False Patent Marking: New Litigation Warrants Review of Old Policies

False patent marking has been prohibited by law for many years, and the current statute, 35 U.S.C. Section 252, has not materially changed since 1952. Recent decisions by the U. S. Court of Appeals for the Federal Circuit, however, have triggered a flood of false marking litigation. Over 100 cases have been filed in 2010. Why? Plaintiffs see the potential for big profits through qui tam litigation. For patent holders, this means that a review of the company's patent marking policies and practices should be considered.

Not only can past mistakes be corrected, but new procedures may help a company avoid becoming a litigation target. This article highlights the key issues in false patent marking litigation and discusses some potential steps that can help reduce a company's risk.

Pre-Bon Tool Interpretation

Section 292 of the Patent Act provides that any person who marks or advertises an unpatented article as patented "for the purpose of deceiving the public . . . shall be fined not more than $500 for every such offense." Critically, it further provides that "any person may sue for the penalty, in which case one-half shall go to the person suing and one-half to the United States."

For years, courts generally construed this statute as imposing one fine per decision to falsely mark an entire product line, keeping the financial exposure modest. In December 2009, the Federal Circuit rejected that construction, instead holding that each individual article that is falsely marked constitutes a separate offense, so that the fine is up to $500 per article. Thus, a single improper marking decision could now expose a company to potentially massive liability for mass-produced products. Forest Group v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009).

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

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, 608 F.3d 1356 (Fed. Cir. 2010), 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.

On appeal from summary judgment, the Federal Circuit clarified that marking a product with an expired patent is a false marking. And such an act raises a inference of deceptive intent, where the marker knew that the patent had expired. That inference, or presumption, is rebuttable, however. In this case, the court found good faith reliance on advice of counsel sufficient to rebut the inference, and it affirmed summary judgment in the defendant's favor. On the issue of the "may be covered" language, the court found that the defendant established a lack of deceptive intent given that the conditional language was placed on all of Solo's packaging, was uniform due to logistical and financial concerns, and was literally true.

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.

Standing to Sue—Stauffer v. Brooks Brothers

Most recently, in August 2010 the Federal Circuit addressed the issues of standing to sue for an alleged section 292 violation. In Stauffer v. Brooks Brothers, the plaintiff sued Brooks Brothers for marking adjustable bow ties with an expired patent number. The plaintiff was a patent attorney with no involvement in the business other than that he had bought some of Brooks Brothers' bow ties. Brooks Brothers argued that the plaintiff had suffered no injury in fact and thus lacked standing, and the district court agreed.  

The Federal Circuit reversed. In so doing, it adopted the broadest possible concept of standing under section 292, confirming that it is a true qui tam statute under which literally "any person" may sue on behalf of the United States and herself, even if that person has suffered no damage other than that presumed to be suffered by the public at large by virtue of a false marking violation. Notably, the United States Government weighed in on appeal on the side of the plaintiff, expressing an interest of the Government to have its laws enforced by qui tam plaintiffs such as Stauffer. The Federal Circuit largely adopted the Government's position on standing.

Pleading Standards, Constitutional Challenge, Pending Legislation

The Federal Circuit decision in Stauffer v. Brooks Brothers adds fuel to the false marking litigation fire by taking the issue of standing off the table, unless the U.S. Supreme Court takes up the issue. Other key issues remain unresolved, however. One key issues concerns the pleading standards for a section 292 false marking claim.

Defendants are now routinely arguing that Rule 9(b)'s requirement that fraud claims be pled with particularity should apply false marking claims, because proof of "intent to deceive" is an essential element of the claim. District courts are split on the issue, and the Federal Circuit has yet to address it. A constitutional challenge to the qui tam provision of section 292, as now construed by the Federal Circuit, is also brewing. Finally, the contours of proof required to establish or defeat an allegation of "intent to deceive" remain subject to further explication in case law.

In addition, federal legislation has been proposed to amend section 292 to stem the flow of this litigation. One proposed amendment under consideration in the Senate would essentially eliminate the qui tam feature of the statute by restricting eligible plaintiffs to those who have "suffered a competitive injury" and limit recovery to "damages adequate to compensate for the injury."  Another version pending in the House would be even more restrictive.  Of course, there is no assurance that any legislation will pass on this issue any time soon.          

Lessons for Companies

Marking practices can be an important 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.

Companies concerned about exposure to false patent marking litigation can take a number of proactive steps. While a final decision requires consideration of each company's unique circumstances, possible steps include: (1) instituting a tracking process to remove patent markings promptly upon patent expiration; (2) verifyng that an application remains pending for every item marked "patent pending;" (3) modifying or discontinuing the practice of marking products with multiple patent numbers along with language such as "may be covered by one or more of the following patents"; (4) obtaining assignment/indemnification rights for false marking claims from patent licensees.

Further, maintaining a product sheet that lists patents relevant to that product, together with claim charts relating the product to the patent claims, and adding patent marking review to checklists for new productions or reprinting of packaging materials are options to be considered.

Key to the defense of false marking cases is the ability to show a "reasonable basis to believe" that the company's marking was appropriate and not misleading. This places a premium on sound procedures and solid contemporaneous documentation. In certain situations, a more fundamental question may be worth asking: is the benefit of marking worth the costs of proper monitoring and risks of false marking. For certain companies, the answer may prove to be "no."