The past year has seen an explosion of false patent marking cases brought by so called "false marking trolls"—plaintiffs who have suffered no individualized harm and seek to profit from others' improper patent marking.  With the rise of these lawsuits, strategies have evolved for defending against them, but not all have been successful.  This article describes the latest strategies being employed to combat false marking claims, as well as possible legislative action under consideration by Congress.

False Marking and the Rise of "False Marking Trolls"

Patent marking is dominated by competing interests—the need to mark versus the risk of marking incorrectly.

In many circumstances, a patent holder suing for infringement can only recover damages for infringement of a U.S. patent that occurs after the infringer is "notified of the infringement."1 Marking an article with the word "patent" (or "pat.") followed by the patent number provides that notice constructively and preserves the right to a recovery of damages in the absence of actual notice.2

Such marking, however, also puts patent holders at risk if done incorrectly.  More specifically, marking unpatented products—including once patented products where the patents have expired—can give rise to a false marking claim.

The false patent marking statute, 35 U.S.C. § 292, creates a cause of action against anyone who falsely marks a product "for the purpose of deceiving the public."3  Any person may bring such a claim as a qui tam plaintiff on behalf of the United States.4  Under Section 292, defendants face a penalty of "not more than $500 for every such offense," with half going to the qui tam plaintiff and half to the government.5

Until recently, courts defined the continuous false marking of multiple articles as a single "offense," regardless of how many individual articles were falsely marked.6  With the possible recovery being so small, qui tam plaintiffs had virtually no economic incentive to sue for false marking, and very few cases were brought under the statute.  The landscape drastically changed in 2009, however, with the Federal Circuit's decision in The Forest Group, Inc. v. Bon Tool Company.7

Bon Tool redefined the term "offense," creating an economic incentive to sue and thereby giving rise to "false marking trolls."  Now, each article that is falsely marked with an intent to deceive the public is held as a separate actionable "offense."  Accordingly, for example, a company that falsely marks an expired patent number on 100,000 unpatented products could  face a penalty of up to $50 million under Bon Tool's scheme. 

The Federal Circuit justified its decision by stating that false marking "deter[s] innovation and stifle[s] competition in the marketplace," by dissuading "potential competitors . . . from entering the same market," and the chance that potential competitors will see the false mark and be deterred from competing increases as the number of falsely marked articles increases.8 Also, the court noted that preventing false marking was clearly important to Congress, as it enacted a statute encouraging private citizens to sue on its behalf; therefore, "render[ing] the statute completely ineffective" by limiting the recovery to $500 would be contrary to Congress' intent.9  Predictably, as Bon Tool even acknowledged, the prospect of much larger monetary recoveries prompted a flood of false marking suits.

Early Strategies for Defending Against False Marking Claims

Initially, two strategies were attempted to defeat false marking claims: (i) challenging the standing of qui tam plaintiffs based on a lack of competitive injury; and (ii) challenging the intent to deceive requirement for an actionable claim.  The former was employed in Stauffer v. Brooks Brothers, Inc.,10 and the latter in Pequignot v. Solo Cup Company.11

In Stauffer, plaintiff Stauffer sued Brooks Brothers under Section 292, alleging that Brooks Brothers marked adjustable bow ties with patent numbers that had expired in the 1950s.  In reversing the district court's dismissal of Stauffer's case for lack of standing, the Federal Circuit applied the test for Article III standing that the Supreme Court set forth in Vermont Agency of Natural Resources v. United States ex rel. Stevens.12  Under this test, a plaintiff must demonstrate the following:

(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.13

The Federal Circuit found that Stauffer met this test.  Because Section 292 is a qui tam provision that assigns the United States' rights to private plaintiffs, "to have standing, Stauffer must allege that the United States has suffered an injury in fact causally connected to Brooks Brothers' conduct that is likely to be redressed by the court."14  Whether Stauffer himself was personally harmed is irrelevant.  In finding that a violation of Section 292 "inherently constitutes an injury to the United States" because "Congress has, by enacting section 292, defined an injury in fact to the United States,"15 the Federal Circuit essentially removed any barrier that the standing requirement may have posed in false marking cases.  Unfortunately for false marking defendants, this decision made clear that any member of the public, regardless of personal injury, is a potential plaintiff.

In Pequignot v. Solo Cup Company,16 defendant Solo Cup used a different strategy.  Instead of attacking standing, Solo Cup argued that plaintiff failed to prove the requisite "intent to deceive" and met with greater success. On appeal to the Federal Circuit, Solo Cup argued that Pequignot failed to prove that Solo Cup intended to deceive the public when, at the advice of outside counsel and to save money, it stamped at least 21 billion cup lids with two expired patent numbers and marked packaging with the statement, "[t]his product may be covered by one or more U.S. or foreign pending or issued patents."  Solo Cup marked the lids with expired patent numbers despite knowing that the patents had expired.

