False Patent Marking Cases Become the New Craze

Since Jan. 1, 2010, over 130 cases have been filed that accuse defendants of false patent marking. This recent tidal wave of false marking litigation contrasts with the relative calm of the past in which only approximately 40 false patent marking cases total were filed from 2000'2009. What caused the underwater earthquake? The decision of the Court of Appeals for the Federal Circuit in Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (2009).

On Dec. 28, 2009, the Federal Circuit handed down its decision in Forest Group, in which the Federal Circuit held that the false marking statute “requires” a fine of up to $500 for “each article.” Id. at 1301. Under this reading of the statute, just one act of false marking can potentially lead to devastating consequences. For example, if a company runs a single shift on an assembly line that manufactures, for instance, a thousand individual products per day marked with a patent number that does not in fact cover the product, that company could conceivably be liable for a $500,000 false marking penalty for each day of production.

Forest Group v. Bon Tool

To understand the import of the Federal Circuit's ruling in Forest Group, it is necessary to understand a bit of background regarding the current false marking provisions in the Patent Act. 35 U.S.C. ' 292.

Under the patent laws, where a patent owner has produced a patented article, the amount of damages that the patent owner can recover for infringement is limited to those acts of infringement that occurred after the patent owner gave the infringer “notice of infringement.” Gart v. Logitech, Inc., 254 F.3d 1335, 1345 (Fed. Cir. 2001). Notice of infringement includes “actual notice,” in which a patent owner communicates directly with an infringer through particular types of correspondence or by filing a patent infringement lawsuit. Notice of infringement also includes “constructive notice,” which a patent owner can provide to infringers by marking the patent number at issue on the product the patent owner produces. Importantly, if a patentee fails to mark her patented products, she will forfeit damages for infringing acts that occurred prior to providing actual notice to the infringer. Thus, the patent laws provide a strong incentive for patent owners to mark their products.

In addition to trying to persuade patent owners to mark their products, the Patent Act attempts to discourage companies and individuals from purposefully attempting to deceive the public by marking their products with patent numbers that do not cover their products or with statements of “patent applied for” or “patent pending” when no patents have been applied for or are pending. Under Section 292 of the Patent Act, “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.” 35 U.S.C. ' 292(a). The current language in the Patent Act was enacted in 1952. However, false marking provisions have existed in U.S. statutes for well over 100 years.

Unlike many statutes, ' 292 specifically authorizes “any person” to bring a lawsuit for a false marking violation. Indeed, the person need not have suffered any particular, individualized harm to bring the litigation. The statute only requires that the person who initiates the litigation must share any recovery with the government. According to 35 U.S.C. ' 292(b), “[a]ny 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.” These actions are often referred to as qui tam actions, a Latin phrase that is derived from much older laws that enabled individuals to sue on behalf of the King as well as themselves.

The quake caused by the decision of the Federal Circuit in Forest Group occurred when the court addressed whether the statutory fine allowed under ' 292 should be applied to each and every article mismarked or whether the fine should apply only once for a decision to mismark a series of articles. The district court in Forest Group had awarded the prevailing party $500 total based on what the district court considered to be only a single decision by the patentee to falsely mark a series of its products. The Federal Circuit reversed and held that “each article falsely marked with intent to deceive constitutes an offense under 35 U.S.C. ' 292.” Forest Group, 590 F.3d at 1301. In reaching its “each article” conclusion, the Federal Circuit rejected a line of cases that relied on a 100 year old decision from the First Circuit that had held ' under a differently worded false marking statute from 1870 ' that a single fine for continuous false marking, as opposed to a per article fine, was the appropriate penalty.

In the Federal Circuit's view, “[t]he plain language of the statue does not support ' [a] penalty of $500 for a decision to mark multiple articles.” Id. According to the Federal Circuit, because “the statute's plain language requires the penalty to be imposed on a per article basis. ' [T]he statute clearly requires that each article that is falsely marked with intent to deceive constitutes an offense '.” Id. To bolster its reading of ' 292, the court enunciated a number of policy considerations that it found weighed in favor of the “per article” penalty. In addition, the Federal Circuit recognized that its “per article” interpretation of the false marking statute might “encourage 'a cottage industry' of false marking litigation by plaintiffs who have not suffered any harm,” and may well lead to a “possible rise of 'marking trolls' who bring litigation purely for personal gain.” Id. at 1303. The court, however, maintained that such activities are not discouraged, but are instead permitted by the statute's allowance of qui tam actions. Id. at 1303-04. In the court's opinion, “[p]enalizing false marking on a per decision basis would not provide sufficient financial motivation for plaintiffs ' who would share in the penalty ' to bring suit.” Id. at 1304.

