A recent decision in the U.S. Court of Appeals for the Federal Circuit (The Forest Group, Inc. v. Bon Tool Co., No. 09-1044 (Fed.Cir. 2009)) has changed the way the penalty for false patent marking is determined. The decision has greatly increased the risk for patent holders of incurring very large penalties if they are found liable for false marking.

Earlier in the case, the district court had imposed a $500 penalty for a single offense in the belief that the Forest Group made only one decision to mark multiple products manufactured in a single production run.

In the past, the courts have interpreted an "offense" as being the overall false patent marking conduct. Nonetheless, on appeal, the Federal Circuit stated that the plain language of the statute does not support the district court’s interpretation and held that the statute “clearly requires that each article that is falsely marked with intent to deceive constitutes an offense under 35 U.S.C. § 292.”

This new interpretation can have serious economic impact on the unwary patent holder. Patent holders must be more careful than ever to ensure that all product patent markings are current and that all products carry the correct patent number(s).

Patent holders are permitted to mark their products with a notice that the product is covered by a U.S. patent to discourage copying, and are required to do so to recover maximum patent infringement damages. However, the U.S. patent code provides a penalty for false marking (35 U.S.C. § 292), such as when a product is marked with a patent number but not actually covered by the patent.

Even a legitimate patent owner may run afoul of Section 292 if the owner continues to mark a product with the patent number after the patent has expired, been abandoned or found invalid, or if the product currently being sold is no longer covered by the patent due to product changes. The statute provides a penalty of “not more than $500 for every such offense.”

In the past, ordering a batch of 5,000 items, for example, might result in a single $500 penalty for false marking if anyone even bothered to sue to recover the penalty. Suits for false patent marking were rare. Under the new interpretation, the penalty would apply to each of the 5,000 items, thus greatly increasing the potential penalty.

Since any member of the public may sue for false patent marking and is entitled to collect half of the penalty with the remaining half going to the United States government, the increased damage awards now available provide a potentially lucrative business opportunity. A number of lawsuits have been filed seeking to take advantage of this new ruling. More lawsuits can be expected, and enterprises will likely be formed for the purpose of collecting money from patent owners engaging in false patent marking.

What should you do?

Patent owners should take prompt action to remove a patent marking on products upon expiration of a patent or upon the decision to abandon a patent by not paying a maintenance fee. Similarly, patent markings should be removed promptly if a patent is invalidated in a legal action.

In addition, patent owners should be mindful that design changes may result in a product no longer being covered by a patent. If that occurs, they should immediately cease marking the product as covered by the patent. Also, the decision to mark a new product design with a patent number should be made only after first making sure the patent actually covers the new product and none of the patents to be marked on the product have expired.