Since the Smith-Leahy America Invents Act (AIA) was signed into law on September 16, 2011, a handful of court decisions have turned on provisions of the act. While the full significance of this legislation on patent jurisprudence is far from manifest, one provision of the new law is having a major effect on “false marking” lawsuits, which had become a mutant species of litigation. Nine separate “false marking” suits have been decided based on the AIA amendments. The Court of Appeals for the Federal Circuit1, and federal district courts in California2, Illinois3, New York4, Pennsylvania5, and Texas6 have used the AIA to throw out false marking claims or counterclaims in pending lawsuits.
Section 292 of the pre-AIA Patent Act allowed a qui tam action (i.e. an action brought by a relator, not necessarily a party that suffered actual damages) against those who marked goods with a “false” patent number. The plaintiffs, many of whom were never injured, enjoyed half of the recovery while the government received the other half. The AIA prohibits qui tam actions in the false marking context and, instead, permits only the US Government or those who can demonstrate “commercial injury” to bring an action for false marking.
The impact of the AIA on false marking suits is not surprising. But, the fact that false marking suits achieved “vexatious litigation” status is ironic given the original intent of the law. When first enacted, section 292’s qui tam action was thought to represent an effective deterrent against those who intentionally and falsely mark their products with bogus patent numbers. However, the vast majority of cases alleging a violation of section 292 have been brought against those whose products have simply continued to carry an expired patent number. A cottage industry sprang up in recent years as those with no connection to the marked products brought suit simply for their share of the $500 per product fine.
To rid the US courts of this virus, Congress made several changes to the law and, to drive the point home, made the pertinent amendments effective retroactively, without exception, to all actions pending on or commenced after the date of the AIA’s enactment. Indeed, the new section 292 expressly provides that marking a product with a patent number that once applied to the product (notwithstanding that the patent is expired) is not a violation of the false marking provision of the new section 292.
The Court of Appeals for the Federal Circuit not only read the law but got the message. In Brooks v. Dunlop Manufacturing Inc., the plaintiff appealed the dismissal of his false marking case by a California federal district court pursuant to the amended section 292. The plaintiff in Brooks accused Dunlop Manufacturing of marking guitar strings with the patent number of a patent that had not only expired but had also been invalidated. On appeal, the plaintiff argued that the Due Process Clause of the US Constitution prevented Congress from applying the AIA amendment to pending qui tam actions because the act of instituting suit operated to bind the federal government to a unilateral contract and the retroactive application of the amendments to section 292 deprived him of this contract right.
The Court of Appeals did not find the plaintiff’s arguments compelling. It dismissed his arguments finding instead that his “contract” was not in writing, no judgment in his favor had been rendered or was final, Congress acted rationally to stop this type of vexatious litigation, a qui tam action merely gave the plaintiff standing (which Congress could (and did) easily take away), and that by doing so Congress did not deprive him of any vested property right.
In another case, Seirus Innovative Accessories Inc. v. Cabelas, Inc., filed in the US District Court for the Southern District of California and decided just over a month after the AIA was signed into law, the court not only granted summary judgment for the patent infringement plaintiff on the defendant’s counterclaim for false marking, the court rubbed it in by listing the types of evidence the defendant had failed to present in trying to meet its statutory burden of proving competitive injury under the newly-enacted law. The court explained that the defendant failed to show that it and the plaintiff were in fact competitors, failed to designate an expert to testify about the competitive injury, and failed to provide evidence that it had suffered money damages or lost property.
There is a lesson here. Congress and the courts have little patience with litigants whose business model involves abusing the laws and judicial resources of the government to further their strategic agenda.