking penalty, it is, nonetheless, yet another factor in the calculus of litigation for the parties.
Where the scope of a claim in relation to a marked product is in dispute, consider also element (2), the objective falsity of a marking. At what point is this element established? In Forest Group, the Federal Circuit tied the requisite knowledge to the lower court's claim-construction and noninfringement rulings, from which it held that it was proper to infer deceptive intent. But, more generally, can a manufacturer have the requisite intent to deceive the public if the construction of the claim covering the product itself requires appellate review? This further suggests that a legal opinion in support of marking a product may be valuable. The role of such opinions, or the impact of the lack of or unwillingness of a party to reveal such opinions, is yet to be determined. Analogies to the role of opinions of counsel regarding infringement and charges of willfulness may arise.
Avoiding False-Marking Litigation. Keep track of how long your products are marked and you should be able to dodge a false-marking suit (at least one stemming from marking beyond basic patent expiry). Alternatively, consider building the expiration date into the mark: "Pat. No. 9,999,999 (expires xx/xx/xxxx)." Such a mark seems to comply with the marking statute (35 U.S.C. § 287), and the plain language of the mark should nullify any allegations of objective falsity and/or subjective intent to deceive. Following that course, however, would not preclude liability for marking beyond a patent lapsing for failure to pay a maintenance fee, or for continued marking after a patent has been found invalid or unenforceable by a court (but neither would marking with just the patent number). Still, including the patent’s expiration date may be justified from a repackaging or retooling-cost standpoint alone.
Due Diligence: A New Liability to Consider. Any due diligence associated with corporate transactions (e.g., a merger/acquisition) should consider the scope of the target company's false-marking exposure. Likewise, those entering new licensing agreements should account for some potential increased risks. Licensees, who are often required to mark products made under license, may want to consider seeking indemnification, whereas licensors may want to incorporate a licensee's marked products into its tracking practices.
Lastly, we note that any such review should be retrospective as well. A five-year statute of limitations applies to claims of false marking.
In sum, unless or until Congress modifies the false-marking statute, it will likely take years of litigation to settle the many new questions raised by the Forest Group decision. The strategies adopted by false-marking defendants, and plaintiffs, will play a significant role in shaping the law. Even after the storm of false-marking suits clears, attention to these details will remain important in managing an IP portfolio.
A version of this article first appeared on March 30, 2010 in The Daily Journal.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
Conference
2024 Licensing Executives Society USA – Canada Annual Meeting
October 20-23, 2024
New Orleans
Webinar
The Right of Publicity and Generative AI: Implications of Recently Proposed Legislative Solutions
October 10, 2024
Webinar
Conference
4th Annual Passport to Proficiency on the Essentials of Hatch-Waxman and BPCIA
October 8-24, 2024
Virtual
Conference
2024 Corporate Counsel Women of Color: Career Strategies Conference
October 2-5, 2024
Las Vegas
Due to international data regulations, we’ve updated our privacy policy. Click here to read our privacy policy in full.
We use cookies on this website to provide you with the best user experience. By accepting cookies, you agree to our use of cookies. Please note that if you opt not to accept or if you disable cookies, the “Your Finnegan” feature on this website will be disabled as well. For more information on how we use cookies, please see our Privacy Policy.
Finnegan is thrilled to announce the launch of our new blog, Ad Law Buzz, devoted solely to breaking news, developments, trends, and analysis in advertising law.