A federal court in Ohio has granted a defendant’s motion to dismiss a case involving claims for false marking after finding the qui tam provision in the false-marking statute unconstitutional. Unique Prod. Solutions, Ltd. v. Hy-Grade Valve, Inc., No. 10-1912 (U.S. Dist. Ct., N.D. Ohio, E. Div., decided February 23, 2011).
Meanwhile, Wham-O, a company sued for falsely marking its Frisbees™ with an expired patent number, has also challenged the constitutionality of the false-marking statute in its appeal to the Federal Circuit Court of Appeals. FLFMC LLC v. Wham-O, Inc., No. 2011-1067 (Fed. Cir., brief filed February 18, 2011). Wham-O’s position has garnered the support of the U.S. Chamber of Commerce and the Cato Institute, which have filed amicus briefs. Several recent Federal Circuit rulings have apparently spurred hundreds of falsemarking lawsuits because the potential damages at $500 per offense, interpreted by the court as per mismarked item, can be significant.
The Ohio court solicited briefing on the law’s constitutionality during a hearing on the plaintiff’s request to conduct limited discovery on personal jurisdiction. The defendant had initially moved to dismiss the complaint for lack of personal jurisdiction, improper venue and failure to state a claim on which relief can be granted. Thereafter, the defendant filed a motion to dismiss on the ground that 35 U.S.C. § 292(b) violates the Appointments and Take Care Clauses of the U.S. Constitution. The relevant false-marking statute section allows any person to sue for the penalty of $500 per false-marking offense and split the award 50-50 with the United States.
Under the Take Care Clause, the president “shall take Care that the Laws be faithfully executed. The Appointments Clause provides that the executive “shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the Supreme Court, and all other Officers of the United States.” According to Hy-Grade Valve, the qui tam provision of the false-marking statute violates these clauses because the executive branch lacks sufficient control over the litigation in which the United States is the real party in interest.
Finding that the false-marking statute is criminal, the court applied the “sufficient control” analysis of Morrison v. Olson, 487 U.S. 654 (1988), and determined that it was “clear” the government lacks sufficient control to enable that the president “take Care that the Laws be faithfully executed.” In fact, the court observed, “The False Marking statute essentially represents a wholesale delegation of criminal law enforcement power to private entities with no control exercised by the Department of Justice.” The court further noted, “It is unlike any statute in the Federal Code with which this Court is familiar. Any private entity that believes someone is using an expired or invalid patent can file a criminal lawsuit in the name of the United States, without getting approval from or even notifying the Department of Justice.”
The court was also concerned that “this uncontrolled privatization of law enforcement is exacerbated by the financial penalties in this statute. The penalty is up to $500 for each article falsely marked. Depending upon the number of items, this could be a staggering amount of money or a trivial amount.” According to the court, the government must “have control over when such cases are brought, and most importantly, how they are settled. Such decisions should be made by government attorneys who have no financial stake in the outcome of the litigation or settlement, not by private parties motivated solely by the prospect of financial gain.”