The Court of Appeals for the Federal Circuit ended 2009 with a decision that is already having a significant impact on patent litigation. In Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009), the Federal Circuit held that the false marking statute, 35 U.S.C. § 292, requires that financial penalties for false marking be imposed on a per-article basis. In other words, a separate financial penalty must be imposed for each individual product that is falsely marked with a patent number. Because the statute permits a penalty of up to $500 per article, the decision creates the possibility of enormous liability for patent owners and licensees and an incentive for false marking “trolls” to file suits around the country.
The false marking statute provides that “[w]hoever marks upon … in connection with 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.” At issue in Forest Group was the appropriate interpretation of the phrase “for every such offense.”
Historically, courts were inconsistent in their interpretation of that provision. Some used a decision-based approach (i.e., a penalty for each decision to falsely mark), others used a time-based approach, and still others used a per-article approach in determining penalties for false marking. The Federal Circuit interpreted the statute as requiring per-article penalties.
The false marking statute can be used both as a defense to an infringement claim and as the basis for initiating a qui tam lawsuit against a patent holder. The statute expressly provides for such suits, stating, “[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.”
In its decision, the Federal Circuit relied on the “statute's plain language” and policy considerations, stating that “[a]cts of false marking deter innovation and stifle competition in the marketplace … [and] can also cause unnecessary investment in design around or costs incurred to analyze the validity or enforceability of a patent whose number has been marked upon a product with which a competitor would like to compete.” The Court further noted that imposing just a single fine for each decision to falsely mark “would render the statute completely ineffective … [and] would be insufficient to deter in nearly all cases.”
While the Federal Circuit recognized that its per-article rule may encourage “a new cottage industry” of false marking litigation, it noted that courts have discretion to award less than the $500 maximum penalty, stating 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.” Regardless, the Federal Circuit's new rule encourages plaintiffs to file false marking suits and supports large damage awards in cases involving widely sold products.
On the other hand, patent owners and licensees can take some comfort in knowing that false marking is not a strict liability offense. Negligently mismarking a product is not sufficient to impose liability. The statute requires a showing that the patent holder falsely marked “for the purpose of deceiving the public.” The Federal Circuit explained that “[a] party asserting false marking must show by a preponderance of the evidence that the accused party did not have a reasonable belief that the articles were properly marked.” In Forest Group, the Federal Circuit affirmed the district court's finding of intent where two different district courts had construed the patent claims contrary to the patent holder's reading of the claims and granted motions for summary judgment of non-infringement such that the patent holder could no longer reasonably believe that its own products were covered by the patent claims as construed.
Early reports suggest that the false-marking cottage industry described by the Federal Circuit is becoming a reality. In the two and a half months since the Forest Group decision, at least 100 new false marking complaints have been filed against at least 130 companies. The vast majority of complaints allege false marking only against one or two companies, but one has alleged false marking against 14 different companies. The defendants in these suits cover a wide range of industries, from software and medical equipment to cleaning products and crayons. And the suits have been brought all over the country, including district courts in Alabama, California, Connecticut, Delaware, Florida, Georgia, Illinois, Michigan, New Mexico, New York, Ohio, Oregon, Pennsylvania, and Texas.
It is too early to tell how any of these false marking suits will play out in the courts. As of this writing, no district court has applied the holding of Forest Group. For now, patent owners and licensees find themselves in a bind. They must either mark their products in order to discourage infringement and maximize their damage award in an infringement suit, or risk he possibility of a false marking suit. One thing is clear: anyone marking a product with patent numbers needs to develop a plan to ensure accurate marking. As patents are granted or expire, or products are changed, updated, or acquired, patent holders would benefit from working with counsel to develop formal marking policies to keep track of such changes in their patents and products.