February 20, 2012
LES Insights
Authored by D. Brian Kacedon, Jack A. Kelly, and John C. Paul
Until recently, the patent statute included a provision for a private cause of action, known as a qui tam action, which allowed private individuals to sue on behalf of the government for acts of false patent marking. But Congress recently amended the false-marking statute in the Leahy-Smith America Invents Act ("AIA"), and removed standing for private individuals. Now, only competitors and the U.S. Government have standing to pursue false-marking claims. Because of the amendments' immediate and retroactive effect, however, the remaining question became what happened to ongoing qui tam false-marking actions. Brooks v. Dunlop Manufacturing Inc., No. 10-04341 (N.D. Cal. Dec. 9. 2011)1 addressed this question directly.
In October of 2010, Kenneth C. Brooks brought a false-marking claim against Dunlop Manufacturing Inc. under 35 U.S.C. § 292. Brooks had purchased a Dunlop guitar gel winder, which had been marked with a patent number corresponding to a patent that had expired and been held invalid. He alleged that the decision to falsely mark the product had been undertaken for purposes of deception to place the public and potential competitors at a competitive disadvantage. The court granted Dunlop's motion to stay the action pending the Federal Circuit's resolution of FLFMC, LLC. v. Wham-O, Inc., No. 2011-1067, which tested the constitutionality of section 292. In the meantime, however, Congress passed, and the president signed, the AIA, which immediately and retroactively eliminated false-marking claims, including Brooks's. Specifically, the Act removed the qui tam cause of action where private individuals, known as relators, could bring suit and pursue a financial remedy for false marking. Under the AIA, only those who have suffered a competitive injury can bring an action for false marking. Moreover, marking a product with an expired patent number is no longer actionable.
The present order arose following the passage of the AIA. The Federal Circuit dismissed the appeal in Wham-O, and Brooks admitted that he lacked standing under the newly amended false-marking statute. In response to the motion to dismiss filed by Dunlop, following intervention from the U.S. Government, Brooks argued that the retroactive application of the AIA was improper and that it constituted an unconstitutional taking under the Fifth Amendment.
Brooks argued that the U.S. Government had entered into a unilateral contract with private individuals when it offered qui tam false-marking actions to individuals, which he had accepted by filing suit. From this, he concluded that the amendments to the AIA went beyond merely readjusting economic rights and burdens, which would hold them to a higher standard of scrutiny. The government denied that any such contract had been formed. The court avoided the contract question by concluding that even if a contract had been formed, no precedent would have required a higher standard of scrutiny—the government would just have to show that the amendments were not arbitrary or irrational. With that, the court concluded that by amending the false-marking statute in the AIA, Congress rationally furthered a legitimate legislative purpose by comprehensively reducing the costs and inefficiencies associated with false-marking litigation. Therefore, the retroactive amendments to the false-marking statute did not violate due process.
Brooks next argued that the amendments to the false-marking statute effected an unconstitutional taking that violated the Fifth Amendment. The court first pointed out that for there to be a taking, the government must refuse to provide just compensation. On that point, Brooks had not sought compensation from the government. Brooks responded he did not have a claim for compensation from the government because no amount had been set forth in the original action and the AIA had destroyed his ability to recover any money in the first instance. The court acknowledged that in some instances, when there is a final unreviewable judgment, a cause of action can be a vested property interest protected by the Fifth Amendment. This was not such a case, however, because Brooks had neither obtained a judgment in his favor, nor could he, following the amendments in the AIA. Consequently, the court denied Brooks's takings claim as well.
(1) The amendments to the false-marking statute in the AIA effectively do away with qui tam actions—only the government or competitors have standing. By passing the AIA, Congress effectively eliminated standing of private relators who previously could bring false-marking claims. Moreover, this elimination was immediate and retroactive, allowing dismissal of any ongoing litigation.
(2) Congress's elimination of false-marking claims by private individuals is neither an improper retroactive law nor a violation of the Takings Clause of the Constitution. While all factual scenarios have not been adjudicated, the Brooks decision indicates that at least when the qui tam false-marking action has not reached a final unreviewable judgment, its elimination by the amendments found in the AIA does not amount to an unconstitutional taking.
1 The Brooks decision: http://docs.justia.com/cases/federal/district-courts/california/ candce/3:2010cv04341/232316/58/.
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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