The False Patent Marking “Goldrush,” and How to Steer Clear of Prospectors Technology Transfer Tactics March 8, 2011

What is a Patent Marking Claim? 35 U.S.C. § 292 Statute creates a cause of action against anyone who falsely marks or falsely advertises an unpatented product as patented with the intent to deceive the public.

The Statute Quasi Criminal in Nature. Qui Tam Statute – Private party “relators” bring a claim on behalf of the U.S. Government. One-half of penalty amount goes to government and one-half to relator.

What is the Harm? False Marking Hurts Competition. For example, may deter others from creating or using similar products/methods. It also inhibits innovation. False Marking Hurts Consumers. “Undermines” the public’s trust in notice provided by accurate markings. False Marking Deceives the Public. Promotes fraud on the Patent System.

History 1842 Statute Enacted Prior to 2010 claims under statute were limited by courts to a single $500 per offense. Generally speaking, there was relatively little litigation on the issues and standards required.

Why the Flood of Litigation Now? In December of 2009: Federal Circuit issued its decision in Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009). Federal Circuit held that a correct measure of damages should be calculated on a “per article” basis rather than a per claim basis.

Pending Cases & Practical Issues More than 750 cases have been filed since the Bon Tool decision. Over 100 have settled. Settlement ranges are from $2,000 to $350,000. Problems: Not easily dismissed during early stages; relators seek extensive settlement numbers at outset; what if you get sued in more than one jurisdiction?

Early, Unsuccessful Defenses

Expired Patents are Not “Unpatented” Articles Holding: According to Pequignot v. Solo Cup Co, 609 F.3d 1356 (Fed. Cir. 2010), products covered by now-expired patents are “unpatented” within the meaning of the false marking statute. Related Issues: Products that are not covered by the patent; patents declared invalid; conditional markings (“patent may be covered”); patent pending.

Relators Have No Article III Standing Asserted Defense: Relators lack Article III jurisdictional standing to bring false marking claims because they have no actual injury. Holding: According to Stauffer v. Brooks Brothers, 619 F.3d 1321 (Fed. Cir. 2010), relators have Article III standing as assignees of the U.S. government’s claims.

Viable Defenses

Statute is Unconstitutional Constitutionality Defense: The patent marking statute is unconstitutional under the Article II “Take Care” clause because it fails to provide necessary oversight of the qui tam litigant and safeguards for government to control the litigation. Pending Appeals on this Issue: FLFMC V. Wham- O Inc. (W.D. PA); Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. (N.D. Ohio).

No Intent to Deceive Patent marking claims are fraud-based. Plaintiff must show that the defendant company mismarked its products with an actual intent to deceive the public. Unresolved Issues: What type of showing is required to overcome motion to dismiss? Summary judgment?

Pleading Requirements Courts are split on the applicable standard. Several district court cases have been dismissed for failure to adequately plead an “intent to deceive” because they find that intent to deceive must be pled with specificity to meet requirements of Fed.R.Civ.P. 9(b).

Remaining Defenses Brinkmeier v. Bic Corporation Civ. No SLR Complaint dismissed because plaintiff pled only boilerplate and conclusory allegations. Other courts require only the bare requirements of Fed.R.Civ.P. 8

Intent to Deceive Standard “Intent to deceive is a state of mind arising when a party acts with sufficient knowledge that what it is saying is not so and consequently that the recipient of its saying will be misled into thinking that the statement is true” Forest Group, 590 F.3d at 1300, citing Clontech Labs, Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed Cir. 2005). More Recent: Purpose of deceit, rather than simply knowledge that a statement is false, is required. Pequignot v. Solo Cup Co., 608 F.3d 1356, 1363 (Fed. Cir. 2010).

Intent to Deceive Standard The bar for proving deceptive intent in patent marking cases “is particularly high, given that the false marking statute is a criminal one, despite being punishable only with a civil fine.” Pequignot, 608 F.3d at Mere knowledge that a marking is false is insufficient to prove intent if the defendant can prove that it did not consciously desire to deceive the public.

Rebuttable Presumption Rebuttable presumption of intent to deceive arises if: 1. There is a misrepresentation; and 2. The party making the misrepresentation had sufficient knowledge of its falsity to warrant drawing the inference of fraudulent intent. Clontech, 406 F.3d at Pequignot v. Solo Cup Co.

Rebutting the Presumption Prompt remedial measures. Reliance on opinion of counsel. Testimony and documents (e.g., schematics or drawings) related to changes in manufacturing, tooling, and packaging of the product(s) at issue. Testimony that marking is the result of inadvertent error or oversight. Lack of strong educational background or familiarity with patents.

Damages Within court’s broad discretion. Maximum Penalty of $500 Per Product. “Fraction of a Penny” Per Product is Permissible. 5 year limitations period under 28 USC § Bon Tool remand.

Custom Designs of Nashville Custom Designs of Nashville v. Alsa Corp, -- F.Supp.2d--; 2010 WL (M.D. Tenn) Alsa admitted to false marking. Court refused to impose maximum penalty because resulting fine of $560,000 was excessive given total revenue from sales was $71, Court imposed penalty of 10% of total revenue from sales or $6.33 per article, total of $7,

Legislative Reform Patent Lawsuit Reform Act of 2011 (H.R.243) –Introduced by Congressman Bob Latta. –Single $500 penalty –Plaintiffs must have suffered "competitive injury" to have standing. –Reform "is now needed to help companies fend off frivolous lawsuits and strengthen current law."

Legislative Reform The Patent Reform Act of 2011 (S. 23) –Introduced on January 25, 2011 by Senator Leahy –Passed Senate on 3/1/2011. –Moving through House more slowly –Expect debate in the coming weeks.

Legislative Reform Current Statute: Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States. Pending Amendment: A person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.

Minimize Your Risks 1.Undertake cost-benefit analysis to determine whether marking at all is really worth it. 2.Undertake an audit of all products to determine which contain patent markings. Ensure that all expired patents are removed and all other markings are accurate. 3.Maintain a docketing system so the company is well aware when a patent is set to expire so all markings can be removed.

Minimize Your Risks 4.Upon expiration or a determination of invalidity, remove all patent markings. 5.Do not mark products with a long list of patents that “may” be applicable to the product. Be as accurate and succinct as possible with all patent markings. 6.Review patent markings whenever products are reviewed, repackaged, purchased or licensed.

Minimize the Risks 7.Shift the risk of loss in any purchase agreement or license to the seller/licensor if the products are marked. 8.If the accuracy of any markings is questionable, or if altering current markings would be extremely cost prohibitive or extensive, obtain an opinion letter as to whether the patents indeed cover the product. A thorough opinion letter can be very valuable in any future litigation and could negate any intent to deceive the public.

Questions?