As noted in Reed Smith's earlier client alert, the potential for patent mismarking claims being filed against a wide variety of entities is great. During the week of February 22–25, 2010, one plaintiff in Chicago filed at least 27 complaints against a variety of entities, including Novartis (pharmaceuticals), Fiskars Brands (scissors), Pella Corporation (windows), and Hunter Fan Corporation (ceiling fans). Several businesses that were sued in the Northern District of Illinois were also sued by different plaintiffs alleging the same misconduct in other jurisdictions, such as The Quigley Corporation (also sued by Public Patent Foundation in the Southern District of New York) and Hunter Fan Corporation (sued by Patent Compliance Group, Inc. in the Northern District of Texas). Accordingly, we believe it both timely and important to update and inform you of this rapidly escalating tactic.
False marking cases have recently become a very significant concern for many businesses. On the plaintiff's side, there are no real clients with interests to protect or harms to redress (or even from whom discovery can be taken, placing a significant cost disadvantage on the defendant). The typical case involves a company that mass distributes products that are either marked with expired patents, or much less frequently, are marked with patent numbers that do not cover the marked product.1 A qui tam lawsuit is then filed in the name of an individual willing to take on the plaintiff's role, or in the name of a purported patent advocacy group.
Through our involvement in several of these cases, Reed Smith has gained both experience and the documents necessary to respond to these allegations, such that we are able to offer our services in a manner that efficiently allows our clients to respond to these complaints. For example, costs associated with originally preparing such documents are avoided, since the background research has already been conducted; the attorneys are already educated on the arguments and strategies; and highly similar documents have already been drafted in the cases that were filed earlier. Additionally, Reed Smith has attorneys on the ground in the jurisdictions in which the majority of these cases have been filed, including Brian Roche and Mike Bregenzer in Chicago, Maria Bernier and Kirsten Rydstrom in Pittsburgh, Carl Pierce and Tracy Quinn in Philadelphia, and Emily Kirsch in New York.
Although the patent marking statute has been in place for a long time, this litigation tactic has only arisen recently. Lawyers began to use the patent marking statute, 35 U.S.C. § 292(b), as a weapon against businesses with potentially deep pockets. The statute provides for a fine of up to $500 for each violation of the patent marking statute. While the plaintiffs argued that each marked product constituted a violation, several courts construed each "violation" to be each decision by an entity to mismark products, such that the number of violations was typically small, and large damage awards could not be obtained.
In its very recent decision in Forest Group, Inc. v. Bon Tool Co., __ F.3d __, 2009 WL 5064353 (Dec. 28, 2009), the Federal Circuit construed each "violation" to be each product marked with the false patent marking. Thus, where a company sold a large volume of products, the plaintiff's claim quickly becomes substantial.2
Should You Be Sued, Don't Panic
While Forest Group does create the potential for significant liability, it also provides some indication of how companies charged with false marking can defend the damages-element of the claim. Section 292 provides a maximum penalty of $500 per article. In addressing what fine would be appropriate for any given case, the Federal Circuit in Forest Group noted that:
[T]he 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. In 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.
Id. at 2009 WL 5064353, *6. This language allows for a defendant to argue that for mass-produced products, the proper measure of damages when assessing risk is in the range of a fraction of a penny per article, and not the staggering amount of $500 per article. Yet the risk remains because the court does not give any guidance on what penalty would be "disproportionate," and how the lower courts are to exercise their discretion in striking the appropriate balance. And who decides in the first instance? A jury or the court?
Given the potential range of damages and uncertainty in the standard that applies, defendants have begun to focus on other defenses, such as lack of standing and lack of intent to deceive. These, and other important issues, are currently before the Federal Circuit in Pequignot v. Solo Cup Co., Appeal No. 2009-1547, and Stauffer v. Brooks Brothers, Inc., Nos. 2009-1428, 2009-1430, 2009-1453.
In Stauffer v. Brooks Brothers, Inc., 615 F. Supp. 2d 248 (S.D.N.Y. 2009), the plaintiff—a patent attorney—brought a claim under 35 U.S.C. § 292 alleging that Brooks Brothers falsely marked its bow ties with two expired patents. Brooks Brothers moved to dismiss, arguing that the plaintiff lacked constitutional standing because there was no injury in fact. The district court granted the motion and held that "the complaint fails to allege with any specificity an actual injury to any individual competitor, to the market for bow ties, or to any aspect of the United States economy." Id. at 255. The district court found the allegation "that some competitor might somehow be injured at some point, or that some component of the United States economy might suffer some harm through defendant's conduct, is purely speculative and plainly insufficient to support standing." Stauffer will require the Federal Circuit to address whether a plaintiff in a Section 292 case must demonstrate concrete injury to himself, competitors, or the economy of the United States in order to establish Article III standing.
Section 292 provides that to be liable for false marking, the alleged false marking must have been done "for the purpose of deceiving the public." In Pequignot, the plaintiff argued that the Federal Circuit's decision in Clontech Laboratories, Inc. v. Invitrogen Corp., 406 F.3d 1347 (Fed. Cir. 2005), set the standard for intent under Section 292 as simply knowing that the article was falsely marked. The district court rejected this argument and granted summary judgment for Solo Cup. It found that even though Solo Cup knew that the patents covering certain of its products had expired, and Solo Cup made a conscious decision to continue marking the products with the expired patent numbers, Solo Cup was entitled to summary judgment because it continued to mark the subject products to save money, not with the intent to deceive. Removing the patent numbers from the product would have required re-tooling the manufacturing equipment used to stamp the lids with the patent numbers. The Federal Circuit's decision in Pequignot will likely decide the requirement for meeting the intent-to-deceive-the-public element of § 292.
Pequignot also presents the question of whether marking a once-patented product with an expired patent number is false marking under 35 U.S.C. § 292. The defendant/appellee has argued to the Federal Circuit that marking a product with an expired patent is not false marking under Section 292. If the Federal Circuit agrees, this decision would likely be dispositive of many cases as the complaints are limited to the allegation that products were marked with expired patents, rather than that the products were marked with unexpired patents that did not cover the products.
Section 292 prohibits marking any "unpatented article with the word 'patent' or any word or number importing that the same is patented." The typical false marking case is one where the defendant marked a patented product with an expired patent. The Pequignot case may also decide whether a defendant who has a patented product marked with an incorrect and expired patent number is liable, because in that instance, the product is not unpatented, and therefore, there is no false marking.
While the reality and potential impact of these suits remains a question because of the lack of full consideration by the courts, companies need to consider whether their current marking strategy potentially exposes them to such claims. A review of existing marking strategies should be undertaken to minimize the likelihood of being the target of a mismarking complaint. Where patents have expired, identification of those patents should be removed from the products, or otherwise identified as not covering the product in question.