The Federal Circuit held that if plaintiff shows both that Solo Cup's patent markings were indeed false and that Solo Cup knew that they were false, a rebuttable presumption of intent to deceive under the statute arises.17  But such a showing does not, as plaintiff argued, irrebuttably prove that defendant has the requisite intent to deceive; rather, the defendant can rebut the presumption by showing a lack of intent.  The Federal Circuit agreed.  Indeed, because Section 292 is, at bottom, a criminal statute, the court noted that "[t]he bar for proving deceptive intent . . . is particularly high."18  Applying this standard, the Federal Circuit affirmed the district court's holding that Solo Cup had rebutted the presumption by showing by a preponderance of the evidence that its purpose was not to deceive the public, and it concluded that Solo Cup acted "in good faith reliance on the advice of counsel and out of a desire to reduce costs and business disruption."19

While this strategy proved successful in Solo Cup, its usefulness in other cases may be limited.  Solo Cup presented unequivocal evidence that it acted without an intent to deceive.  In other cases where the evidence is not as clear, however, this strategy may not be as effective.

Promising New Strategies to Fight False Marking Trolls

Considering the failures and limitations of the Stauffer and Solo Cup tactics, new strategies for defending against false marking claims are being employed.  These are largely procedural in nature and include motions to dismiss for failure to plead intent to deceive with particularity under Federal Rule of Civil Procedure 9(b) and motions to transfer under 28 U.S.C. § 1404.

Since Solo Cup, federal district courts and, recently, the Federal Circuit have recognized that the allegations of an intent to deceive required to sustain a false marking claim are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) because the requisite intent for false marking is tantamount to fraud.20  Rule 9(b) provides in relevant part that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake."21 If a plaintiff fails to meet this heightened pleading requirement, the case is insufficiently pled and defendant can make a motion to dismiss per Federal Rule of Civil Procedure 12(b)(6).

To satisfy Rule 9(b), plaintiff's allegations must address the "who, what, when, where, and how" of defendant's alleged violation of the false marking statute.22  But in doing so, the pleadings must explicitly (not impliedly) state the circumstances constituting fraud.23  Simply alleging that a defendant is a sophisticated company with extensive patent experience is legally insufficient to prove intent to deceive,24 and if plaintiff fails to make specific factual allegations, a court is "correct not to draw any permissive inference of deceptive intent."25  Thus, if a false marking plaintiff has not adequately completed its pre-suit investigation, it may lack the necessary facts to support its claim, and its case risks dismissal.

Another strategy to hinder (albeit not defeat) the claims of false marking trolls is a motion to transfer under 28 U.S.C. § 1404.  Section 1404(a) provides: "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought"26—in other words, to any other district court where venue is proper.  In deciding motions to transfer under Section 1404(a), the court has discretion in weighing several private and public factors, which vary by district court.27 Common private factors, however, include the following: "(1) plaintiff's choice of forum; (2) the situs of material events; (3) the relative ease of access to sources of proof; (4) the convenience of the parties; and (5) the convenience of witnesses."28   Likewise, common public factors include the court's familiarity with the applicable law, judicial efficiencies, and relevant court congestion.29

Most favorable to defendants is that the usual rule that plaintiff's choice of forum is given substantial weight is inapplicable in a qui tam action because the plaintiff is actually the United States, and a qui tam plaintiff will be required to contribute very little to the lawsuit.30  Also notable is that the convenience of non-party witnesses is the often most important factor, which comes into focus when the plaintiff unwisely chooses a forum that lacks subpoena power over these witnesses.31 Moreover, if plaintiff's choice of forum is distant from the case's "center of gravity," the other private factors will also likely weigh in favor of a transfer.  Although incapable of fully dismissing the claim, transfers under Section 1404(a) can be powerful because they may require a plaintiff's witnesses to testify in districts distant from the plaintiff, providing a disincentive to continuing plaintiff's action.

Accordingly, while false marking defendants suffered a defeat in Stauffer, viable means of defense exist through motions to dismiss and motions to transfer and, later in the proceedings, under the holding of Solo Cup.

A Possible Legislative Solution

In January 2011, the House and Senate both introduced bills to amend Section 292 to combat the proliferation of lawsuits that arose in the wake of Bon Tool.  The House bill, called the Patent Lawsuit Reform Act of 2011 (H.R. 243), was introduced by Congressman Bob Latta (R-Ohio) and would directly counter the recent Federal Circuit decisions responsible for the increase of patent false marking cases.  First, it would counteract Bon Tool to limit the fine to $500 for each false marking suit brought.32  Second, it would supersede Stauffer to require that a false marking plaintiff has personally "suffered a competitive injury as a result of a violation of this section" to have standing to file suit.33  The Senate bill, a sweeping patent reform measure called the America Invents Act (S. 23), was introduced by Senator Patrick Leahy (D-Vermont) and would make Section 292's existing cause of action only available to the United States itself (i.e., not to qui tam plaintiffs), while creating a separate cause of action that allows for recovery of damages "adequate to compensate for the injury" to individuals who have personally suffered a competitive injury.34  On March 8, the Senate passed S. 23 by a vote of 95-5, and it is pending consideration in the House.35 

These bills, however, will not effect change immediately, as all new legislation takes time to implement.  It also remains up for debate whether any amendment would apply only prospectively or to pending cases as well.  Nevertheless, until any such bill is signed into law, patent holders must remain diligent in ensuring that their patented products are properly marked.

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In sum, the prediction that the Federal Circuit's decision in Bon Tool would spurn a "cottage industry" of false marking suits has come true.  Indeed, false marking suits represent the main reason why patent litigation saw an increase in the past year.36  But despite the initial success certain plaintiffs have had in maintaining these cases, viable defense strategies can be employed to combat these claims until Congress puts the genie back in the bottle.