Patent Marking—Why?

Patent marking is an important practice among manufacturers of patented products.   Under section 287 of the Patent Act, if a party fails to properly mark its patented products, “no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.”   An effective marking program therefore enables a patent holder to collect on past damages because of the constructive notice that patent marking provides.

Other benefits can also flow from patent marking.  Marking a product, at least in theory, can have a “chilling effect” that deters others from attempting to produce similar products for fear of infringing the rights of another.  In addition, the perceived value of the product may be enhanced by the indication that it is patented or that a patent is pending. 

The importance of not deceiving the public led Congress to enact penalties for “false marking,” wherein an unpatented product is marked as patented.  Section 292 of the Patent Act currently provides:  “Whoever marks upon . . . 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.”

History: London v. Dunbar

Until recently, the leading case interpreting the meaning of “every such offense” was London v. Everett H. Dunbar Corp., 179 F. 506 (1st Cir. 1910).  At the time London was decided, the damages clause for false marking provided that the liable party shall be fined “not less than one hundred dollars” (emphasis added).   The London court reasoned that the statutory minimum penalty of $100 per falsely marked article would be out of proportion and inequitable in many instances:

Patented Articles are so varied in kind and in value that, if we construe the statute to make each distinct article the unit for imposing the penalty, the result may follow that the false marking of small or cheap articles in great quantities will result in the accumulation of an enormous sum of penalties, entirely out of proportion to the value of the articles….

Accordingly, the London court interpreted the statute to impose “a single fine for continuous false marking.”

However, in 1952, Congress amended section 292 to provide for the current “not more than $500” (emphasis added).  The revised statute provided for a maximum penalty rather than a minimum penalty, so the rationale of the London court was no longer necessarily on point.  Nevertheless, courts continued to follow the holding of the London court of a single fine for a continuous false marking.

“Every Such Offense”— Forest v. Bon Tool

London remained the law of the land until 2009, when the Federal Circuit decided  Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009).  In December 2005, The Forest Group (Forest) sued Bon Tool Co. (Bon Tool) for infringement U.S. Patent No. 5,645,515 (Forest patent) directed to construction stilts.  Bon Tool, however, obtained summary judgment dismissal of the patent infringement claims in August 2007.

The Forest lawsuit went forward on other grounds, primarily over counter claims filed by defendant Bon Tool, which included false marking.  In 2009, the district court sided with Bon Tool, holding that Forest was liable for false marking because of its continued marking after the 2007 summary judgment decision.  The court based its decision on the fact that the Forest products were not covered by the claims, which required a “resiliently lined yoke.”1  The district court found that Forest placed at least one order to its manufacturer for additional stilts marked with the Forest patent number after it knew its products weren’t covered by the patent and fined Forest $500 for a single offense of false marking.

On appeal, Bon Tool argued that the district court misinterpreted section 292 when it assessed only $500 in penalties against Forest for a single decision to mark its stilts.  The Federal Circuit affirmed the district court finding of false marking, but vacated and remanded on the basis of the damages award.    The Federal Circuit rejected the London precedent, holding instead that the statute requires that each falsely marked article can serve as the basis of a separate offense.  The Federal Circuit reasoned that the rationale of London no longer applied because the 1952 statute established a maximum allowable per-offense award rather than a minimum award.   The Federal Circuit vacated and remanded for the district court to determine the number of articles falsely marked by Forest and an amount of penalty to be assessed per article.

The holding of the Federal Circuit in Forest put substantially more bite into the damages provision of section 292.  Forest changed false marking from a minor issue to a potentially serious damages concern.

“Unpatented Article”—Pequignot v. Solo Cup

When the Federal Circuit handed down the Forest decision, the term “unpatented article” of section 292 had never been addressed by an appellate court.  With Forest  raising the stakes for false marking, the scope of “unpatented article” within the context of section 292 was addressed in short order in Pequignot v. Solo Cup, Inc., 608 F.3d 1356 (Fed. Cir. 2010).  Pequignot was argued on April 7, 2010, barely three months after the Forest decision.

One of the issues addressed in Pequignot was whether a product that was marked with an expired patent was an “unpatented article,” even though the article was legitimately marked when the patent was in force.  Defendant Solo Cup asserted that a once-patented article is not an “unpatented article,” arguing that in 1860 Congress rejected alternative language of “not at the time secured by a patent” in place of the word “unpatented.”  The Pequignot court, however, was not persuaded by this argument, in part based on language in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 159 (1989), which stated that an article that “has been freely exposed to the public...stands in the same stead as an item for which a patent has expired or been denied: it is unpatented and unpatentable.”