The Federal Circuit did, however, ease the ramifications of its decision by explaining that although the statute requires a “per article” fine, district courts still have discretion as to the “per article” amount. Thus, for instance, “[i]n 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.” Id. Despite this qualifying language, plaintiffs have filed over 130 false patent marking cases since the date the Federal Circuit handed down its decision ' roughly three times as many as had been filed in the previous 10 years combined.

Previous Legal Tremors That Softened the Soil

While the decision of the Federal Circuit in Forest Group unleashed a wave of false marking litigation, earlier decisions had softened the soil. For example, in its earlier decision in Clonetech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347 (Fed. Cir. 2005), the Federal Circuit appeared to interpret the Patent Act to require that each listed patent on a device include at least one claim that covers the device. According to the Federal Circuit: “When the statute refers to an 'unpatented article' the statute means that the article in question is not covered by at least one claim of each patent with which the article is marked.” Id. at 1352. This statement conflicts with the holdings of prior courts that had found that a patentee could not be held liable for false marking an article with multiple patents so long as at least one of those patents in fact covered the article. See Santa Anita Mfg. Corp. v. Lugash, 369 F.3d 964, 968 (9th Cir. 1966); Moore N. Am., Inc. v. Poser Business Forms, Inc., No. 97-712, 2000 WL 1480992, at *2 n.2 (D. Del. Sept. 29, 2000) (“Courts have consistently construed 35 U.S.C. ' 292 as not being violated by a patentee who marks patented articles with more patents than actually cover the item.”).

In Clonetech, the Federal Circuit also provided a framework for a plaintiff to prove that the defendant was in fact false marking with an intent to deceive. To establish false marking, a plaintiff must prove more than simply improper marking of an article; the plaintiff must also demonstrate that the patentee's mismarking was “for the purpose of deceiving the public '.” 35 U.S.C. ' 292(a). The false marking statute is not “a statute of strict liability for mismarking.” Clonetech, 406 F.3d at 1352. In Clonetech, the Federal Circuit essentially established a standard of proof. As a recent district court explained, “the court in [Clonetech] held that a false marking, combined with knowledge of falsity, 'warrant[s] drawing the inference that there was a fraudulent intent,' and that this inference cannot be rebutted by 'the mere assertion by a party that it did not intend to deceive.'” Pequignot v. Solo Cup Co., 646 F. Supp. 2d 790, 796 (E.D. Va. 2009) (quoting Clonetech, 406 F.3d at 1352). In other words, “a false marking made with knowledge of falsity creates a rebuttable presumption of intent to deceive.” Id. at 797 (emphasis in original).

In addition, for years, there seemed to be “little authority on whether continued use of a patent number on an article after expiration of the patent constitutes culpable mismarking.” Chisum on Patents, ' 20.03[7][c][vii], at 20-657. But in recent district court decisions, courts have suggested that marking with an expired patent could lead to a false marking finding. See, e.g., DP Wagner Mfg. Inc. v. Pro Patch Sys., Inc., 434 F. Supp. 2d 445, 452 n.3 (S.D. Tex. 2006)
(“[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.”).

Conclusion

The decision of the Federal Circuit in Forest Group v. Bon Tool, coupled with prior court decisions broadening the scope of potential false marking violations, has led to an unprecedented wave of false patent marking litigation ' over 130 new cases filed in four months. As these new cases progress through the courts, much new law will be created regarding false marking. Moreover, Congress may not wait for the courts to weigh in. Members of the U.S. House of Representatives recently proposed legislation ' HR 4954 ' that would limit the possible class of false marking plaintiffs to those “who ha[ve] suffered a competitive injury as a result of” any alleged false marking. In the meanwhile, the litigation surge continues to swell.

