Another Incentive to File False Marking Claims - Judge Awards Highest Sales Price as Fine in False Marking Case

Section 292 of the Patent Act provides that a person who falsely marks an unpatented article as being patented, where the false patent marking was done with an intent to deceive the public, "[s]hall be fined not more than $500 for every such offense." See 35 U.S.C. § 292(a). The statute permits a qui tam action whereby any private citizen can sue a patentee for violation. Recently, the false marking statute has had a resurgence based on the Federal Circuit's ruling and remand in The Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1304 (Fed. Cir. 2009), in which the court held that the penalty under § 292 must be assessed on a per article basis with the district court setting the amount of the penalty anywhere from a fraction of a penny to $500 per falsely marked article. The district court had found that Forest falsely marked its product and assessed Forest a $500 fine for a "single offense" of false marking. Id. at 1299. The Federal Circuit's ruling ran counter to years of precedent, in which courts had found that a continuous act of false marking, such as marking an entire production, counted as only one offense.

The Federal Circuit specifically held that the 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. And, "district courts have the discretion to assess the per article fine at any amount up to $500 per article." Id. at 1302. The court further indicated that "[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. at 1304. It is within the district court's "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." Id.

On April 27, 2010, the United States District Court for the Southern District of Texas issued its ruling on remand requiring the defendant to pay a fine based on the highest sales price of the falsely marked product. The Forest Group, Inc. v. Bon Tool Co., Civil No. H-05-4127 No. 214, slip op at 1-2 (S.D. Tex. April 27, 2010). The court held, the fine "will deprive Forest of more than it received for the falsely marked stilts, fulfilling the deterrent goal of § 292's fine provision." While the end result was not severe in this case, just $6,840 (38 falsely marked products times the highest sales price of $180), the consequences could obviously be more severe in other cases. The "intent" element of the false marking statute was fulfilled by Forest's continued marking of its products after the court's claim construction and summary judgment ruling, in which the court determined that Forest Group's product was not covered by the patent-at-issue.

Since the Federal Circuit's ruling in Forest Group in January 2010, as many as 100 false marking complaints have been filed. Legislation has been introduced that may address the increased filings for false marking. The legislation, as proposed, would limit standing for false marking claims to those "who ha[ve] suffered a competitive injury." However, the Federal Circuit may speak on the issue of standing first. In Stauffer v. Brooks Bros., Inc., 615 F.Supp.2d 248 (S.D.N.Y. 2009), the district court found that a noncompetitor lacks Article III standing to bring a false marking claim under 35 U.S.C. § 292. This case is fully briefed before the Federal Circuit.