Our recent newsletters highlighted the flood of false marking lawsuits resulting from the Federal Circuit’s decision in the Forest Group, Inc. case and the potential to avoid liability by obtaining an opinion of counsel. Given the ease of filing suit and the potentially exorbitant damage awards, many corporations and manufacturers rightfully fear false marking lawsuits. Thanks to a decision by a federal court in Ohio, however, an end to these nuisance suits may be in sight.
Though punishable only by a civil fine, a federal statute makes false marking a crime. False marking consists of marking products with 1) expired patent numbers or 2) patents that do not cover the marked product. Since every falsely marked product constitutes a separate offense (punishable by up to $500) under the statute, damages can rise meteorically when the $500 is multiplied by hundreds or thousands of falsely marked products. The qui tam provision of the federal marking statute, which has formed the basis for these lawsuits, allows virtually anyone to sue a patent holder for false patent marking.
A plaintiff must also prove that the products were falsely marked with an intent to deceive the public. Perhaps in response to the rash of false marking suits, the Federal Circuit set the bar “particularly high” for proving deceptive intent. To be liable, a false marker must do so “for the purpose of deceiving the public.” Merely acting with knowledge of a false marking is not enough. Despite this relatively high standard of proof, false marking lawsuits continue to present a very real threat to corporations and manufacturers, because they can be brought by anyone – including the so-called false marking trolls who make it their business to sue for false marking.
The Unique Product Solutions Case
Indeed, one plaintiff alone filed 31 false marking lawsuits in the Northern District of Ohio in 2010. A decision last week, however, has the potential to drastically reduce the threat of false marking lawsuits.
Unique Product Solutions, Inc., the serial false marking plaintiff mentioned above, asserted a false marking claim against defendant Hy-Grade Valve, Inc. (“Hy-Grade”), alleging Hy-Grade marked and advertised a series of industrial valve products with an expired patent number. Since false marking claims arise under a criminal statute, the Court expressed concern that this allows private entities to enforce the law without adequate government participation. Under the Take Care Clause of Article II of the Constitution, the President “shall take care that the laws be faithfully executed.” Hy-Grade argued that the false marking statute is unconstitutional under this provision because the Executive Branch lacks sufficient control over litigation in which the United States is the real party in interest.
The Court agreed, and dismissed Unique Product Solutions suit on the ground that the qui tam provision of the false marking statute is unconstitutional. The false marking statute allows any private entity to file, prosecute and settle a criminal lawsuit in the name of the United States without the approval or notification of the Department of Justice. According to the Court, this broad prosecutorial power belongs in the hands of the federal government – not a private interest. In other words, government attorneys with no financial stake in the outcome should control false marking suits, rather than false marking trolls motivated solely by financial gain.
Although this decision may put an end to Unique Product Solutions false marking claims in the Northern District of Ohio, the national picture remains less clear. A pending Federal Circuit case may or may not weigh in on whether the false marking statute violates the Take Care Clause of the constitution. Until the false marking statute is amended or declared unconstitutional by a higher court, corporations and manufacturers remain exposed to the expense and hassle of false marking lawsuits. Patent holders may want to review their marking practices, as well as their patent portfolio, and implement appropriate due diligence procedures, which is prudent no matter which way the legal winds blow.