Since Jan. 1, 2010, over 130 cases have been filed that accuse defendants of false patent marking. This recent tidal wave of false marking litigation contrasts with the relative calm of the past in which only approximately 40 false patent marking cases total were filed from 2000'2009. What caused the underwater earthquake? The decision of the Court of Appeals for the Federal Circuit in Forest Group, Inc. v. Bon Tool Co. , 590 F.3d 1295 (2009).

On Dec. 28, 2009, the Federal Circuit handed down its decision in Forest Group, in which the Federal Circuit held that the false marking statute “requires” a fine of up to $500 for “each article.” Id. at 1301. Under this reading of the statute, just one act of false marking can potentially lead to devastating consequences. For example, if a company runs a single shift on an assembly line that manufactures, for instance, a thousand individual products per day marked with a patent number that does not in fact cover the product, that company could conceivably be liable for a $500,000 false marking penalty for each day of production.

Forest Group v. Bon Tool

To understand the import of the Federal Circuit's ruling in Forest Group, it is necessary to understand a bit of background regarding the current false marking provisions in the Patent Act. 35 U.S.C. ' 292.

Under the patent laws, where a patent owner has produced a patented article, the amount of damages that the patent owner can recover for infringement is limited to those acts of infringement that occurred after the patent owner gave the infringer “notice of infringement.” Gart v. Logitech, Inc. , 254 F.3d 1335, 1345 (Fed. Cir. 2001). Notice of infringement includes “actual notice,” in which a patent owner communicates directly with an infringer through particular types of correspondence or by filing a patent infringement lawsuit. Notice of infringement also includes “constructive notice,” which a patent owner can provide to infringers by marking the patent number at issue on the product the patent owner produces. Importantly, if a patentee fails to mark her patented products, she will forfeit damages for infringing acts that occurred prior to providing actual notice to the infringer. Thus, the patent laws provide a strong incentive for patent owners to mark their products.

In addition to trying to persuade patent owners to mark their products, the Patent Act attempts to discourage companies and individuals from purposefully attempting to deceive the public by marking their products with patent numbers that do not cover their products or with statements of “patent applied for” or “patent pending” when no patents have been applied for or are pending. Under Section 292 of the Patent Act, “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.” 35 U.S.C. ' 292(a). The current language in the Patent Act was enacted in 1952. However, false marking provisions have existed in U.S. statutes for well over 100 years.

Unlike many statutes, ' 292 specifically authorizes “any person” to bring a lawsuit for a false marking violation. Indeed, the person need not have suffered any particular, individualized harm to bring the litigation. The statute only requires that the person who initiates the litigation must share any recovery with the government. According to 35 U.S.C. ' 292(b), “[a]ny 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.” These actions are often referred to as qui tam actions, a Latin phrase that is derived from much older laws that enabled individuals to sue on behalf of the King as well as themselves.

The quake caused by the decision of the Federal Circuit in Forest Group occurred when the court addressed whether the statutory fine allowed under ' 292 should be applied to each and every article mismarked or whether the fine should apply only once for a decision to mismark a series of articles. The district court in Forest Group had awarded the prevailing party $500 total based on what the district court considered to be only a single decision by the patentee to falsely mark a series of its products. The Federal Circuit reversed and held that “each article falsely marked with intent to deceive constitutes an offense under 35 U.S.C. ' 292.” Forest Group, 590 F.3d at 1301. In reaching its “each article” conclusion, the Federal Circuit rejected a line of cases that relied on a 100 year old decision from the First Circuit that had held ' under a differently worded false marking statute from 1870 ' that a single fine for continuous false marking, as opposed to a per article fine, was the appropriate penalty.

In the Federal Circuit's view, “[t]he plain language of the statue does not support ' [a] penalty of $500 for a decision to mark multiple articles.” Id. According to the Federal Circuit, because “the statute's plain language requires the penalty to be imposed on a per article basis. ' [T]he statute clearly requires that each article that is falsely marked with intent to deceive constitutes an offense '.” Id. To bolster its reading of ' 292, the court enunciated a number of policy considerations that it found weighed in favor of the “per article” penalty. In addition, the Federal Circuit recognized that its “per article” interpretation of the false marking statute might “encourage 'a cottage industry' of false marking litigation by plaintiffs who have not suffered any harm,” and may well lead to a “possible rise of 'marking trolls' who bring litigation purely for personal gain.” Id. at 1303. The court, however, maintained that such activities are not discouraged, but are instead permitted by the statute's allowance of qui tam actions. Id. at 1303-04. In the court's opinion, “[p]enalizing false marking on a per decision basis would not provide sufficient financial motivation for plaintiffs ' who would share in the penalty ' to bring suit.” Id. at 1304.

