• Recent False Marking Litigation Holds Lessons for Patent Holders
  • March 10, 2010 | Author: William L. Roberts
  • Law Firm: Faegre & Benson LLP - Minneapolis Office
  • There has been a recent wave of false marking cases brought under section 292 of the Patent Act, which allows individuals to sue companies for marking unpatented articles with an intend to deceive the public. If such a false marking violation is found, Section 292 provides the violating party shall be fined not more than $500 for every such offense, half of which goes to the individual plaintiff and half to the United States.

    In a decision that has prompted the filing of dozens of new lawsuits alleging false marking under section 292, Forest Group v. Bon Tool Co., the U.S. Court of Appeals for the Federal Circuit ruled on December 28, 2009 that a discrete fine is incurred for each unpatented article sold.

    Marking practices can be an essential part of a company's patent enforcement strategy. Section 287 of the Patent Act limits the ability of patent owners to recover damages to those that are attributable to acts of infringement occurring after an infringer has notice of the patent. However, the statute allows patent owners to recover damages for the entire period of infringement if they mark their patented products with the appropriate patent number. As demonstrated by the recent flurry of false-marking litigation, the Bon Tool case requires companies that mark their products to ensure the availability of section 287's safe harbor to have a heightened awareness of the potential impact of patent marking.

    Fines Imposed on a Per Article Basis—the Bon Tool Case

    Forest Group sued Bon Tool in 2005, alleging infringement of a patent covering a spring-loaded parallelogram stilt of the type commonly used in construction. Bon Tool counterclaimed against Forest, contending that Forest falsely marked its products with the number of the asserted patent in violation of section 292. The district court construed the patent claims to require a lining having particular features, a construction that was consistent with construction of the same claims in an earlier district court case where summary judgment had been entered against Forest. The court found Bon Tool's stilts did not infringe the patent, that as construed the patent claims did not cover Forest's own stilts, and that after the date of the prior summary judgment Forest knew its stilts were not covered by the patent. Accordingly, the district court fined Forest $500 for a single violation of false marking, based on Forest's decision to mark its stilts with the patent number.

    Bon Tool appealed the district court's decision on various grounds, including the court's determination that the penalty under section 292 is based on each decision to mark and not on each separately marked article. Relying on the language of the statute, the Federal Circuit reversed the district court, holding that section 292 requires fines to be assessed on a per article basis. In reaching its decision, the Federal Circuit emphasized that the statute expressly "prohibits false marking of ‘any unpatented article,' and it imposes a fine for ‘every such offence'" (emphasis in decision). The Federal Circuit noted that because the statute imposes a maximum fine of $500 but sets no minimum, district courts have 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."

    The Element of Intent—Clontech v. Invitrogen

    It is important to keep in mind that a violation of section 292 only arises when a party falsely marks an unpatented article "for the purpose of deceiving the public." The Federal Circuit's decision in Bon Tool did not include an in-depth discussion concerning the district court's finding of deceptive intent, likely because that finding was not appealed by Forest.

    The Federal Circuit did address the issue of intent in more detail in the 2005 case of Clontech Laboratories v. Invitrogen Corporation. In that case, the Federal Circuit required the section 292 plaintiff to prove the accused party did not have an honest, good-faith belief in marking its products. The court explained intent to deceive can be inferred when a misrepresentation of fact is coupled with proof that the marking party knew of the falsehood. But to establish knowledge of falsity, the plaintiff must prove it was more likely than not that the accused party did not reasonably believe the patent claims covered the marked products. Absent such proof, there can be no finding of a section 292 violation. And even if such proof does exist, it does not necessarily signify liability—it only shifts the burden to the accused party to demonstrate that it did not have an intent to deceive.

    Expired Patents and Conditional Marking Language—Pequignot v. Solo Cup

    The marking activity at issue in the Bon Tool case involved a product marked with the number of a single, unexpired patent. But what happens when the facts concerning marking are slightly different? In Pequignot v. Solo Cup Company, an individual sued Solo Cup for marking products with the number of an expired patent that once protected those products. In addition, Solo Cup included a statement on packaging for unpatented products that the products "may be covered by one or more" patents. Solo moved to dismiss the lawsuit for failure to state a claim and for lack of subject-matter jurisdiction. The district court denied Solo's motion, finding that the marking activities at issue could constitute violations of section 292 if there was an intent to deceive by Solo. The court also found that the plaintiff had standing to sue and recover damages as a qui tam relator on behalf of the United States.

    Solo experienced a more favorable outcome later in the case after it moved for summary judgment on the grounds that there was no evidence of deceptive intent. In accepting Solo's argument, the court explained that the Clontech case did not equate knowledge of falsity with intent to deceive but only created a burden of proof. Once a plaintiff establishes knowledge of falsity, the court reasoned, the accused party can rebut the presumption of deceptive intent with evidence that goes beyond "mere assertions" that it did not intend to deceive. In this case, the court observed that Solo submitted sworn testimony to establish that it did not remove expired patent numbers from its products all at once due to concerns about manufacturing costs and pursuant to the advice of counsel. While acknowledging that the issue regarding the "may be covered" language was a closer call, the court also found that there was no evidence of intent to deceive with respect to that activity given that the conditional language was placed on all of Solo's packaging and was uniform due to logistical and financial concerns.

    The Solo Cup case demonstrates that the question of deceptive intent is highly fact-dependant. The substance of the markings at issue in a given case may affect the strength of evidence required to establish or rebut a presumption of deceptive intent. The Federal Circuit is currently reviewing the Solo Cup case on appeal.

    Standing to Sue and Pleading Standards—Stauffer v. Brooks Brothers

    In another case that is now on appeal at the Federal Circuit, a district court addressed the sufficiency of a complaint alleging a section 292 violation. In Stauffer v. Brooks Brothers, the plaintiff sued Brooks Brothers for marking adjustable bow ties with an expired patent number. Brooks Brothers moved to dismiss on the grounds that the plaintiff did not have standing and that the court therefore lacked subject-matter jurisdiction over the case. Brooks Brothers also moved to dismiss on the grounds that the complaint failed to state a claim because it did not meet the heightened pleading requirements for claims of fraud. As false marking litigation becomes more common, these issues of standing and pleading requirements will take on greater importance.

    The court observed that standing requires the plaintiff to have suffered an injury in fact. Although section 292 allows any individual to sue on behalf of the United States, the presence of an injury in fact is still a requirement, according to the district court. In this case, the complaint did not allege with any specificity an actual injury to any individual competitor, to the market for bow ties, or to any aspect of the United States economy. The court therefore found that the complaint failed to establish standing and granted the motion to dismiss for lack of subject-matter jurisdiction. The court did not reach the issue of whether the complaint failed to state a claim. The reasoning set forth in the Brooks Brothers case, if adopted by the Federal Circuit, could dramatically limit the potential plaintiffs who can properly bring section 292 actions, and thus presents an opportunity for section 292 defendants to obtain dismissal of false-marking actions where the plaintiff has not adequately alleged an actual injury with sufficient specificity.

    Lessons for Companies That Practice Marking

    Clontech indicates that evidence of a patent holder's solid basis for marking a product with a patent number may help avoid liability for false marking under section 292. In view of Clontech and other case law, companies may consider a careful review of their marking activities to determine if policies and procedures might be modified to better document product marking decisions. For example, maintaining a product sheet listing relevant patents and claim charts relating products to relevant patent claims, using the patent docketing system to provide notice of relevant marking dates, and adding patent marking review to checklists for new productions or reprinting of packaging materials may be considered. These and other steps may help reduce the chance of becoming a defendant in a false marking case filed by an opportunistic plaintiff.