35 U.S.C. § 292 Requires Courts to Impose Penalties for False Marking on a Per Article Basis and Not Per Each Decision to Mark
December 28, 2009
Last Month at the Federal Circuit - January 2010
Judges: Rader, Plager, Moore (author)
[Appealed from: S.D. Tex., Judge Atlas]
In Forest Group, Inc. v. Bon Tool Co., No. 09-1044 (Fed. Cir. Dec. 28, 2009), the Federal Circuit affirmed the district court’s finding that the Forest Group, Inc. (“Forest”) did not have the requisite intent for false marking until it received another SJ determination on its U.S. Patent No. 5,645,515 (“the ’515 patent”); reversed the district court and held that the plain language of 35 U.S.C. § 292 required imposition of the false marking penalty on a per article basis; and affirmed the district court’s denial of attorney fees.
Forest owns the ’515 patent, which claims an improved spring-loaded parallelogram stilt of the type commonly used in construction. Bon Tool Company (“Bon Tool”), a former purchaser of Forest’s stilts, started purchasing stilts from a foreign supplier, which manufactured identical replicas of Forest’s stilts without a license. Thereafter, Forest sued Bon Tool for infringement of the ’515 patent and Bon Tool counterclaimed, alleging false marking and seeking a DJ that the patent was invalid. After construing the claims, the district court granted SJ of noninfringement in favor of Bon Tool. Additionally, the district court found that Forest falsely marked its stilts with its ’515 patent, knowing that the stilts were not covered by the patent after a district court granted SJ of noninfringement in a related case. Consequently, the district court fined Forest $500 for a single offense of false marking. Further, the district court denied claims for attorney fees by both parties because it found that the case was not exceptional.
On appeal, the Federal Circuit first addressed Bon Tool’s argument that the district court erred when it concluded that Forest did not have the requisite knowledge to falsely mark prior to the SJ determination in the related case on November 15, 2007. The Federal Circuit held that the district court did not clearly err in finding that Forest lacked intent to deceive before that date. Specifically, the Court noted that while the quantum of proof regarding Forest’s knowledge was high, under the clearly erroneous standard of review, the district court’s fact-finding was not clearly erroneous.
The Federal Circuit next addressed Bon Tool’s argument that the district court misinterpreted 35 U.S.C. § 292 when it assessed only $500 in penalties for a single decision to mark its stilts rather than on a per article basis. The Federal Circuit reversed the district court and held that the plain language of § 292 requires courts to impose penalties for false marking on a per article basis. The Court noted that the statute’s language prohibits false marking of “any unpatented article” and imposes a fine for “every such offense.” Slip op. at 8. Accordingly, the Court concluded that falsely marking each article with an intent to deceive constituted an offense under the statute, thus necessitating a fine for each falsely marked article.
The Court rejected Forest’s argument that the false marking statute should be interpreted to impose a single fine for continuous false marking as in London v. Everett H. Dunbar Corp., 179 F. 506 (1st Cir. 1910). The Federal Circuit explained that the statute in London was significantly different from the current statute. The false marking statute in London imposed a fine of “not less than one hundred dollars” for every false marking offense, not for every article. Slip op. at 8 (emphasis omitted). The Court then noted that the current statute no longer required a minimum fine but rather a maximum fine of $500. Additionally, the Court noted that the current statute allowed the district court to use discretion in assessing the per article fine at any amount up to $500 per article. Further, the Court acknowledged the time-based approach to 35 U.S.C. § 292 that a number of courts had adopted, but the Court held that the time-based approach did not find support in the plain language of the statute, which requires a per article fine.
Additionally, the Federal Circuit reasoned that several policy considerations support the per article interpretation of § 292. According to the Court, false marking deters innovation and stifles competition in the marketplace, causing unnecessary investments in alternate designs and validity analysis. The Court noted that the more articles that are falsely marked, the greater the chance that competitors will see a falsely marked article and be deterred from competing. The Court explained that its per article interpretation of § 292 deters false marking and would prevent such injuries.
Moreover, the Court rejected Forest’s statutory construction of a single fine of $500 for each decision because such an interpretation would render the statute ineffective. Similarly, the Court rejected Forest’s argument that a per article basis of penalty would encourage false marking litigation by plaintiffs who did not suffer any direct harm. The Court reasoned that the false marking statute permits the public to sue on behalf of the government, thereby allowing individuals to assist in curbing false marking. Moreover, the Court noted that the statute allows for a range of penalties, which provides district courts the discretion to balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities. Thus, the Court held that the plain language of the statute requires courts to impose penalties for false marking on a per article basis, and remanded to the district court for determinations consistent with the opinion.
Finally, the Federal Circuit reviewed the district court’s denial of attorney fees. The Federal Circuit noted that the district court, while sanctioning Forest for discovery abuses, did not find that Bon Tool proved that the case was exceptional by clear and convincing evidence. After considering the parties’ arguments, the Federal Circuit held that the district court did not clearly err when it found that the case was not exceptional.
Summary authored by Sheetal S. Patel, Esq.