Federal Circuit Ignites Interest In False Patent Marking Lawsuits

Monday, October 4, 2010 - 01:00

A specific category of patent lawsuit has occupied federal courts this year: approximately 15 percent of all patent cases have been "false marking" cases.1These cases allege that a company has marked a product with a patent that has expired, is invalid, or does not cover the product.

The onslaught of false marking suits followed the December 2009 decision in The Forest Group, Inc. v. Bon Tool Co. , in which the U.S. Court of Appeals for the Federal Circuit held that the false marking statute imposes a separate fine of up to $500 for each falsely marked product rather than for each "instance" of false marking.2Although the U. S. Patent Code has included a false marking statute since 1842, the Bon Tool decision created the potential for lucrative results when, for example, false markings appear on consumer products.3Since Bon Tool , over 350 lawsuits have been filed against companies for falsely marking kites, men's bow ties, staplers, drugs, mascara, toilet plungers, and cup lids.

In the face of increased exposure for substantial fines, false marking defendants have fought back. Two recent decisions by the Federal Circuit have helped shape the battle lines. In Pequignot v. Solo Cup , the Federal Circuit clarified the standard to prove intent to deceive the public, explaining that a company that has knowingly marked its products with expired patents can escape liability if it proves sufficient good faith to rebut a presumption of intent to deceive.4Then in Stauffer v. Brooks Brothers, Inc ., the Federal Circuit reversed a district court decision that the " qui tam " plaintiff lacked standing.5The Federal Circuit clarified that although qui tam plaintiffs usually have not suffered any personal injury, injury to the United States is inherent in a violation of the false marking statute and sufficient to confer standing on qui tam plaintiffs.6

The Marking And False Marking Statutes

Two patent code provisions govern patent marking. Under 35 U.S.C. § 287(a), a patentee can mark its articles with applicable patent numbers to give constructive notice of the patents to the public. Patentees have an incentive to mark because they generally cannot recover pre-suit damages unless they have given the accused infringer notice of infringement.

However, under the false marking statute, 35 U.S.C. § 292(a), marked articles must be within the scope of the patent's claims, and the patent cannot be expired, invalid, or unenforceable. Otherwise, the patentee is subject to a fine of "not more than $500 for every such offense" made "for the purpose of deceiving the public."7"Any person" can sue for false marking, and the fine is split with the United States.8

Pequignot v. Solo Cup - Intent to Deceive

Solo manufactures disposable products, including coffee cups and lids. Solo marked its cup lids with two expired patents. It also marked packages of cups, bowls, and utensils that were not patented with a statement that the articles "may be covered" by pending or issued patents.9

Solo sought advice from counsel when it learned of the expired patents. Counsel advised Solo that it was not required to remove the expired patent number and that it should endeavor to prevent additional false marking if it decided to retain the number in the molds used to manufacture lids. Solo determined that updating the patent information would have been costly and burdensome.10Instead, it replaced only worn molds and began using a statement that the product "may be covered" by a patent, directing the consumer to its website for information.

After Solo sold 21 billion products with expired patent markings over a 20-year period, Matthew A. Pequignot, a patent attorney, sued Solo.11At $500 per product, Pequignot sought a total fine of $10.5 trillion . Although Solo had falsely marked its lids, the district court found that Solo lacked the requisite intent to deceive the public.12

On appeal, Pequignot argued that he had proved intent because Solo knew that the patents marked on its products were either expired or did not cover the products. But the Federal Circuit rejected the idea that knowledge of falsity equated to intent to deceive.13The court explained that "the bar for proving deceptive intent . . . is particularly high [because] the false marking statute is a criminal one, despite being punishable only with a civil fine."14In addition, Solo rebutted the presumption of intent to deceive based on its knowledge of falsity, showing that it acted with a purpose other than to deceive the public because it relied on counsel's advice and it had business reasons for delaying the costly replacement of its molds.15Accordingly, the court affirmed the grant of summary judgment in favor of Solo.16

Pequignot's argument regarding articles marked with the statement that they "may" be covered by a patent also failed. The court reasoned that this "stated exactly the true situation; the contents of some of the packaging were covered by patents, and the contents of some of the packaging were not covered."17Solo explained that the language was a more convenient option than isolating specific products for marking. Moreover, the marking provided a website that the public could visit to determine the patent status. This evidence sufficed to establish good faith.

In a related defense strategy, some defendants recently have successfully argued that qui tam plaintiffs failed to plead intent to deceive the public with the factual specificity required by Rule 9(b), Fed. R. Civ. P. Drugmaker Bayer Healthcare LLC and disposable lighter manufacturer BIC Corp. recently won dismissal of false marking cases on this basis.18The court concluded that on the facts pled, "it appears just as likely . . . that BIC made a marking error," and that "the presence of expired patents on Bayer's products could be a simple oversight."19

Accordingly, based on these decisions, simple error or oversight, or false marking when there is a reasonable business explanation, should not result in liability under the false marking statute.

