When President Obama signed the Leahy-Smith America Invents Act, H.R. 1249, 112th Cong. (1st Sess. 2011), the patent false marking claims that had become so popular were essentially eliminated. Whereas before anyone could bring such a claim, regardless of whether they had actually suffered any injury, now only those who have “suffered a competitive injury” as a result of a violation of the marking statute have standing to sue. (See35 U.S.C. § 292). The America Invents Act not only prohibits persons who have not suffered a competitive injury from suing in the future, it also divests the standing of plaintiffs in pending false marking cases from continuing to pursue those claims.
In Rogers v. Tristar Products, Inc., 2011-1494, -1495, the Federal Circuit had to decide if that divestment included cases on appeal, as well as cases current pending in district courts. After considering the clear language in the newly amended 35 U.S.C. § 292—“The amendments made by this subsection shall apply to all cases, without exception, that are pending on, or commenced on or after, the date of the enactment of this Act”—the Federal Circuit determined that all cases must be dismissed, regardless of where they were pending or what procedural posture they may be in, unless the plaintiff could demonstrate that it had suffered a competitive injury.
The Federal Circuit rejected plaintiff’s assertion that he had a property right in maintaining such a claim or that the retroactive elimination of his claim violated the Due Process Clause. The Court found that Congress had a legitimate justification for eliminating these types of claims and rationally made the requirements retroactive.
The America Invents Act has effectively eliminated the nascent cottage industry of individuals suing companies for leaving expired patent numbers on its products. Companies no longer need to fear that they will be sued in such circumstances by individuals who likely have never used the products in question. Despite this, companies still need to be concerned about monitoring their products to make sure that they are appropriately marked. In the high stakes of patent litigation, defendants are still likely to look at whether they can bring false marking counterclaims if they are sued. As a competitor, it will be far easier (although by no means certain) to establish a competitive injury.
Yesterday, the Federal Circuit heard oral arguments in FLFMC, LLC v. Wham-O, Inc. (No. 2011-1067) to decide whether the patent false marking statute (35 U.S.C. § 292) is constitutional under the “Appointments” and “Take Care” clauses of the United States Constitution (Article II, Sections 2 and 3). The panel is comprised of Judges Linn, Dyk, and Prost, and attorneys representing FLFMC, Wham-O, the US government, and the Chamber of Commerce of the United States of America argued before the Court. An audio recording of the argument can be heard here.
The district court below (from the Western District of Pennsylvania) dismissed FLFMC’s lawsuit, finding that it lacked standing to bring the action, and FLFMC appealed to the Federal Circuit.
It is difficult to predict how the Court will rule from the argument yesterday, but we can get an idea of some of the key issues that the Court is wrestling with. The argument chiefly focused on two key issues—(1) is there a sufficient government notice requirement in the statute and (2) does the government have sufficient control over the litigation to satisfy its constitutional obligations?
Does § 292 Require Notice to the Government?
As to the first issue, counsel for FLFMC noted that there is a provision for giving the USPTO notice of any lawsuit involving a patent (35 U.S.C. § 290) and many plaintiffs are giving the government notice as a matter of routine practice. Counsel for Wham-O countered that many plaintiffs are not giving notice under § 290 or otherwise and that § 290 only requires notice within 30 days of filing suit, by which time many cases have been settled and dismissed. In either case, the government is not getting adequate notice to fulfill its constitutional obligations. The government conceded that the notice under § 290 does not specifically indicate that the lawsuit involves allegations of false marking, so the government would have to specifically investigate every patent case filed to determine whether it involved false marking, as opposed to infringement, for example.
The Court clearly was concerned about the apparent lack of notice, and the panel questioned whether it could create a notice requirement to preserve the constitutionality.
Does the Government Have Sufficient Control of the Litigation?
The other key issue was the government’s ability to intervene and control the litigation. On its face, the statute is silent about government control and intervention. Counsel for FLFMC argued that the Federal Rules of Civil Procedure give the government the right to intervene because it has a stake in the outcome of the lawsuit, and that the Court can look to these Rules in determining the constitutionality. The Court seemed to accept this argument. Counsel for Wham-O countered that while the government may be able to intervene, it has no ability to control the litigation. It cannot force a dismissal of the lawsuit or reject a settlement. It can only ask the Court for assistance, which puts the government in no better a position that any other amicus or intervenor. There was also some dispute over whether civil litigants should be precluded from bringing suit if the government has already filed a criminal action.
