Stauffer v. Brooks Brothers

On Aug. 31, 2010, the Federal Circuit rejected a procedural attempt to stem the recent flood of “false patent marking” lawsuits and provided guidance on the standing requirements for pursuing false marking claims under 35 U.S.C. ' 292. In Stauffer v. Brooks Brothers, Inc., 619 F.3d 1321 (Fed. Cir. 2010), the Federal Circuit held that the statutory assignment of the United States' rights in ' 292(b) operates to confer standing on an individual as long as the individual alleges that the United States suffered an injury in fact, causally connected to the defendant's conduct that is likely to be redressed by the court. On remand, the court left open the question of the sufficiency of Stauffer's allegations and instructed the district court to examine whether he had properly pled the “intent to deceive” requirement to meet the heightened pleading requirements for claims of fraud imposed by Rule 9(b). Id. at 1328. As such, a challenge to the sufficiency of intent to deceive allegations may provide an effective defense in future false marking actions. Likewise, although the court did not rule on the issue, amicus Ciba presented an interesting attack on the constitutionality of ' 292 that could also provide a useful defense for manufacturers.

A Recent Surge

The Stauffer case is part of the recent surge of false marking suits filed since the Federal Circuit ruled late last December that penalties in false marking actions should be imposed on a per article basis, as opposed to a single $500 penalty for all individual examples of a falsely marked product. Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009). The Forest Group ruling clarified that the penalty provision of the false marking statute “clearly requires that each article that is falsely marked with intent to deceive constitutes an offense under 35 U.S.C. ' 292.” Id. at 1301 (emphasis added). This ruling has caused concern for manufacturers who are now potentially exposed to large fines for inaccurately marked goods produced in large volumes. Section 292 prohibits affixing the word “patent” to an unpatented article with the purpose of deceiving the public and specifically allows individual plaintiffs to pursue claims in the government's stead: “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.” 35 U.S.C. ' 292.

The Stauffer Case

The Stauffer case dealt with plaintiff Stauffer's allegations that a mechanism contained within Brooks Brothers' bow ties was falsely marked with patent numbers that had expired in the 1950s. Brooks Brothers moved to dismiss based on lack of standing. The U.S. District Court for the Southern District of New York held that Stauffer had not sufficiently alleged that the United States had suffered an injury in fact from the alleged false marking because his allegations that Brooks Brothers had wrongfully quelled competition were too hypothetical or conjectural, and thus dismissed for lack of standing. On appeal, Stauffer argued that his assertions that the act of false marking had occurred were sufficient to meet the injury-in-fact requirement under Clontech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347 (Fed. Cir. 2005), which held that the public “is clearly injured by false marking because the act of false marking misleads the public into believing that a patentee controls the article in question (as well as like articles).” Thus, Stauffer argued, as a partial assignee of the United States' damages claims resulting from the alleged false marking, he had sufficiently alleged standing ' no more was needed. In response, Brooks Brothers argued that the false marking statute's qui tam provision does not enable a plaintiff to circumvent Article III's standing requirements. Instead, as in Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), a plaintiff must demonstrate that it has suffered an injury in fact that is concrete and particularized; actual or imminent and not conjectural or hypothetical; that the injury is causally connected to the challenged action of the defendant and not the result of independent action of some third party not before the court; and that the injury is likely to be redressed by the court. Specifically, Brooks Brothers posited that a mere recitation of what the statute prohibits and connecting that with an “information and belief” or “knew or should have known” basis was not enough. Further, Brooks Brothers argued that Stauffer had not sufficiently pled any injury in fact to any competitor, the market for the products or the U.S. economy.

The Federal Circuit's Decision

The Federal Circuit agreed with Stauffer, and clarified that ' 292's qui tam provision operates to confer standing on an individual based on the United States' partial assignment of its damages claim to “any person.” As such, “Stauffer's standing arises from his status as 'any person' and he need not allege more for jurisdictional purposes.” Therefore, an individual need only allege that the United States suffered an injury in fact causally connected to the defendant's conduct that is likely to be redressed by the court. The individual plaintiff is not required to allege injuries to himself, to the public or to a competitor in order to satisfy standing requirements.

