Licensee Fined $1.85 Million for Falsely Marking Its Products as Made by a Patented Process

Authored by D. Brian Kacedon, John C. Paul, and Andrew J. Ra Jr.

Licensees of a patented process often mark or advertise their products as using the patented process to gain an advantage over non-licensed competitors. Knowingly failing to use the patented process, however, can expose the licensee to liability for false patent marking and false advertising claims. In a recent lawsuit, King Tuna, Inc. v. Anova Food, Inc.,¹ 2011 WL 839378 (C.D. Cal. Feb. 24, 2011), a federal district court in California found a licensee liable for knowingly misrepresenting to its customers that it was using a patented process.

The King Tuna Decision

King Tuna was licensed to preserve tuna according to a patented process. It also advertised that its tuna was made in accordance with that process and marked its products accordingly. Anova Food, an unlicensed competitor, sued King Tuna for false advertising under the Lanham Act and false patent marking under the patent statute, 35 U.S.C. § 292. Anova Food alleged that King Tuna advertised and marked its tuna as being made consistent with the patented process while knowing that the advertisements and markings were false. Following a bench trial, the court agreed with Anova and awarded Anova damages.

During trial, King Tuna admitted advertising to customers that its tuna was preserved by use of the patented process. It also admitted that the patented process was a "key" part of its marketing, which involved sending brochures detailing the benefits of the patented process to potential customers throughout the United States. The patented process required a "cooling step" in order to process the tuna, and King Tuna admitted that it had received notice that the patented process required that step, first when it analyzed the patented process and saw that the drawings required a cooling chamber, and second when another court had construed the process as requiring the cooling step. Despite having notice, King Tuna admitted that it did not actually use the cooling step because the step had "commercial shortcomings," and King Tuna continued to advertise and mark its product as using the patented process.

The elements of a false patent marking claim under the patent statute require falsely marking or advertising that an unpatented object is patented and doing so with intent to deceive the public. The court found King Tuna falsely marked its product because it knew that its tuna processing steps did not include the required cooling step but continued to mark and advertise its products as patented. The false marking statute provides the court with discretion to assess a penalty of up to $500 per violation on a "per article" basis. Because King Tuna packaged and sold tuna in various sizes of about one pound or less, the court designated one pound per article as the metric, assessed a penalty of $1.00 per article, and imposed a total penalty of $1.85 million based on the number of pounds sold of the falsely marked tuna. Pursuant to the statute, half of that penalty goes to Anova Food for prosecuting the lawsuit, and the other half goes to the United States Treasury.

The elements of a false advertising claim under the Lanham Act require: 1) a false statement of fact by the defendant in a commercial advertisement about its own product; 2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; 3) the deception is material, in that it is likely to influence the purchasing decision; 4) the defendant caused its false statement to enter interstate commerce; and 5) the plaintiff has been or is likely injured as a result of the false statement. The court found these elements were met because King Tuna misrepresented to its customers that its tuna was processed consistent with the patent despite knowing otherwise. Also, King Tuna admitted that the patented process was a "key" component of its marketing strategy to induce customers to purchase its product and that it had distributed brochures to customers in different states, resulting in some customers of Anova Food going to King Tuna. For King Tuna's Lanham Act violations, the court awarded $1.52 million to Anova Food, which totaled the profits earned by King Tuna on the falsely advertised tuna that it sold.

Strategy and Conclusion

The temptation to mark or advertise a product as patented or made by a patented process can be strong when such markings can differentiate the product in the marketplace. But the consequences of false marking and false advertising can be severe. False marking can result in considerable penalties up to $500 per article and false advertising can result in losing the profits earned on such products.

Endnotes

¹ The King Tuna decision: http://docs.justia.com/cases/federal/district-courts/california/cacdce/2:2007cv07451/400289/490/.

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.