Recent Wave of False Marking Lawsuits Highlights Need to Monitor Patent Marking Practices

March 08, 2010

In the month of February alone, nearly 60 separate suits were filed by a handful of qui tam plaintiffs alleging violations of the False Marking section of the Patent Act, 35 U.S.C. § 292. This remarkable number of suits may represent the starting gun on a new kind of “non-practicing entity” patent litigation — one in which any individual may file suit against any company for violations of Section 292, and attempt to recover potentially huge fees that are then split 50/50 with the U.S. government.

Section 292 provides that:

Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word “patent” or any word or number importing that the same is patented for the purpose of deceiving the public. . .[s]hall be fined not more than $500 for every such offense.

As clarified in the recent Federal Circuit decision The Forest Group, Inc. v. Bon Tool Co., “the two elements of a §292 false marking claim are (1) marking an unpatented article and (2) intent to deceive the public.”

While the statute is not new, the rush to bring qui tam suits in 2010 no doubt has to do with the Federal Circuit finally resolving a key question regarding the statute: what exactly is an “offense.” There previously had been a debate as to whether each decision to mark, or each marked article, was an offense. The difference being that a company that made one decision to falsely mark, and then marked 1 million products, would face either a maximum penalty of $500 under the “per decision” approach, or $500 million under the “per article” approach. In a decision released in late 2009, the Federal Circuit in Forest Group held that “the plain language of 35 U.S.C. § 292 requires courts to impose penalties for false marking on a per article basis.” The court reasoned this was appropriate because the statute permits sufficient discretion by offering a range of damages:

By allowing a range of penalties, the statute provides district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities. In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.

Although the issue of what constitutes an offense has been resolved, there is emerging controversy as to key questions in determining whether a party has violated the statute, particularly in connection with what the plaintiff must show to prove that the defendant marked its products “for the purpose of deceiving the public.” As of now, the controlling authority on this issue is Clontech Laboratories, Inc. v. Invitrogen Corp., which articulated the following standard: “[T]o establish knowledge of falsity the plaintiff must show a preponderance of the evidence that the party accused of false marking did not have a reasonable belief that the articles were properly marked (i.e., covered by a patent).” Resorting to “objective standards” of intent, the court stated that “the fact of misrepresentation coupled with proof that the party making it had knowledge of its falsity is enough to warrant drawing the inference that there was a fraudulent intent.” The Federal Circuit warned those defending a claim of false marking that “the mere assertion by a party that it did not intend to deceive will not suffice to escape statutory liability.”

The debate on this issue has resurged with the spate of recently filed false marking cases, the majority of which involve expired patents. These cases raise two main issues. First, the issue of whether merely leaving a patent on a covered product after the patent expires constitutes “false marking” is far from resolved. While some prior cases had ruled that “there is no. . .duty to remove the patent number from a product whose patent has expired,” others such as Professor Donald Chisum have argued that “a strong case can be made for finding culpable mismarking when a person intentionally continues to mark articles with the number of an expired patent.” In what it styled an issue of “first impression,” the court in Pequignot v. Solo Cup Co., ruled that such use of expired patents fell within the scope of § 292. That issue has been appealed and is now fully briefed before the Federal Circuit.

Another issue set to be addressed in the Pequignot appeal is whether the Clontech standard should be modified when the case involves only expired patents. The district court in Pequignot held that when “the false markings at issue are expired patents that had previously covered the marked products, the Clontech presumption of intent to deceive is weaker, because the possibility of actual deceit, as well as the benefit to the false marker, are diminished.” The district court granted summary judgment to the defendant, concluding that it had rebutted the presumption of intent to deceive with evidence that it had 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.

Even with these key questions currently unresolved, the court’s decision in Forest Group to tie damages to the number of articles creates ample reason for companies to take a closer (or a first) look at their patent marking policies. It is possible that the Federal Circuit or Congress will cripple or eliminate these new “marking trolls” altogether (indeed, legislation recently proposed by the Senate Judiciary Committee calls for a plaintiff in a false marking case to show actual competitive injury, which would effectively eliminate this new “bounty hunter” class of plaintiffs). However, until that happens, failure to properly police your patent marking may result in the knock of a process server at the company’s door, courtesy of this burgeoning class of professional false marking plaintiffs.

For more information about the subject matter of this alert, please contact any of the lawyers listed below:

Joshua M. Dalton, Partner, Intellectual Property Group

This article was originally published by Bingham McCutchen LLP.