Patent Baristas

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 to recover the penalty and retain for itself half of the penalty. Over the last few years, the false marking statute has gained a modicum of popularity as plaintiffs, including in some cases private patent lawyers, have brought false marking claims against defendant patentees who have marked products with expired patent numbers. Indeed, some commentators have described these plaintiffs as a new breed of troll, the marking troll. For a time the incentive to bring false marking claims was held in check by a limiting judicial construction of what constituted an offense for which the penalty could be quantitatively assessed.

Following a hundred year old decision construing the predecessor statute to § 292, London v. Everett H. Dunbar Corp., 179 F. 506, 507-09 (1st Cir. 1910), the majority of district courts addressing the issue of what is an offense under § 292 held that a continuous act of false marking, e.g., marking an entire single production run, counted as only one offense regardless of how many products were improperly marked with a patent number during the continuous act. See e.g., A. G. Design & Associates, LLC v. Trainman Lantern Co., Inc.  Consequently, the financial incentives for a plaintiff to bring a false marking suit were minimal under this construction of offense. That has now changed. The Federal Circuit‘s opinion in Forest Gp., Inc. v. Bon Tool Co., No. 2009-1044, 2009 WL 5064353 (Fed. Cir. Dec. 28, 2009), overrules these district court cases and holds that the penalty of § 292 must be assessed on a per article/product basis with the district court setting the amount of the penalty anywhere from a fraction of a penny to $500 per falsely marked article.

In Forest Group, the patentee sued an accused infringer for patent infringement based on an accused product that was described as being an exact replica of the patentee’s commercial product. The patentee had marked its product with the patent number. During the lawsuit, the accused infringer obtained a summary judgment of noninfringement. After the summary judgment was handed down the patentee commissioned another production run of its commercial product and had the newly made products marked with the patent number. The district court found that the patentee committed false marking for this new production run because it clearly knew the commercial product did not meet the patent claims. While finding a false marking violation, the district court held that there was only one continuous offense, and therefore assessed the total penalty at $500.

On appeal the Federal Circuit vacated the penalty award because the district court erred in ruling there was only one offense of false marking. Applying a de novo review of the district court‘s construction of the statute, the Federal Circuit, in an opinion penned by Judge Moore, held that the text of 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 *3 . The court also noted that [u]nder the current statute, district courts have the discretion to assess the per article fine at any amount up to $500 per article. Indeed, the court explicitly instructed 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 * 6. In view of this sliding scale approach to the amount of the penalty, the Federal Circuit noted that district courts have ―the discretion to strike a balance between encouraging enforcement of an important public policy [i.e., ensuring that acts of false marking do not stifle competition or innovation] and imposing disproportionately large penalties for small, inexpensive items produced in large quantities. Id.

In reaching its holding, the Federal Circuit rejected the patentee‘s arguments that the per-article standard should not be adopted because it would encourage a new cottage industry‘ of false marking litigation by plaintiffs who have not suffered any direct harm. Id. at *6.

Some courts have noted that plaintiffs asserting false marking claims must demonstrate an injury-in-fact to the government to have standing to assert a claim. Stauffer v. Brooks Bros., Inc., 2009.  Anyone can Assert Violation (discussing Stauffer and other cases limiting recovery for qui tam suits). If accepted by other courts, this injury-in-fact standard may limit the ability to assert some false marking claims.

Although acknowledging that an amicus brief was filed in th[e] case by an individual who created a holding company to bring qui tam actions in false marking cases, the Federal Circuit noted that [r]ather than discourag[ing] such activities, the false marking statute explicitly permits qui tam actions. Id. The court further justified its per-article standard by noting that [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.

Forest Group gives a green light to opportunistic plaintiffs to assert false marking claims when they believe they can show deceptive intent or, more likely, where they believe they can at least articulate a basis to plead a claim that passes muster under Rule 11 and can survive a Rule 12(b)(6) motion to dismiss.

The Federal Circuit has yet to address whether a false marking claim, with its requirement that the false marking be done with the purpose of deceiving the public, should be subject to the heightened pleading requirements of Rule 9(b), in the same way that inequitable conduct, with its requirement to show an intent to deceive the PTO, must meet the Rule 9(b) standards. See Ferguson Beauregard/Logic Controls v. Mega Sys., LLC

The per-article standard may give hope to these plaintiffs of a big payday (albeit one they must share with the federal government) if the defendant has mass produced the alleged falsely marked product. It may also prompt more accused infringers to assert false marking claims as a routine counterclaim to an infringement suit where the patentee markets a product allegedly covered by the asserted patent.

Forest Group makes clear that district courts have discretion in setting the rate of the penalty. However, other than stating that a district court should strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities, Forest Group does not provide any practical frame work to guide district courts in setting the amount of the penalty. One court may determine that a penalty of one cent per article on one million falsely marked products is proper, while a second court, on the same facts, could find that one dollar is the proper rate, thereby imposing a penalty 100 times larger than the first court. Given the uncertainty in how district courts will set the penalty rate, plaintiffs may feel that they effectively have a chance to spin a false marking roulette wheel and may eagerly do so by filing questionable suits. Plaintiffs may also prey on the uncertainty defendants will face in assessing the possible financial magnitude of a penalty as a means to intimidate or harass defendants into settlements.

In addition to leaving open the question of how to set the per article penalty, the standard in Forest Group fails to address how the penalty should be assessed if the act of false marking does not involve a product that is falsely marked, but only involves an advertisement that falsely identifies the advertised product as being patented. In that scenario should the court assess the penalty on each piece of advertising distributed or broadcasted to the public, on each unmarked product allegedly sold as a result of the improper advertising, on the number of people who saw the advertisement, or some other basis? What happens if the advertising is posted on a website: does the posting count as a single advertisement, or does each click on the webpage count as its own punishable act of false marking? Courts in other legal contexts have followed a single publication rule for such web-based claims. But the single publication rule appears similar to the continuous marking rule the Federal Circuit rejected in Forest Group. These and other questions will surely arise in the near future.

Forest Group does not change the substantive aspects of proving a false marking violation. But it likely changes the financial incentives for bringing false marking claims such that plaintiffs and accused infringers will assert these claims more often in litigation. Accordingly, those who counsel clients on patent matters should become intimately familiar with § 292, and be ready to advise their clients on how to avoid violating § 292 while complying with any duty the clients may have to mark under § 287(a) or having their licensees mark.

Today’s post is by Guest Barista Robert A. Matthews, Jr., Matthews Patent-Law Consulting.and was first published in his Patent Happenings® newsletter.