LawFlash

In the Wake of Explosion of False Patent Marking Cases, Federal Circuit Weighs In on Key Questions Concerning Expired Patents and the Intent to Deceive the Public

June 14, 2010

In its June 10, 2010, decision in Matthew A. Pequinot v. Solo Cup Company, the U.S. Court of Appeals for the Federal Circuit provided important clarification of the federal false patent marking statute. The court upheld the ruling of the U.S. District Court for the Eastern District of Virginia that marking a product with an expired patent number may constitute false marking. The Federal Circuit also affirmed the District Court’s ruling on intent, confirming that Solo lacked the requisite intent to deceive the public required by the statute, and so was not guilty of false marking. In doing so, the court underscored that the “bar for proving deceptive intent in [false marking cases] is particularly high,” and that the presumption of intent created by a party knowingly marking a product with an expired patent number may be rebutted “with credible evidence that [the defendant’s] purpose was not to deceive the public.” 

Section 287 of the patent statute provides that patentholders who mark their patented products with their patent number(s) give constructive notice to the public, including potential infringers, that their product is covered by their patents. If a patentholder does not mark its patented product with its patent number(s), damages for infringement may not be collected from an accused infringer unless and until the infringer is notified of the infringement and continues to infringe. Even then, only damages for post-notification infringement are available. In this way, Section 287 encourages patentholders to mark their patented products.

However, Section 292(a) of the patent laws provides that anyone who marks an “unpatented article…with the word ‘patent’ or any word or number importing that the same is patented, for the purpose of deceiving the public” is guilty of false marking, and “shall be fined not more than $500 for every such offense.” Although this is a criminal penalty, Section 292(b) provides that “any person” may bring a qui tam action for false marking, and will split any fines levied with the U.S. government.

The Products

In Pequinot, the products at issue were plastic disposable lids for disposable hot and cold drink cups. Solo’s cup lids were made using molds that were, at the time the molds were made, engraved with the numbers of two patents that covered the patented lids. However, because the molds last 15-20 years or more, the patents expired before the molds wore out. Two years after the first of the two patents expired, Solo’s director of product development became aware that the lids were being marked with an expired patent number. He contacted Solo’s outside patent counsel, who advised him that it was not necessary to immediately remove the expired patent number, which would have required replacing the molds, a “costly and burdensome” process. Based on advice from their patent counsel, Solo developed a policy that it would continue to use the molds that marked their products with the expired patent numbers until such time as the molds “needed to be replaced due to wear or damage.” At that time, the old molds would be replaced with new molds which would not include the expired patent marking.

“Unpatented Article”

The Federal Circuit held that an article covered only by an expired patent is an “unpatented article” under 35 USC 292(a). The court noted that “determining the expiration date of a patent can, at times, be difficult.” This difficulty arises from several sources, including (a) the term of utility patents changed in 1994 from 17 years from issuance to 20 years from filing; (b) the possibility of patent term adjustments under 35 USC 154(a)(2); and (c) whether or not the patentee has paid the requisite maintenance fees to maintain the patent in force. “[A]s with a never-patented article, an article marked with an expired patent number imposes on the public ‘the cost of determining whether the involved patents are valid and enforceable.’” Effectively, the court found that it would be an undue burden to force the public to determine whether or not a patent number marked on a product represented a valid, or an expired, patent.

Having now clarified that a product marked with an expired patent number can be considered falsely marked, the new trend of qui tam cases against companies for products marked with expired patents will no doubt continue. As such, companies that mark their products with patent numbers would be wise to remove patent numbers from the patented products once they expire.

Intent

Although the statute provides for criminal penalties, because the qui tam action is a civil action, the elements of false marking, including intent, need only be proven by a preponderance of the evidence. However, because the statute requires that the false marker act “for the purpose of deceiving the public,…mere knowledge that a marking is false is insufficient to prove intent if [the defendant] can prove that it did not consciously desire the result that the public be deceived.” The Federal Circuit held that knowingly marking a product with an expired patent number “creates a rebuttable presumption of intent to deceive the public, rather than irrebutably proving such intent.” The presumption of intent to deceive is weakened where “the false markings at issue are expired patents that had previously covered the marked products.” The presumption of intent may likewise be rebutted by showing “by a preponderance of the evidence that it did not have the requisite purpose to deceive.”

In this case, Solo “provided credible evidence that its purpose was not to deceive the public.” Specifically, Solo relied on the advice it received from its patent counsel, and the evidence that it made its decision not to replace the molds for its lids in an effort to reduce its costs and minimize disruption of its business, rather than to deceive the public.

“Every Such Offense”

The District Court agreed with Solo regarding the meaning of the word “offense” in 35 USC 292(a), holding that Solo “could have committed at most three offenses,” resulting in a maximum fine of $1500. However, the District Court issued its decision prior to the Federal Circuit’s 2009 decision in Forest Group, Inc. v. Bon Tool Co. where a different panel held that each product falsely marked was a separate “offense” within the meaning of the statute. The Forest Group decision made qui tam actions for false marking much more attractive to potential plaintiffs, particularly where the patentee may have sold many thousands of mismarked products.

On appeal, Pequignot asked the Federal Circuit to overturn the District Court’s construction of “offense,” and find instead that under Forest Group each cup lid falsely marked by Solo constituted a separate “offense.” This was particularly significant, because Solo was accused by Pequignot of falsely marking in excess of 21 billion lids. The court noted in a footnote that, based on the penalty sought by the plaintiff, the U.S. government’s share the penalty would be “approximately $5.4 trillion, [which] would be sufficient to pay back 42 percent of the country’s total national debt.” The court otherwise declined to provide any clarification or comment on its Forest Group decision or the explosion of qui tam false marking cases that have followed. Rather, the Federal Circuit noted that, because it had found that Solo lacked the requisite intent for a finding of false marking, the question of the meaning of “every such offense” was moot; accordingly, it vacated the District Court’s ruling on the meaning of “offense.”

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
josh.dalton@bingham.com
+1.617.951.8284

This article was originally published by Bingham McCutchen LLP.