Ultimately, however, the Federal Circuit in Pequignot found in favor of Solo Cup based on the “intent to deceive the public” language of section 292.  Pequignot argued that intent to deceive the public was proven because the district court had found that Solo Cup knew the patents were expired but continued to mark the products anyway.  The Federal Circuit reasoned that, while such facts establish a presumption of intent to deceive, Solo Cup successfully rebutted the presumption.  Solo Cup was aware that the patents were expired, but also recognized that to cease marking the products would involve wholesale replacement of mold cavities, which would be costly and burdensome.  Accordingly, Solo Cup obtained the opinion of outside patent counsel regarding the consequences of not replacing the molds.  Outside counsel advised that, while replacement of the molds would be preferable, Solo Cup could continue using the molds with the expired patent markings because the marked products were previously patented.2

The Federal Circuit agreed with the holding of the district court that Solo Cup 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.”  The Federal Circuit also elaborated on the threshold for proving an intent to deceive the public:  

The bar for proving deceptive intent here is particularly high, given that the false marking statute is a criminal one, despite being punishable only with a civil fine. Because the statute requires that the false marker act “for the purpose of deceiving the public,” a purpose of deceit, rather than simply knowledge that a statement is false, is required. As the Supreme Court has explained in distinguishing the mental states of “purpose” and “knowledge” in criminal statutes, “a person who causes a particular result is said to act purposefully if he consciously desires that result, whatever the likelihood of that result happening from his conduct, while he is said to act knowingly if he is aware that that result is practically certain to follow from his conduct, whatever his desire may be as to that result.” Thus, mere knowledge that a marking is false is insufficient to prove intent if Solo can prove that it did not consciously desire the result that the public be deceived.

Thus, in Pequignot, the Federal Circuit established that proving deceptive intent in false marking cases will be difficult.

The Qui Tam  Provision of Section 292(b)

What makes the Forest holding particularly ominous for patentees is a provision of section 292 at paragraph (b):

b) Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.

The general framework of section 292(b) is commonly referred to as a “qui tam” provision, wherein an individual who assists in a prosecution can receive all or part of the penalty imposed.3

While the qui tam provision has always been a part of section 292, the level of damages accessible to qui tam plaintiffs or “relators” seldom made it worthwhile for a member of the public, without more, to pursue litigation.

Forest, particularly in view of the interpretation of “unpatented article” in Pequignot, changed that.  Rather suddenly, manufacturers that marked their products but did not pay attention to when their patents expired faced a credible threat of being sued for false marking by anyone.  Also, it is not difficult to spot a product marked with an expired patent because all of the patents that are numbered in the four millions (i.e., 4,xxx,xxx) or lower are almost certainly expired.  Anyone can peruse a department store or website looking for new items marked with patent numbers in the four millions or lower.  Upon finding such an article, they will have identified a product marked with an expired patent, and they can sue under the qui tam provision of section 292(b).

Finally, there is little comfort to be taken from the holding in Pequignot that the bar for proving deceptive intent is “particularly high.”   The costs associated with defending a lawsuit in court are also high, so it is still worthwhile in many instances for so-called “marking trolls” to sue the manufacturer of a product that is marked with an expired patent in the hopes of obtaining a cost-of-defense settlement.  Such a settlement is also an attractive alternative to the defendant in many cases, which the Pequignot case itself demonstrates.  Pequignot accused Solo Cup of falsely marking 21,757,893,672 articles and sought the statutory maximum of $500 per article.  Judge Alan D. Lourie, who penned the Federal Circuit opinion in Pequignot, noted in a footnote that, with respect to the half that would go to the United States under section 292(b), “such an award to the United States, of approximately $5.4 trillion, would be sufficient to pay back 42 percent of the country’s total national debt.”  With exposure like this, a cost-of-defense settlement can indeed look attractive.

Figure 1 graphs the number of lawsuits filed in each quarter in the United States involving false marking from 2009 through the first quarter of 2011.   Note the sharp rise in lawsuits involving false marking after December 2009, when Forest established the “per article” criterion.  Then, after Pequignot was handed down in June 2010, the frequency of false marking-related lawsuits almost doubled, from 180 lawsuits in the second quarter of 2010 to 331 lawsuits in the third quarter of 2010.  The increase occurred despite the holding in Pequignot regarding the high threshold for proving deceptive intent.  Figure 1 suggests that the ultimate effect of Pequignot was to increase, not decrease, opportunistic lawsuits on the basis of false marking.

