Archives for November 2010

False Patent Marking: The New Gold Rush?

The Federal Circuit’s Bon Tool decision late last year dramatically increased the number of false patent marking cases filed this year.  Historically, the relatively obsure patent marking statute had been interpreted to allow for a penalty of up to $500 for each decision to mark an unpatented product.  Consequently, there were only a handful of false marking suits pending at any given time. 

Times have changed.  The Bon Tool decision opened the flood gates for false marking claims because of the dramatic increase in potential damages to the plaintiff.  A plaintiff in a false marking suit can now recover up to $500 per item sold. 

As many predicted, plaintiffs have rushed to this newly discovered gold.  Over 500 false marking cases have been filed this year alone.  The Eastern District of Texas is the venue of choice, home to more than 200 of those cases.  The second highest number of cases has been filed in the Northern District of Illinois, with over 60 cases.  The Northern District of Texas comes in fourth place with more than 20 cases.

The false marking statute provides that whoever, for the purpose of deceiving the public, labels an unpatented product or advertises the product in a way that suggests that the product is patented or that an application for a patent is pending on the product when no application has been made, “shall be fined not more than $500 for every such offense.”  Any person may sue for the penalty, but half of the fine must be paid to the United States. 

The vast majority of the cases filed stem from claims that products are marked with expired patent numbers.  In Solo Cup, the Federal Circuit held that marking of a product with an expired patent number is considered marking an “unpatented” product. 

However, the Federal Circuit found that Solo Cup did not violate the statue because the plaintiff had failed to provide any evidence contradicting Solo Cup’s evidence of lack of intent to deceive the public.  In particular, Solo Cup provided evidence that it relied on advice of counsel in continuing to mark products with expired patent numbers.  Solo Cup also offered evidence that it was costly to change the molds that were used to manufacture its cups, thus prompting its decision to continue selling cups labeled with expired patent numbers. 

The Federal Circuit pointed out that the bar for proving deceptive intent is particularly high because the false marking statute is a criminal statute although the punishment is in the form of a civil fine.  Yet, the court cautioned that blind assertions of good faith without evidence to support the lack of intent to deceive would be insufficient to overcome the presumption of intent to deceive where a product is knowingly marked with an expired patent number. 

Defendants have been busy seeking dismissal of false marking cases at the pleading stage.  For example, in Stauffer v. Brooks Brothers, Brooks Brothers filed a motion to dismiss claiming that the patent attorney who filed the suit did not have standing under the statute because he did not suffer an injury as a result of the marking of bow ties with expired patent numbers.  The Federal Circuit reversed a dismissal of the case by the trial court, holding that Stauffer had standing to sue because he simply stepped into the shoes of the government.  Thus, no injury to the plaintiff need be shown. 

The Federal Circuit remanded to the trial court for determination of Brook Brothers’ motion to dismiss for failure to adequately allege intent to deceive.  Thus, while any individual has standing to bring suit under the statute, it may prove difficult without discovery in many cases for the plaintiff to allege particular facts supporting intent to deceive.  If the Federal Circuit ultimately requires pleading of particular facts for false marking cases on the ground that it is a criminal statute, the gold rush may be curbed.

Legislation has also been introduced in Congress aimed at reducing the number of false marking cases.  But experts predict that patent reform will not pass anytime soon unless a bipartisan bill is introduced.

Nevertheless, companies should not rest on their laurels waiting for the Federal Circuit or Congress to reign in the false marking suits.  It is critical to take steps now to ensure accurate marking of products.  The existence of a compliance program will go a long way toward rebutting the presumption of intent to deceive the public in a false marking case. 

So while false marking claims may prove to be a gold rush of sorts, in any gold rush, there are always some who find the gold.  Make sure it is not your company or client whose gold is taken.