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False Marking Claims Must Be Pled with Particularity

March 15, 2011

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Last Month at the Federal Circuit - April 2011

Judges: Lourie, Gajarsa, Linn (author)

[Appealed from: N.D. Ill., Judge Gettleman]

In In re BP Lubricants USA Inc., No. 10-M960 (Fed. Cir. Mar. 15, 2011), the Federal Circuit granted a petition for writ of mandamus in part and directed the district court to dismiss the respondent’s false marking complaint with leave to amend in accordance with the particularity requirements of Fed. R. Civ. P. 9(b) as described in the Court’s Order.

BP Lubricants USA Inc. (“BP”) manufactures motor oil products under the brand name CASTROL.  BP’s CASTROL products are distributed in a unique bottle design for which BP received a design patent.  Respondent Thomas A. Simonian, a patent attorney, filed a qui tam relator complaint on behalf of the United States pursuant to 35 U.S.C. § 292, in which he alleged that BP’s design patent expired on February 12, 2005, and BP continued to mark its bottles with the patent number after the patent expired.  The complaint also asserts mostly “upon information and belief,” that “(1) BP knew or should have known that the patent expired; (2) BP is a sophisticated company and has experience applying for, obtaining, and litigating patents; and (3) BP marked the CASTROL products with the patent numbers for the purpose of deceiving the public and its competitors into believing that something contained or embodied in the products is covered or protected by the expired patent.”  Slip op. at 3.

BP filed a motion to dismiss the complaint, arguing that the relator’s complaint failed to allege any underlying facts upon which a court could reasonably infer that BP knew its patent had expired when it was marking its products.  The district court concluded that the complaint stated an actionable claim and met the requirements of Rule 9(b).  The district court explained that in addition to alleging that BP knew or should have known the patent expired, it was enough under Rule 9(b) for the relator to allege that BP had deliberately and falsely marked at least one line of its motor oil products with an expired patent and continues to falsely mark its products throughout the Northern District of Illinois and the rest of the United States with the intent to deceive its competitors and the public.  BP petitioned the Federal Circuit for a writ of mandamus directing the U.S. District Court for the Northern District of Illinois to grant its motion to dismiss the relator’s complaint.

The Federal Circuit found that the considerations presented in this case warranted the extraordinary remedy of mandamus because (1) the Court had not previously decided whether Rule 9(b) applies to false marking cases or discussed the requisite level of pleading required, and (2) trial courts have been in considerable disagreement on this issue.  Relying on Supreme Court precedent, the Federal Circuit noted that these exceptional circumstances warrant deciding this issue before final judgment.

The Federal Circuit, as a preliminary matter, addressed whether Rule 9(b)’s particularity requirement applies to false marking claims under § 292.  “In all cases sounding in fraud or mistake, Rule 9(b) requires a plaintiff to plead ‘with particularity the circumstances constituting fraud or mistake.’”  Id. at 5 (quoting Fed. R. Civ. P. 9(b)).  The Court noted that Rule 9(b) acts as a safety valve to assure that only viable claims alleging fraud or mistake proceed to discovery, thus preventing relators from using discovery as a fishing expedition.

The Court commented that under the False Claims Act, an analogous area of the law, every regional circuit has held that a relator must meet the requirements of Rule 9(b) when bringing complaints on behalf of the government.  This is because “the False Claims Act condemns fraud ‘but not negligent errors or omissions.’”  Id. at 6 (citation omitted).  The Federal Circuit saw no sound reason to treat § 292 actions differently since § 292 condemns fraudulent or false marking.  The Court reasoned that permitting a false marking complaint to proceed without meeting the particularity requirement of Rule 9(b) would sanction discovery and adjudication for claims that do little more than speculate that the defendant engaged in more than negligent action.

The Federal Circuit noted that “although ‘knowledge’ and ‘intent’ may be averred generally and that a plaintiff may plead upon information and believe under Rule 9(b), ‘our precedent, like that of several regional circuits, requires that the pleadings allege sufficient underlying facts from which a court may reasonably infer that a party acted with the requisite state of mind.’”  Id. at 6-7 (quoting Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009)).  The Court emphasized that Exergen’s pleadings requirements apply to all claims under Rule 9(b), not just inequitable conduct cases.

The Court concluded that the district court’s reliance on the relator’s general allegation that BP knew or should have known that the patent expired was clearly incorrect.  “Instead, a complaint must in the § 292 context provide some objective indication to reasonably infer that the defendant was aware that the patent expired.”  Id. at 7.

In reaching the conclusion that the complaint failed to meet the requirements for Rule 9(b), the Federal Circuit found (1) that alleging that BP is a “sophisticated company and has experience applying for, obtaining, and litigating patents” is equivalent to asserting that the defendant should have known the patent expired, and such conclusory allegations are not entitled to an assumption of truth at any stage in litigation; (2) that a false marking does not inherently show scienter; (3) that the naming of specific individuals is not the only way to set forth facts upon which intent to deceive can be reasonably inferred; rather, a relator can, for example, allege that the defendant sued a third party for infringement of the patent after the patent expired or made multiple revisions of the marking after expiration, although none of these or similar assertions are present in the complaint here; and (4) the bar for proving deceptive intent in false marking cases is particularly high, requiring that the relator show a purpose of deceit rather than simply knowledge that a statement is false.  Thus, the complaint failed to meet the requirements of Rule 9(b) “[b]ecause the relator’s complaint here provided only generalized allegations rather than specific underlying facts from which we can reasonably infer the requisite intent . . . .”  Id. at 8.

Accordingly, the Court granted BP’s petition for mandamus in part, directing the district court to dismiss the complaint with leave to amend.


Summary authored by Rebecca H. Duttry, Esq.