One aspect of the Smith-Leahy America Invents Act that goes into effect immediately is the elimination of qui tam actions for false marking suits under 35 U.S.C. § 292. The false marking statute prohibits marking as “patented” any product that is not patented. Section 292 previously allowed any individual to bring a qui tam action (i.e., for the government as well as the plaintiff) for violation of the statute, and collect statutory damages of up to $500 for each falsely marked product, with the damages award to be split between the individual and U.S. government.
The false marking statute first made an appearance in the Patent Act of 1870. About a century ago, the First Circuit took up the question of whether the 1870 statute meant to impose a single fine for continuous false marking of products, or a separate fine for each marked product. The London court found that the statute’s imposition of a $100 minimum penalty could not reasonably be interpreted to apply on a per article basis and therefore concluded that continuous false marking violations would be subject to a single penalty under the statute. The award being so limited, this law remained in the shadows for many decades.
The Patent Act of 1952 replaced the $100 minimum fine with a $500 maximum fine. Many courts continued following the guidelines of the London decision after the 1952 law went into effect and continued imposing a single fine for continuous false marking of products. Other courts recognized that a single $500 fine on false markers would be inconsequential, and therefore adopted a new approach of imposing time-based penalties, such as a fine applied on a monthly, weekly or daily basis.
The Explosion of False Marking Suits
In December 2009, the Federal Circuit in Forest Group, Inc. v. Bon Tool Co. recounted the history of this statute and disagreed with earlier approaches. The Court held that a single $500 fine for continuous false marking “would render the statute completely ineffective.” The Court also held that time-based penalties had no support in the plain language of section 292.
In reversing the long-standing London decision, the Federal Circuit addressed the public policy need to impose a fine for each product falsely marked, and found that the 1952 amendment from a $100 minimum fine to a $500 maximum fine rendered the reasoning in London outdated because Courts now had “the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large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 other words, after the 1952 amendment, courts had the authority to levy fines of just pennies per product if that made sense, and there was therefore no reason not to impose fines on a per product basis.
Even with the likelihood of very small fines being awarded per product, the total damages award for widely-sold products could be significant, and the potential for huge recoveries following the Forest Group decision led to an immediate explosion of over 1,000 false marking suits by various individuals and companies set up to file such suits. It appears that there have been over 400 settlements in recent false marking suits, with a combined payout of over $20 million (an average of about $48,000 per case), with half of the money going to the government.
Indeed, one argument presented to the Court in Forest Group was that per product fines would “encourage ‘a new cottage industry’ of false marking litigation by plaintiffs who have not suffered any direct harm,” but the Court found the argument unavailing at the time.
Radical Changes to Section 292
The elimination of qui tam actions for false marking suits under 35 U.S.C. § 292 in the new Patent Act is clearly Congress’s response to the Forest Group decision and the resulting aftermath. The new law restricts the $500 statutory penalty provided in § 292(a) to lawsuits brought by U.S. government. Section 292(b), which previously provided for qui tam suits, has been stricken and replaced by a provision that allows those who have suffered a “competitive injury” from the alleged false marking to sue for damages, which must be shown as necessary “to compensate for the injury.”
In addition, section 292(c) has been added to explicitly provide that the marking of a product with “a patent that covered that product but has expired” is not a violation of § 292. This change also appears directed at the recent growth of false marking suits, as many of them were based on a company’s failure to remove a patent marking from its products after expiration of the patent.
As a result of these amendments to section 292, nearly all of the 450 ongoing false marking suits will be subject to dismissal, and the recent spike in such suits is likely to drop to near zero for the foreseeable future. Other than competitor suits where actual injury can be proven, the new law effectively eliminates false marking suits.
Overall, the amendments to section 292 will be likely be hailed as eliminating frivolous lawsuits by plaintiffs seeking easy money for patent marking mistakes that resulted in no meaningful harm. The potential downside to the amendment is that companies may take a more lax approach to accurate marking of their products.