False Marking Litigation: The Floodgates Have Opened

If you or your company sells any device that indicates it is patented — you need to be aware.  A previously little known provision contained in the Federal patent law statutes has recently been making a lot of news.  Section 35 U.S.C. § 292 allows any private citizen to bring a qui tam action against any entity that falsely indicates that an unpatented product is indeed patented.  A qui tam action is a lawsuit that anyone can bring on behalf of the government.

The elements of a false marking claim are: (i) falsely marking an unpatented product as patented; and (ii) intent to deceive the public.  The statute further provides that any person who falsely marks a product “shall be fined not more than $500 for every such offense.”  Half of the recovery goes to the plaintiff (e.g. the person filing the lawsuit) and half to the government.

Due to the qui tam nature of these cases, a plaintiff is not required to show that it suffered any harm in order to have standing to file a lawsuit.  Thus, an entire cottage industry built around pursuing false marking claims arose earlier this year after a recent decision vastly expanded the amount of recovery available to a plaintiff who successfully brings a false marking claim.  In December 2009, the Federal Circuit Court of Appeals, in Forest Group, Inc. v. Bon Tool Company, 590 F.3d 1295 (Fed.Cir. 2009), held that the “$500 fine for every such offense” meant that the plaintiff could recover up to $500 for each and every item that was falsely marked.   This decision overruled a lower court’s decision that held the plaintiff could only recover up to $500 in total, regardless of how many items were falsely marked, because the decision to falsely mark the products was a sole decision made only once.   The Court did state that “in 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.”

Patented vs. Unpatented

Initially many companies that had been sued argued that a product that was previously covered by a valid patent, that had since expired, was not in violation of the statute because the product was not “unpatented.”   However, on June 10, 2010, the Federal Circuit issued its ruling in Pequignot v. Solo Cup Co., 2010 U.S. App. LEXIS 11820, wherein the Court held that a product marked with an expired patent was “unpatented” as that term is used in the false marking statute.

Intent to Deceive

At first blush, the Pequignot decision appears to do little in the fight to stem the tide of false marking claims-in fact it appears to encourage more litigation.  However, the court also addressed the question of what it means to intend to deceive the public. In answering this question the Court noted that the plaintiff bears a high burden in proving deceptive intent because the false marking statute is criminal in nature.  This means that mere knowledge of false marking is insufficient to prove deceptive intent.  Rather, there must be proof that the marker made a conscious decision to falsely mark the statute in order to mislead the public.  In Pequignot, the defendant continued to mark its products with expired patents to reduce costs and prevent a disruption of business.   While a defendant must do more than simply say that it did not intend to deceive the public in order to avoid liability, it is clear from the Pequignot decision that a legitimate reason for continuing to mark a product as patented will provide a valid defense to these claims.  For example, one defendant recently successfully defended a false marking claim by showing that it had mistakenly marked an unpatented item as patented because it believed it had acquired patent rights to the product when in fact it had not.1  Also, a court found no intent to deceive where a company’s advertising agency mistakenly labeled a product as patented when it was not.2

The flood of litigation that ensued after the Bon Tool decision not only caught the attention of lawyers across the nation, but also Congress.  There is current legislation pending in the Senate that will virtually put an end to these cases.  The proposed legislation (S.515) will require that a plaintiff show actual harm in order to file a lawsuit.  The bill, as currently written, will apply to all false marking claims pending at the time of enactment and those filed thereafter.  While this bill, like many other bills may die without being enacted, at least the courts are beginning to provide guidance as to the proper scope of damages and legitimate defenses to these nascent claims.

Tom Glass is a member of Strauss and Troy’s Litigation Department.  He can be reached at 513-629-9476.

1High Frequency Prods. v. Wynn’s Climate Sys., 1996 U.S. App. LEXIS 9957.
2Bibow v. Am. Saw & Mfg. Co., 490 F. Supp. 2d 128  (D.C. Mass. 2007).

This entry was posted in Litigation | Dispute Resolution, Published Articles, September, 2010