Standing:  Stauffer v. Brooks Brothers

In Stauffer v. Brooks Brothers, Inc., 619 F. 3d 1321 (Fed. Cir. 2010), the Federal Circuit addressed the issue of standing in a qui tam action under section 292.  Brooks Brothers, Inc. (Brooks Brothers) manufactures and sells men’s bow ties.  Raymond E. Stauffer (Stauffer) purchased some Brooks Brothers bow ties marked with U.S. Patent Nos. 2,083,106 and 2,123,620, which expired in 1954 and 1955, respectively, and subsequently sued Brooks Brothers as a qui tam plaintiff in district court.

Brooks Brothers moved to dismiss Stauffer’s complaint for lack of standing and for failure to allege an intent to deceive the public with sufficient specificity to meet the heightened pleading requirements for claims of fraud.  The district court held that Stauffer had not sufficiently alleged that the United States had suffered an injury in fact from the false marking of Brooks Brothers.  According to the court, Stauffer’s allegations that the conduct of Brooks Brothers wrongfully quelled competition were too conjectural or hypothetical to constitute an injury in fact.  The district court further held that Stauffer’s assertions that he himself was injured were not contained in the complaint and were thus not properly alleged.  Stauffer timely appealed to the Federal Circuit.

The Stauffer court held that Stauffer had standing to sue Brooks Brothers, citing Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000).  Vermont Agency held that a qui tam provision operates as a statutory assignment of the United States’ rights even where the qui tam plaintiff suffers no injury.  Thus, Stauffer had standing simply by alleging that the United States suffered an injury in fact causally connected to Brooks Brothers’ conduct that is likely to be redressed by the court.

Accordingly, section 292 enables standing for qui tam plaintiffs who have not suffered actual injury.

Pleadings: In re BP Lubricants

BP Lubricants USA Inc. (BP Lubricants) manufactures the Castrol® brand of motor oil products.   BP Lubricants marked certain Castrol® bottles with U.S. Patent No. Des. 314,509, a design patent that expired in 2005.  Thomas Simonian5 (Simonian) brought suit against BP Lubricants in district court, alleging false marking under section 292.  To satisfy the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure, Simonian alleged that BP Lubricants is a “sophisticated company” that “knew or should have known” that the patent had expired.  The district court found that the pleading met muster under Rule 9(b), and denied a motion to dismiss by BP Lubricants.

BP Lubricants petitioned the Federal Circuit for a writ of mandamus, which was granted.  In re BP Lubricants USA Inc., __ F3d. __ (Fed. Cir. 2011).   Previously, there were inconsistencies at the district court level whether Rule 9(b) or the more lenient Rule 8(a) was the proper standard with respect to the pleading requirements for false marking claims.6  The BP Lubricants court reasoned that the stricter Rule 9(b) should apply for two reasons.  First,

[i]n all cases sounding in fraud or mistake, Rule 9(b) requires a plaintiff to plead “with particularity the circumstances constituting fraud or mistake.”  The Rule acts as a safety valve to assure that only viable claims alleging fraud or mistake are allowed to proceed to discovery. By eliminating insufficient pleadings at the initial stage of litigation, Rule 9(b) prevents relators using discovery as a fishing expedition.

Second, the Federal Circuit cited the treatment afforded the False Claims Act, which the Federal Circuit dubbed “an analogous area of the law,” stating that “every regional circuit has held that a relator must meet the requirements of Rule 9(b) when bringing complaints on behalf of the government.”  The Federal Circuit summarized its findings with respect to pleading requirements as follows:

We see no sound reason to treat § 292 actions any differently.  Like the False Claims Act, § 292 condemns fraudulent or false marking.  Rule 9(b)’s gatekeeping function is also necessary to assure that only viable § 292 claims reach discovery and adjudication.  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.

Thus, the BP Lubricants court made it clear that Rule 9(b) is to be used to strike down false marking claims lacking a strong factual support of fraud.

