In late December, the US Court of Appeals for the Federal Circuit held in Forest Group, Inc. v. Bon Tool Co. that the penalty for false marking is applied on a per-item basis, with a potential maximum penalty of $500 per false marked item. This decision substantially departs from recent district court case law, in which courts have for the most part awarded only a total $500 penalty for false marking.
Patentees need to evaluate their current and future marking practices to avoid substantial potential liability for false marking. In addition, claims for false marking may now become a viable point of leverage in patent infringement cases.
The reasons for and new risks of marking a product
Patentees are generally advised to mark patented products to preserve their rights to damages for infringement. A patentee who fails to mark its products will be unable to recover infringement damages before it began marking or provided notice of infringement to the defendant.
A patentee may be liable for false marking upon a showing that a marked item is not covered by the patent and that the patentee had specific intent to deceive the public by marking the product. Specific intent may be shown upon evidence that the patentee did not have “a reasonable belief” that the product was covered by the patent. The false marking statute permits private plaintiffs, even if not directly harmed by any false marking, to assert a claim for false marking and be awarded 50% of any damage award.
The Federal Circuit’s recent decision in Forest Group – that the maximum $500 penalty for false marking applies to each item improperly marked – provides significant reason for care in marking decisions. Consider, for example, the relative infringement and false marking damages for a $10 product. The patentee marks each $10 product to preserve its right to potential infringement damages likely to amount to a small fraction of $10 per item. But by so marking, the patentee subjects itself to potential false marking damages of up to $500 per item or, in other words, up to 50 times its total revenues for the product. Based upon these relative liabilities, a patentee may do well to err on the side of under- rather than over-marking.
To mark or not to mark?
Below are some of the considerations that should be weighed by a patentee when deciding whether to mark:
Is the product covered by the patent?
- Whether an article “embodies” a patent requires an inquiry analogous to whether the article infringes a patent. Therefore, the patentee should review each marked product to ensure a reasonable basis exists for believing the product is patented.
- If the question of patent coverage is close, a patentee should carefully consider the relative risks and returns of marking.
- If a patent contains both apparatus and method claims and there is a tangible “article” to mark, marking is required. However, it may be false marking to mark a product with a patent that claims only methods but does not have product claims.
- Evidence of advice of counsel supporting a decision that a product should be marked may help to rebut any claim of intent to deceive, subject to privilege considerations.
Practice due diligence with respect to marking
- Any company that is marking its products should conduct a comprehensive review of each marked product to ensure that it is not over-marking. One should not list several patents on a product unless each and every patent covers the product at issue.
- As new patents are granted, carefully determine which products should be marked with the patent.
- Monitor patent expiration dates: false marking can be based upon the marking of a product even shortly after a patent has expired.
- Monitor changes in products: any time changes are made to a product’s construction or formulation that may affect patent coverage, re-evaluate patent marking.
- Control product advertising and packaging: ensure that product packaging and advertising is recent and properly updated. The potential liability for using “old” product packaging (perhaps with expired patent numbers) could be large.
- Licensors and licensees of patents should consider whether indemnity or other protective provisions may now be appropriate in light of greater false marking liability.
Before initiating any suit for infringement, a patentee should consider any potential counterclaims the defendant may be able to assert for false marking. Likewise, infringement defendants should consider any potential false marking by the plaintiff.