November 8, 2010
LES Insights
By John C. Paul; D. Brian Kacedon; C. Brandon Rash
Authored by D. Brian Kacedon, John C. Paul, and C. Brandon Rash
"Under certain circumstances in the U.S., patent owners may not recover damages from infringers until they notify the infringers of the infringement, either directly or by marking the patent number on their products." Patent owners who mark an unpatented product with a patent number for the purpose of deceiving the public, however, may be fined up to $500 for every such offense. Any person may sue for the penalty on behalf of the public interest in what is called a qui tam action, splitting any recovery with the US government.
During the last year, the Federal Circuit decision in Forest Group, Inc. v. Bon Tool Co., No. 2009-1044 (Fed. Cir. Dec. 28, 2009), ignited interest in bringing such actions by holding that the penalty should be assessed against each product falsely marked. Thus, rather than being fined once for the decision to mismark a particular product, a patent owner could be fined separately for each product sold. Since the decision in Forest Group, over 150 false marking cases have been filed against major corporations.
Recently, the Federal Circuit provided more direction on false marking in Pequignot v. Solo Cup Co., No. 2009-1547 (Fed. Cir. June 10, 2010), and held that a patent owner is not liable for marking its products with an expired patent number where the company acted not for the purpose of deceiving the public, but in good faith reliance on the advice of counsel and out of a desire to reduce costs and business disruption.
Solo produces cup lids using mold cavities, which can last 15 to 20 years. Soon after it was granted two patents covering the lids, in 1976 and 1986, Solo added the patent numbers to the mold cavities so that each lid has a patent number stamped on it. In 2000, twelve years after the first patent expired, Solo became aware that it was marking its products with an expired patent number. Solo told its attorneys that removing the patent numbers would require a wholesale replacement of the mold cavities, and be costly and burdensome. On advice of counsel, the company adopted a policy under which expired patent numbers would be removed only when mold cavities needed to be replaced due to wear or damage. Solo adopted the same policy for the second patent, which expired in 2003.
In 2004, Solo's outside counsel advised the company to include on its packaging the following language: "This product may be covered by one or more U.S. or foreign pending or issued patents. For details, contact www.solocup.com." The outside attorneys were concerned that Solo was not giving adequate notice of infringement to potential infringers under the marking statute, 35 U.S.C. § 287(a). Based on that advice, Solo placed the "may be covered" language on certain packaging used for both contents that were patented and contents that were not patented.
In 2007, Pequignot, a patent attorney, brought a qui tam action against Solo under the false marking statute, 35 U.S.C. § 292, alleging that Solo had falsely marked its products with the two expired patent numbers for the purpose of deceiving the public. Pequignot also alleged that Solo had marked its packages with the "may be covered" language despite knowing that the products were not covered by any pending or issued patents. The district court granted summary judgment to Solo, finding no intent to deceive, and Pequignot appealed to the Federal Circuit.
To be liable for false marking, a party must mark an "unpatented article." Solo argued that because its products were once covered by patents they did not meet the statute's definition of an unpatented article. The Federal Circuit disagreed, however, and found that, when patents expire, the products become "unpatented" within the meaning of the statute. Thus, articles marked with expired patent numbers are falsely marked.
Liability for false marking, however, also requires that the marker act "for the purpose of deceiving the public." Solo admitted knowing that the patents were expired and that the products in some of the "may be covered" packaging were unpatented. Pequignot argued that these facts were sufficient to prove intent. The Federal Circuit disagreed, however, finding that a combination of a false statement and knowledge that the statement was false creates a rebuttable presumption of intent to deceive the public, rather than irrefutably proving such intent. To rebut the presumption, a party must show by a preponderance of the evidence (i.e., it is more likely than not) that it did not have the requisite purpose to deceive.
While the presumption of intent cannot be overcome with "blind assertions of good faith where the patentee has knowledge of mismarking," the Court found that Solo rebutted the presumption with more than just "blind assertions." Solo cited the specific advice of its counsel and evidence as to its true intent, to reduce costs and business disruption. Solo also adopted a policy that conformed with its stated purpose. Instead of continuing to mismark mold cavities, Solo took the good faith step of replacing worn out molds with unmarked molds.
The Court found no intent to deceive regarding the "may be covered" language because the language stated the true situation: contents of some of the packaging were covered by patents, and others were not. Also, Solo added the language on the advice of its outside counsel to give notice of Solo's actual, valid patents (although the Federal Circuit suggested in dicta that, without a patent number, such language would not satisfy the marking statute). There was also evidence that the language was added to all packaging because the alternative was inconvenient from a logistical and financial perspective. Solo did not state on its packaging that any product was definitely covered by a patent, and Solo provided the consumer with an easy way to verify whether a specific product was covered on the company's website.
The Solo Cup case illustrates a useful strategy to limit false marking liability for patent owners:
While Forest Group has spawned a small "cottage industry" of false marking actions, Solo Cup should rein in some of that new activity because it emphasized the need to prove an intent to deceive the public rather than merely showing knowledge of the false marking. Further limitations on the ability bring a false marking action may come from Congress, where the Forest Group case prompted proposed legislation that would prevent private citizens from bringing a false marking action unless they suffered a competitive injury as a result of the false marking. See Manager's Amendment to S. 515 (the "Patent Reform Act of 2010").
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.
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