The Federal Circuit did, however, ease the ramifications of its decision by explaining that although the statute requires a “per article” fine, district courts still have discretion as to the “per article” amount. Thus, for instance, “[i]n 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.” Id. Despite this qualifying language, plaintiffs have filed over 130 false patent marking cases since the date the Federal Circuit handed down its decision ' roughly three times as many as had been filed in the previous 10 years combined.

Previous Legal Tremors That Softened the Soil

While the decision of the Federal Circuit in Forest Group unleashed a wave of false marking litigation, earlier decisions had softened the soil. For example, in its earlier decision in Clonetech Labs. Inc. v. Invitrogen Corp. , 406 F.3d 1347 (Fed. Cir. 2005), the Federal Circuit appeared to interpret the Patent Act to require that each listed patent on a device include at least one claim that covers the device. According to the Federal Circuit: “When the statute refers to an 'unpatented article' the statute means that the article in question is not covered by at least one claim of each patent with which the article is marked.” Id. at 1352. This statement conflicts with the holdings of prior courts that had found that a patentee could not be held liable for false marking an article with multiple patents so long as at least one of those patents in fact covered the article. See Santa Anita Mfg. Corp. v. Lugash , 369 F.3d 964, 968 (9th Cir. 1966); Moore N. Am., Inc. v. Poser Business Forms, Inc., No. 97-712, 2000 WL 1480992, at *2 n.2 (D. Del. Sept. 29, 2000) (“Courts have consistently construed 35 U.S.C. ' 292 as not being violated by a patentee who marks patented articles with more patents than actually cover the item.”).

In Clonetech, the Federal Circuit also provided a framework for a plaintiff to prove that the defendant was in fact false marking with an intent to deceive. To establish false marking, a plaintiff must prove more than simply improper marking of an article; the plaintiff must also demonstrate that the patentee's mismarking was “for the purpose of deceiving the public '.” 35 U.S.C. ' 292(a). The false marking statute is not “a statute of strict liability for mismarking.” Clonetech, 406 F.3d at 1352. In Clonetech, the Federal Circuit essentially established a standard of proof. As a recent district court explained, “the court in [ Clonetech ] held that a false marking, combined with knowledge of falsity, 'warrant[s] drawing the inference that there was a fraudulent intent,' and that this inference cannot be rebutted by 'the mere assertion by a party that it did not intend to deceive.'” Pequignot v. Solo Cup Co. , 646 F. Supp. 2d 790, 796 (E.D. Va. 2009) (quoting Clonetech , 406 F.3d at 1352). In other words, “a false marking made with knowledge of falsity creates a rebuttable presumption of intent to deceive.” Id. at 797 (emphasis in original).

In addition, for years, there seemed to be “little authority on whether continued use of a patent number on an article after expiration of the patent constitutes culpable mismarking.” Chisum on Patents, ' 20.03[7][c][vii], at 20-657. But in recent district court decisions, courts have suggested that marking with an expired patent could lead to a false marking finding. See , e.g. , DP Wagner Mfg. Inc. v. Pro Patch Sys., Inc. , 434 F. Supp. 2d 445, 452 n.3 (S.D. Tex. 2006)
(“[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.”).

Conclusion

The decision of the Federal Circuit in Forest Group v. Bon Tool, coupled with prior court decisions broadening the scope of potential false marking violations, has led to an unprecedented wave of false patent marking litigation ' over 130 new cases filed in four months. As these new cases progress through the courts, much new law will be created regarding false marking. Moreover, Congress may not wait for the courts to weigh in. Members of the U.S. House of Representatives recently proposed legislation ' HR 4954 ' that would limit the possible class of false marking plaintiffs to those “who ha[ve] suffered a competitive injury as a result of” any alleged false marking. In the meanwhile, the litigation surge continues to swell.