The Federal Circuit also addressed the question of what constitutes sufficient injury in fact to the United States under Article III. The court rejected Brooks Brothers' argument that abstract harm, such as injury to the interest in seeing that the law is obeyed, is not sufficiently concrete to meet the standing requirement. Instead, it accepted Stauffer's and the government's argument that in enacting the false marking statute, Congress determined that violation of that act alone is sufficient injury in fact to confer standing on the government and thus on Stauffer as the governments' assignee.

The court also declined to address whether Stauffer's alleged injuries to himself or alleged injuries to competition were alone sufficient to give him standing, noting that “Stauffer's standing arises from his status as 'any person,' and he need not allege more for jurisdictional purposes.”

Another noteworthy aspect of the decision is the Federal Circuit's remand on the question of the sufficiency of Stauffer's intent-to-deceive allegations. There is some disagreement as to whether Rule 9(b)'s heightened pleading standard or the normal pleading requirements of Rule 8(a) apply to false patent marking suits, and Stauffer did not resolve the issue. Compare Third Party Verification, Inc. v. Signaturelink, Inc., 492 F.Supp. 2d 1314, 1327 (M.D. Fla. 2007) (intent to deceive in false marking suits need only be pled in accordance with Fed. R. Civ. P. 8 and not 9(b)) with Simonian v. Cisco Systems, Inc., No. 10-C-1306 2010 WL 2523211, *3 (June 17, 2010) (Rule 9(b)'s heightened pleading requirement applies to false marking claims) and Halstrom v. Aqua Flora, Inc. et al., No. 2-10-cv-01459 2010 WL 4054243 (E.D. Cal. Oct. 15, 2010) (accord). Although the Federal Circuit has not yet clarified which standard applies, we can expect to see manufacturers making arguments based on the sufficiency of the plaintiff's intent-to-deceive allegations. See, e.g., Hollander v. Ortho-McNeil-Janssen Pharms., Inc., No. 2:10-cv-00836 2010 WL 4159265 (E.D. Pa. Oct. 21, 2010) (noting that the Federal Circuit “has yet to address whether ' 292's required showing of deceptive intent invokes the heightened pleading requirements of Federal Rule of Civil Procedure 9(b)” and applying that district's law to find plaintiff had not met the requisite heightened pleading standard).

An Attack on the Constitutionality of ' 292

Finally, although the court did not rule on the issue, amicus Ciba had argued that ' 292 is unconstitutional on the basis that the government cannot assign a claim to an individual without retaining control over that individual's actions because such an assignment would constitute a violation of the “take care” clause of Article II ' 3 of the Constitution. While the Federal Circuit declined to address the question of the constitutionality of ' 292 as the issue was not on appeal, the argument that the delegation of the enforcement of patent laws was an impermissible encroachment on the executive branch by Congress may prove to be a viable defense for a business facing a challenge to its marking practices in the future.

Conclusion

In sum, Stauffer clarifies that an alleged violation of 35 U.S.C. ' 292 is sufficient Article III injury to the United States to confer standing on the United States, and that ' 292's assignment of the ability to sue to “any person” is sufficient to confer standing on an individual. There is no need to separately allege injury to the individual or to the public. However, as the Federal Circuit refused to address the constitutionality of ' 292 as a violation of the “take care clause,” this defense remains potentially available to future patent marking defendants. Additionally, courts will continue to consider the sufficiency of intent to deceive allegations with respect to heightened pleading requirements for claims of fraud.

Guinevere Jobson is an associate in the Litigation Group of Fenwick & West LLP, a law firm specializing in technology and life sciences.

