On December 28, 2009, the Federal Circuit ruled that the false marking statute, 35 U.S.C. § 292, applies to each article that is falsely marked. Forest Group, Inc. v. Bon Tool Co., No. 2009-1044 (Fed. Cir. Dec. 28, 2009). The main issue in Forest Group was whether the monetary fine authorized by § 292 applies to each falsely marked article or whether the decision to falsely mark multiple articles constitutes a single violation. Judge Moore, writing for Judge Rader and Senior Judge Plager, explained that the statutory language, the legislative history, and the statute's purpose all supported the court's holding that "each article that is falsely marked with intent to deceive constitutes an offense under 35 U.S.C. § 292."
Forest Group may lead to significant developments in the area of marking patented products:
- Companies may want to review current products to ensure that any markings comply with the law and do not create potential financial liability for each falsely marked product.
- Companies selling products marked as "patented" need to be vigilant about keeping the patented status of the product current and accurate.
- Additional qui tam lawsuits involving falsely marked products can be expected, as the Federal Circuit expressly noted the value of qui tam suits in policing false marking.
At the same time, however, the court tempered the impact of its ruling. The court explained that, while the statute applies to each marked article, the district court has discretion to impose fines of less than the maximum of $500. The statute, the court noted, "provides a fine of 'not more than $500 for every such offense.'" Slip op. at 13 (emphasis in opinion) (quoting 35 U.S.C. § 292(a)). How district courts decide the proper financial penalty will likely be the subject of further litigation.
The Patent and Legal Claims at Issue
Forest Group sued Bon Tool for infringement of U.S. Patent No. 5,645,515 (the '515 patent), which claims "an improved spring-loaded parallelogram stilt of the type commonly used in construction." Slip op. at 2. The two inventors of the '515 patent each formed a separate company for selling the patented stilts, Forest Group and Southland Supply Company. The two inventors assigned the '515 patent to Forest Group, and Southland took a license from Forest Group. Southland sold stilts to Bon Tool, a tool reseller and the accused infringer. Bon Tool subsequently stopped buying stilts from Southland and started purchasing stilts from Shanghai Honest Tool Co., Ltd., which manufactured the stilts without a license from Forest Group.
As a counterclaim, Bon Tool alleged that Forest Group had falsely marked its stilts with the '515 patent number. Id. at 3. The district court agreed, ruling that Forest Group's patent markings were false. The district court also found that, after November 15, 2007, Forest Group possessed "the requisite knowledge that its S2 stilt was not covered by the '515 patent after a district court in a related case granted summary judgment of noninfringement." Id. at 4. The district court assessed a $500 fine for a single offense of false marking.
On appeal, Forest Group contested three issues, only two of which directly relate to the marking statute. First, Bon Tool argued that Forest Group did have the requisite knowledge to falsely mark prior to November 15, 2007. Second, Bon Tool contested the district court's § 292 interpretation, under which the statute penalized only the decision to mark rather than each article. The Federal Circuit affirmed the district court's ruling concerning the requisite knowledge of false marking but reversed the statutory interpretation of § 292.
The Statute and the Federal Circuit's Analysis
Section 292 provides a civil penalty for false marking of goods:
Whoever marks upon, or affixes to, or uses in advertising 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.
35 U.S.C. § 292(a) (2006). Under Federal Circuit law, "[t]he two elements of a § 292 false marking claim are (1) marking an unpatented article and (2) intent to deceive the public." Slip op. at 8 (citing Clontech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005)).
The Federal Circuit quickly disposed of Bon Tool's challenge to the factual finding concerning the date by which Forest Group had an intent to deceive the public. Before the district court were the facts that "the patent application was written by experienced patent counsel who had an exemplar of the stilt," that "neither Mr. Lin nor Mr. Armstrong had 'strong academic backgrounds' or 'in-depth appreciation of patent law,'" and that "Mr. Lin was not a native English speaker." Id. at 7. Based on this evidence, the district court's factual finding of no intent to deceive prior to November 15, 2007, was not clearly erroneous.
The Federal Circuit provided a more in-depth analysis for its de novo review of the statutory construction. Starting with the statute's text, the court observed that "the statute's plain language requires the penalty to be imposed on a per article basis." Id. at 8. In the court's view, "[t]he statute requires a fine to be imposed for every offense of marking any unpatented article." Id.
The court also distinguished the oft-cited First Circuit case of London v. Everett H. Dunbar Corp., 179 F. 506 (1st Cir. 1910). In that case, the court held that the false marking statute then in force permitted only a single fine for continuous false marking. The Federal Circuit explained, however, that London addressed different statutory language and, in 1952, Congress modified the statute with an explanation that courts had been applying the old statute as a maximum fine of $100, which Congress thought ineffective. Forest Group, slip op. at 9.
The Federal Circuit also considered policy reasons supporting its statutory interpretation. The court noted that "[a]cts of false marking deter innovation and stifle competition in the marketplace." Id. at 11. The court observed that "[f]alse marking 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." Id. "These injuries occur each time an article is falsely marked," and therefore assessing a fine for each improperly marked article should, in the court's view, prevent such injuries. Id.
Finally, in an approving tone, the court wrote that "the false marking statute explicitly permits qui tam actions." Id. at 13. Forest Group had argued the court's interpretation of § 292 "would encourage 'a new cottage industry' of false marking litigation by plaintiffs who have not suffered any direct harm." But the court was not persuaded. The court recognized that, "[b]y permitting members of the public to sue on behalf of the government, Congress allowed individuals to help control false marking." Id.; see also 35 U.S.C. § 292(b) ("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.").
The approval of qui tam litigation was balanced by the court's recognition that each statutory violation does not necessarily equate to a fine of $500 per violation. The court observed that "[t]he statute provides a fine of 'not more than $500 for every such offense.'" Forest Group, slip op. at 13 (emphasis in opinion) (citing 35 U.S.C. § 292(a)).
By allowing a range of penalties, the statute provides district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities.
Id. The court noted 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." It is uncertain whether Forest Group will lead to large civil fines in qui tam actions for false patent marking.