The Federal Circuit went on to direct the district court in BP Lubricants  to dismiss the complaint, holding that Simonian’s conclusory allegations (i.e., that a defendant is a “sophisticated company” and “knew or should have known” that the patent expired) were insufficient.  Because this was a case of first impression for the Federal Circuit with respect to pleading false marking, the district court was instructed to grant the defendant leave to amend the complaint.

Patent Reform

Meanwhile, Congress has been inching toward enacting legislation that overhauls U.S. patent law.  On March 8, 2011, the U.S. Senate passed S. 23, titled the “America Invents Act of 2011.”  The bill amends section 292(b) to read “[a]ny person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.”  As for punitive damages, section 292(a) is amended to add that “[o]nly the United States may sue for the penalty authorized by this subsection.”  Furthermore, S. 23 provides that the amendments to section 292 “shall apply to all cases, without exception, pending on or after the date of the enactment of this Act.”

On April 14, the House Judiciary Committee approved H.R. 1249, the House version of the bill with substantively the same amendments to section 292.  However, the U.S. House continues to wrangle over the bill, and H.R. 1249 differs in other ways from S. 23 that will likely require reconciliation. 

Assuming that the present amendments to section 292 survives the qui tam provision would be eliminated and damages to private entities would be limited to compensation for competitive injury.

Conclusion

The combination of the qui tam provision of section 292(b) and the recent holdings of the Federal Circuit with respect to the “unpatented article” and “every such offense” elements of section 292 has created a major concern among patentees and manufacturers that mark their products.  Though it is difficult to ultimately prevail in a false marking cause of action, the potential exposure in some cases can make a cost-of-defense settlement an attractive option.

The good news for patentees and manufacturers is that the Federal Circuit has made it clear that Rule 9(b) will serve a gatekeeping function that prevents qui tam plaintiffs from using the discovery process as a “fishing expedition.”  It also appears that both the House and Senate are in favor of eliminating the qui tam provision altogether, limiting damages to compensation for competitive injury, limiting punitive actions to the U.S. government, and applying these provisions to any cases that may be pending at the time of enactment.

It is too early to tell whether the pleading requirements or other challenges7 that are playing out in the judiciary will prevail, or when or even if patent reform will ultimately eliminate qui tam plaintiffs from the mix.8  It does appear, however, that the days of false marking being essentially a de minimis concern are a thing of the past.  Congress will likely enact something that serves as a deterrent to false marking, whether by patent reform or by addressing this area of the law specifically.  Accordingly, it remains advisable that entities engaged in the practice of patent marking implement measures that prevent marking products that are no longer eligible for patent protection.  

1          Prior to the summary judgment decision, patent counsel for Forest had advised Forest to modify its products to include the lining.  Thus, Forest was arguably aware that the claims didn’t cover its products.

2          Today, the soundness of counsel’s rationale would be questionable in view of the interpretation of “unpatented article” of the Pequignot court.  But the after-the-fact soundness of counsel’s rationale is also moot.  The point is that the intention of Solo Cup was not to deceive the public, but to reduce costs and avoid business disruption.   

3          “Qui tam” is an abbreviation of the Latin phrase “qui tam pro domino rege tam pro se ipso in hac parte sequitur,” which loosely translated means “he who sues in this matter for the king as well as for himself.”

4          Data provided by McDonnell Hoehnen Hulbert & Berghoff LLP, available at http://www.falsemarking.net/district.php.

5          From February 23, 2010, through August 25, 2010, Simonian filed false marking complaints against 41 entities, all in the Northern District of Illinois.

6          See Maiorana et al., False Marking Claims Must Be Pled With Particularity, Conclusory Allegations Insufficient, World Intellectual Property Report, BNA International, April 2011.

7          Constitutional challenges under the “take care” clause at Art. II, § 3 of the U.S. Constitution have also been successful at the district court level (see Unique Prod. Solutions, Ltd. v. Hy-Grade Valve, Inc., No. 5:10-CV-1912 (N.D. Ohio Feb. 23, 2011)), but to date have not been reviewed by the Federal Circuit.    The same argument was presented in another case which is up for appeal before the Federal Circuit (see United States ex rel. FLFMC, LLC v. Wham-O, Inc., (Case No. 2011-1067)).  Therefore, the Federal Circuit may decide the constitutional aspects of section 292 later this year.

8          As of the date that this article was submitted for publication, many observers believed patent reform bill H.R. 1249 was likely to reach the House floor for a vote by the full House during June 2011.  Therefore, Congress may have finally addressed the false marking issue by the time this article publishes.