Judges: Rader, Lourie (author), Moore

[Appealed from S.D.N.Y., Judge Stein]

In Stauffer v. Brooks Brothers, Inc., Nos. 09-1428, -1430, -1453 (Fed. Cir. Aug. 31, 2010), the Federal Circuit reversed a decision dismissing Raymond E. Stauffer’s false marking qui tam action for lack of standing and a decision denying the federal government’s motion to intervene.

Brooks Brothers, Inc. and its parent, Retail Brand Alliance, Inc. (collectively “Brooks Brothers”), manufacture and sell men’s bow ties. Some of the Brooks Brothers bow ties contain an “Adjustolox” mechanism that is manufactured by a third party, J.M.C. Bow Company, Inc. (“J.M.C. Bow”), and are marked with U.S. Patent Nos. 2,083,106 and 2,123,620, which expired in 1954 and 1955, respectively. Stauffer is a patent attorney who has purchased some of the marked bow ties. Stauffer brought a qui tam action under 35 U.S.C. § 292 alleging that Brooks Brothers had falsely marked its bow ties. Section 292, the “false marking” statute, provides that “[w]hoever marks upon, or affixes to . . . any unpatented article, the word “patent” or any word or number importing that the same is patented, for the purpose of deceiving the public . . . [s]hall be fined not more than $500 for every such offense.” It further provides that “[a]ny 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.”

Brooks Brothers moved to dismiss Stauffer’s complaint pursuant to Fed. R. Civ. P. 12(b)(1) for lack of standing and pursuant to Fed. R. Civ. P. 12(b)(6) for failure to allege an intent to deceive the public with sufficient specificity to meet the heightened pleading requirements for claims of fraud. The district court granted Brooks Brothers’ motion pursuant to Rule 12(b)(1), concluding that Stauffer lacked standing. The government then moved to intervene. The district court denied the motion, finding no basis for the government to intervene as of right and finding the showing for permissive intervention insufficient. Stauffer timely appealed.

On appeal, the Federal Circuit first considered the question of standing. The Court agreed with the government and Stauffer that Stauffer had standing to sue Brooks Brothers and that the district court erred in dismissing Stauffer’s suit for lack of standing based on a lack of injury in fact. The government argued that the United States’ interest in seeing its laws enforced itself leads to an injury in fact when those laws are not obeyed. The government also asserted that the United States has a proprietary interest in receiving half of the recovery in a suit under section 292. Stauffer argued that the public is injured by false marking and has suffered an injury in fact sufficient to confer standing. Stauffer also asserted that he has individually been injured as a member of the public, thereby demonstrating another injury to the public.

The Court noted that a plaintiff must show (1) that he has suffered an “injury in fact,” an invasion of a legally protected interest that is “(a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical”; (2) that there is “a causal connection between the injury and the conduct complained of”; and (3) that the injury is likely to be redressed by a favorable decision. Slip op. at 8 (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). The Court pointed out that section 292(b) is a qui tam provision, “i.e., a statute that authorizes someone to pursue an action on behalf of the government as well as himself.” Id. (citation omitted). The Court noted that “Congress has, by enacting section 292, defined an injury in fact to the United States.” Id. at 9. Thus, the Court concluded that the United States’ sovereign injury was sufficient to confer standing upon it and therefore upon Stauffer, as “its implicit partial assignee.” Id. at 11-12. The Court declined to address whether Stauffer’s alleged injuries to himself or his asserted injuries to competition give him standing, either individually or as a member of the public. The Court reversed the district court’s decision, concluding that Stauffer did not have standing, and remanded for the district court to address the merits of the case, including Brooks Brothers’ motion to dismiss pursuant to Rule 12(b)(6) “on the grounds that the complaint fails to state a plausible claim to relief because it fails to allege an ‘intent to deceive’ the public—a critical element of a section 292 claim—with sufficient specificity to meet the heightened pleading requirements for claims of fraud imposed by” Rule 9(b). Id. at 14 (citation omitted).

Next, the Federal Circuit concluded that the district court abused its discretion under Second Circuit law in denying the government’s motion to intervene. In the Second Circuit, a court “by definition abuses its discretion when it makes an error of law,” id. at 15 (citing Cordes & Co. Fin. Servs. v. A.G. Edwards & Sons, Inc., 502 F.3d 91, 98 (2d Cir. 2007)), and the Federal Circuit agreed with the government that the district court made an error of law in denying the government’s motion to intervene under Fed. R. Civ. P. 24(a)(2). Specifically, the Court found that the government has an interest in enforcement of its laws and in one half the fine that Stauffer claims, and Stauffer may not adequately represent that interest. Moreover, the Court found that the government would not be able to recover a fine from Brooks Brothers if Stauffer loses, as res judicata would attach to claims against Brooks Brothers for the particular markings at issue. Accordingly, the Court reversed the district court’s decision denying the government’s motion to intervene.