On Aug. 31, 2010, the Federal Circuit rejected a procedural attempt to stem the recent flood of “false patent marking” lawsuits and provided guidance on the standing requirements for pursuing false marking claims under 35 U.S.C. ' 292. In Stauffer v. Brooks Brothers, Inc. , 619 F.3d 1321 (Fed. Cir. 2010), the Federal Circuit held that the statutory assignment of the United States' rights in ' 292(b) operates to confer standing on an individual as long as the individual alleges that the United States suffered an injury in fact, causally connected to the defendant's conduct that is likely to be redressed by the court. On remand, the court left open the question of the sufficiency of Stauffer's allegations and instructed the district court to examine whether he had properly pled the “intent to deceive” requirement to meet the heightened pleading requirements for claims of fraud imposed by Rule 9(b). Id. at 1328. As such, a challenge to the sufficiency of intent to deceive allegations may provide an effective defense in future false marking actions. Likewise, although the court did not rule on the issue, amicus Ciba presented an interesting attack on the constitutionality of ' 292 that could also provide a useful defense for manufacturers.

A Recent Surge

The Stauffer case is part of the recent surge of false marking suits filed since the Federal Circuit ruled late last December that penalties in false marking actions should be imposed on a per article basis, as opposed to a single $500 penalty for all individual examples of a falsely marked product. Forest Group, Inc. v. Bon Tool Co. , 590 F.3d 1295 (Fed. Cir. 2009). The Forest Group ruling clarified that the penalty provision of the false marking statute “clearly requires that each article that is falsely marked with intent to deceive constitutes an offense under 35 U.S.C. ' 292.” Id. at 1301 (emphasis added). This ruling has caused concern for manufacturers who are now potentially exposed to large fines for inaccurately marked goods produced in large volumes. Section 292 prohibits affixing the word “patent” to an unpatented article with the purpose of deceiving the public and specifically allows individual plaintiffs to pursue claims in the government's stead: “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.” 35 U.S.C. ' 292.

The Stauffer Case

The Stauffer case dealt with plaintiff Stauffer's allegations that a mechanism contained within Brooks Brothers' bow ties was falsely marked with patent numbers that had expired in the 1950s. Brooks Brothers moved to dismiss based on lack of standing. The U.S. District Court for the Southern District of New York held that Stauffer had not sufficiently alleged that the United States had suffered an injury in fact from the alleged false marking because his allegations that Brooks Brothers had wrongfully quelled competition were too hypothetical or conjectural, and thus dismissed for lack of standing. On appeal, Stauffer argued that his assertions that the act of false marking had occurred were sufficient to meet the injury-in-fact requirement under Clontech Labs. Inc. v. Invitrogen Corp. , 406 F.3d 1347 (Fed. Cir. 2005), which held that the public “is clearly injured by false marking because the act of false marking misleads the public into believing that a patentee controls the article in question (as well as like articles).” Thus, Stauffer argued, as a partial assignee of the United States' damages claims resulting from the alleged false marking, he had sufficiently alleged standing ' no more was needed. In response, Brooks Brothers argued that the false marking statute's qui tam provision does not enable a plaintiff to circumvent Article III's standing requirements. Instead, as in Lujan v. Defenders of Wildlife , 504 U.S. 555 (1992), a plaintiff must demonstrate that it has suffered an injury in fact that is concrete and particularized; actual or imminent and not conjectural or hypothetical; that the injury is causally connected to the challenged action of the defendant and not the result of independent action of some third party not before the court; and that the injury is likely to be redressed by the court. Specifically, Brooks Brothers posited that a mere recitation of what the statute prohibits and connecting that with an “information and belief” or “knew or should have known” basis was not enough. Further, Brooks Brothers argued that Stauffer had not sufficiently pled any injury in fact to any competitor, the market for the products or the U.S. economy.