Stauffer v. Brooks Brothers, Inc. - Standing To Sue

Before proving that the patent owner intended to deceive the public, a false marking plaintiff must establish standing. The district court concluded that the plaintiff in Stauffer v. Brooks Brothers failed to establish the requisite injury for standing.20

Brooks Brothers sold bow ties equipped with the "Adjustolox," a mechanism that adjusts ties to wearers' necks. The ties are marked with the following language reciting expired patents: "The Original Adjustolox Tie Reg'd & Pat'd U.S. Pat. Off. 279346-2083106-2123620."

The false marking statute allows anyone to sue on behalf of the government, even if the plaintiff is not a competitor of the accused party.21But the district court concluded that Stauffer lacked standing because he failed to plead sufficient injury to the government; his statements that Brooks Brothers harmed competition and the economy were insufficient.22Moreover, Brooks Brothers' competitors sold Adjustolox bow ties with the same markings. The court pointed to this common usage as evidence that the false markings did not deter competition.23

The Federal Circuit reversed, explaining that a violation of the marking statute "inherently constitutes an injury to the United States."24Thus, rather than aver personal injury, qui tam plaintiffs have standing because § 292 permits the government to assign its interests to "any person."25

Conclusion

Although Bon Tool triggered a burst of false marking cases, recent developments provide opportunities for defendants. By clarifying the standard to prove intent to deceive the public and providing the opportunity for defendants to rebut a presumption of intent with evidence of good faith, Pequignot will likely render false marking cases less attractive. In addition, more defendants can be expected to challenge the sufficiency of averments of intent to deceive at the pleadings stage. Nevertheless, given the possibility of a substantial fine after Bon Tool , the somewhat uncommon facts supporting the court's conclusion in Pequignot , and the clarification that qui tam plaintiffs have standing under Stauffer , prudent patent owners should carefully review the accuracy of their patent marking.26

1 Gray on Claims, False Marking Case Information, http://www.grayonclaims.com/false-marking-case-information/ (last visited Sept. 10, 2010); PACER Case Locator, https://pcl.uscourts.gov/ search (search patent cases in all circuits filed on or after Jan. 1, 2010) (last visited Sept. 10, 2010).

2 590 F.3d 1295, 1303 (Fed. Cir. 2009).

3 See Pequignot v. Solo Cup Co . , 646 F. Supp. 2d 790 (E.D. Va. 2009), in which the plaintiff sought a total fine of approximately $10 trillion.

4 608 F.3d 1356, 1363-64 (Fed. Cir. 2010).

5 No. 2009-1428 (Fed. Cir. Aug. 31, 2010). Qui tam actions allow private citizens to sue on behalf of the government. There are only four federal qui tam statutes. Vermont Agency of Natural Resources v. United States, 529 U.S. 765, 768 n.1 (2000).

6 Stauffer v. Brooks Brothers, slip op. at 8-9.

7 35 U.S.C. § 292(a).

8 Id . § 292(b).

9 Pequignot, 646 F. Supp. 2d at 792.

10 Id . at 793.

11 Id. at 792 ; Pequignot, 608 F.3d at 1359.

12 Pequignot, 646 F. Supp. 2d at 800.

13 Pequignot, 608 F.3d at 1363.

14 Id.

15 Id. at 1364.

16 Id. at 1365.

17 Id. at 1365. Although the court accepted the language that an article "may be covered" by a patent, it added that this language "cannot satisfy the marking statute" unless it includes a patent number. Id. Nevertheless, the court found that the reference to the web site provided consumers with an easy way to determine whether patents covered the articles. Id.

18 Brinkmeier v. Bayer Healthcare LLC, No. 10-cv-00001 (D. Del. Aug. 25, 2010); Brinkmeier v. BIC Corp., No. 09-cv-00860 (D. Del. Aug. 25, 2010).

19 Brinkmeier v. BIC Corp . , slip op. at 21-22; Brinkmeier v. Bayer Healthcare LLC, slip op. at 21-22.

20 615 F. Supp. 2d 248 (S.D.N.Y. 2009).

21 Stauffer, 615 F. Supp. 2d at 253.

22 Id. at 255.

23 Id.

24 Stauffer v. Brooks Bros., Inc., No. 2009-1428, slip op. at 8-9 (Aug. 31, 2010).

25 Id., slip op. at 10.

26 Two bills introduced in Congress would eliminate the qui tam provision by requiring plaintiffs to have "suffered a competitive injury" from false marking. H.R. 4954, 111th Cong. (2010); S. 515, 111th Cong. (2010). Senate Bill 515 would also allow patentees to mark articles with "patent" or "pat." and an Internet address with information about patent protection.Given the ease of correcting information, this provision, if enacted, should substantially reduce false marking and pressure patent owners to ensure that their information is accurate.

Kelsey I. Nix is a Partner and Laurie N. Stempler is an Associate in the Intellectual Property Department of Willkie Farr & Gallagher LLP. Copyright © Willkie Farr & Gallagher LLP. All rights reserved.

Please email the author at knix@willkie.com with questions about this article.