On February 23, 2011, the U.S. District Court for the Northern District of Ohio found the statutory basis for false patent marking lawsuits, 35 U.S.C. § 292, unconstitutional under the Take Care Clause of Article II, United States Constitution.
Under Section 292, one who falsely marks products as being covered by invalid or expired products may be fined up to $500 "per offense." Although the statute was long-interpreted to prescribe such a fine for each decision to falsely mark, the Federal Circuit held in December 2009 that Section 292 "clearly requires a per article fine." This pronouncement has encouraged the bringing of lawsuits under Section 292, a qui tam statute under which any private citizen, whether harmed by the false marking or not, may sue and split any award with the government.
Pending legislation in the House of Representatives proposes to remove standing under Section 292 from non-competitors, or to modify Section 292 to provide a fine for each decision to falsely mark, rather than for each falsely marked article. Such legislation, if passed, is likely to reduce drastically the numbers of false marking lawsuits.
In the meantime, false patent marking battles continue to be fought in the courtroom. While settlement figures in false patent marking cases have been "modest," and while many cases have been resolved in favor of defendants for lack of intent to deceive, the Northern District of Ohio, in Unique Product Solutions Ltd. v. Hy-Grade Valve Inc., is the first court to declare Section 292 unconstitutional.
In Unique Product Solutions, defendant Hy-Grade, accused by plaintiff of falsely marking "a series of industrial valve products" as being covered by an expired patent, argued that Section 292 was unconstitutional under the Take Care Clause of Article II, which provides that the President "shall take Care that the Laws be faithfully executed." The Northern District of Ohio agreed with Hy-Grade, and pointed to the 1988 Supreme Court decision in Morrison v. Olson in holding that Section 292 "lacks any of the statutory controls necessary to pass Article II muster."
In Morrison, the court explained, the Supreme Court had held that the qui tam provisions of the False Claims Act were constitutional because such provisions were "crafted with particular care to maintain the primacy of the Executive Branch in prosecuting false-claims actions." By contrast, Section 292, according to the Ohio court, "essentially represents a wholesale delegation of criminal law enforcement power to private entities with no control exercised by the Department of Justice." In so characterizing Section 292, the court noted that, under the statute, a private citizen may bring an action without seeking approval from, or even notifying, the government, and that the government may not exercise control over, intervene in, or dismiss the action – despite the fact that such action is brought on its behalf. For various policy reasons, the court concluded that it is "essential that the government have control over when [false marking] cases are brought, and …. how they are settled." Because Section 292 does not provide the government with sufficient control, the court held, it is unconstitutional.
While an appeal to the Federal Circuit could be the next step for the plaintiff in Unique Product Solutions, the very same issue is already before the Federal Circuit in another case, FLFMC LLC v. Wham-O, Inc.