The Federal Circuit's Decision

The Federal Circuit agreed with Stauffer, and clarified that ' 292's qui tam provision operates to confer standing on an individual based on the United States' partial assignment of its damages claim to “any person.” As such, “Stauffer's standing arises from his status as 'any person' and he need not allege more for jurisdictional purposes.” Therefore, an individual need only allege that the United States suffered an injury in fact causally connected to the defendant's conduct that is likely to be redressed by the court. The individual plaintiff is not required to allege injuries to himself, to the public or to a competitor in order to satisfy standing requirements.

The Federal Circuit also addressed the question of what constitutes sufficient injury in fact to the United States under Article III. The court rejected Brooks Brothers' argument that abstract harm, such as injury to the interest in seeing that the law is obeyed, is not sufficiently concrete to meet the standing requirement. Instead, it accepted Stauffer's and the government's argument that in enacting the false marking statute, Congress determined that violation of that act alone is sufficient injury in fact to confer standing on the government and thus on Stauffer as the governments' assignee.

The court also declined to address whether Stauffer's alleged injuries to himself or alleged injuries to competition were alone sufficient to give him standing, noting that “Stauffer's standing arises from his status as 'any person,' and he need not allege more for jurisdictional purposes.”

Another noteworthy aspect of the decision is the Federal Circuit's remand on the question of the sufficiency of Stauffer's intent-to-deceive allegations. There is some disagreement as to whether Rule 9(b)'s heightened pleading standard or the normal pleading requirements of Rule 8(a) apply to false patent marking suits, and Stauffer did not resolve the issue. Compare Third Party Verification, Inc. v. Signaturelink, Inc. , 492 F.Supp. 2d 1314, 1327 (M.D. Fla. 2007) (intent to deceive in false marking suits need only be pled in accordance with Fed. R. Civ. P. 8 and not 9(b)) with Simonian v. Cisco Systems, Inc., No. 10-C-1306 2010 WL 2523211, *3 (June 17, 2010) (Rule 9(b)'s heightened pleading requirement applies to false marking claims) and Halstrom v. Aqua Flora, Inc. et al., No. 2-10-cv-01459 2010 WL 4054243 (E.D. Cal. Oct. 15, 2010) (accord). Although the Federal Circuit has not yet clarified which standard applies, we can expect to see manufacturers making arguments based on the sufficiency of the plaintiff's intent-to-deceive allegations. See, e.g., Hollander v. Ortho-McNeil-Janssen Pharms., Inc., No. 2:10-cv-00836 2010 WL 4159265 (E.D. Pa. Oct. 21, 2010) (noting that the Federal Circuit “has yet to address whether ' 292's required showing of deceptive intent invokes the heightened pleading requirements of Federal Rule of Civil Procedure 9(b)” and applying that district's law to find plaintiff had not met the requisite heightened pleading standard).

An Attack on the Constitutionality of ' 292

Finally, although the court did not rule on the issue, amicus Ciba had argued that ' 292 is unconstitutional on the basis that the government cannot assign a claim to an individual without retaining control over that individual's actions because such an assignment would constitute a violation of the “take care” clause of Article II ' 3 of the Constitution. While the Federal Circuit declined to address the question of the constitutionality of ' 292 as the issue was not on appeal, the argument that the delegation of the enforcement of patent laws was an impermissible encroachment on the executive branch by Congress may prove to be a viable defense for a business facing a challenge to its marking practices in the future.

Conclusion

In sum, Stauffer clarifies that an alleged violation of 35 U.S.C. ' 292 is sufficient Article III injury to the United States to confer standing on the United States, and that ' 292's assignment of the ability to sue to “any person” is sufficient to confer standing on an individual. There is no need to separately allege injury to the individual or to the public. However, as the Federal Circuit refused to address the constitutionality of ' 292 as a violation of the “take care clause,” this defense remains potentially available to future patent marking defendants. Additionally, courts will continue to consider the sufficiency of intent to deceive allegations with respect to heightened pleading requirements for claims of fraud.

Guinevere Jobson is an associate in the Litigation Group of Fenwick & West LLP, a law firm specializing in technology and life sciences.