Given the tenor of the argument, it seems safe to say that the Court has some concerns about the constitutionality of the false marking statute. Whether those concerns rise to the level of invalidating the statute is another question. What will be interesting is how the decision in this case will affect the legislation pending in Congress that rewrites the false marking statute (HR 1249, § 16 and S 23, § 2(k)). Should the Court hold that the current false marking statute is unconstitutional, it may require Congress to revisit the amendments to that statute.
The parties’ Federal Circuit briefs can be found here.
The District Court order finding no standing can be found here.
With the House and Senate passing versions of the America Invents Act that will reform the patent laws as we know them, I thought it would be interesting to look back at how patent false marking litigation burst onto the scene in 2010 and how it appears to be flaming out now in 2011. In the last two years, the patent world has been abuzz with claims of false marking brought by individuals against some of the largest companies in America. There were fears that this litigation would result in monstrous penalties where there was little “wrongful” action. As typically happens, these fears appear to have been overblown. While certainly a headache for those companies that were sued and for those companies that have gone to great lengths to verify compliance with the statute, the result seems to be more of a short-term inconvenience.
History of False Marking Law
False patent marking has been around for a long time, first appearing in the Patent Act of 1842, which prohibited the false marking of products with the intent to deceive the public with a fine of not less than $100. Later, in 1952, Congress changed the statute to impose a penalty of not more than $500 per offense:
(a) Whoever, without the consent of the patentee, marks upon, or affixes to, or uses in advertising in connection with anything made, used, offered for sale, or sold by such person within the United States, or imported by the person into the United States, the name or any imitation of the name of the patentee, the patent number, or the words “patent,” “patentee,” or the like, with the intent of counterfeiting or imitating the mark of the patentee, or of deceiving the public and inducing them to believe that the thing was made, offered for sale, sold, or imported into the United States by or with the consent of the patentee; or Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word “patent” or any word or number importing that the same is patented for the purpose of deceiving the public; or Whoever marks upon, or affixes to, or uses in advertising in connection with any article, the words “patent applied for,” “patent pending,” or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public– Shall be fined not more than $500 for every such offense.
35 U.S.C. § 292(a). Prior to 2009, courts interpreting these statutes held that the penalty should not be imposed for each article falsely marked, but rather should be imposed for the decision to falsely mark a product line. See, e.g., London v. Everett H. Dunbar Corp., 179 F. 506 (1st Cir. 1910). As a result, there was little incentive for a litigant to bring a false marking claim and few cases were filed.
Pequignot v. Solo Cup and Forest Group v. Bon Tool
In 2007, things began to change. Matthew Pequignot, a patent attorney, filed suit against Solo Cup for falsely marking its plastic cup lids with expired patent numbers. Pequignot argued that the prior holdings were incorrect and that penalties should be imposed per article. Because there were potentially over 21 billion cups that were falsely marked, Solo Cup theoretically faced more than $10 trillion in potential penalties under Pequignot’s interpretation.
As the case was winding its way through the courts, the Federal Circuit heard an appeal in an unrelated case Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009) that would ultimately spark a huge new cottage industry. Forest Group had a patent covering stilts commonly used in construction and sued Bon Tool for infringement of its patent. Bon Tool counterclaimed, alleging that Forest Group falsely marked its stilts. The court found that (1) Bon Tool did not infringe; (2) Forest Group had falsely marked some of its stilts and fined it $500 for a single offense of false marking; and (3) the case was not exceptional, so the court did not award attorney fees. Bon Tool appealed the last two findings, and the Federal Circuit determined that the fine under the false marking statute applies to each article falsely marked, not the decision to mark as the district court had held. (The Federal Circuit affirmed the decision not to award attorney fees). On remand, the district court imposed a fine of $180 for each of the 38 stilts that were falsely marked. Thus, the case that lit the false marking industry on fire and resulted in thousands of subsequent lawsuits was ultimately over a $6,840 fine.
Forest Group Launches a Thousand Suits
From 2007 to 2009, only 47 false marking cases had been filed in federal courts, but after the December 28, 2009 decision in Forest Group, patent attorneys and litigants stormed court houses across the country, filing almost 1,500 cases in the next year and a half. Given the potential $500 per article fine, companies that mass produced products were understandably concerned about facing potentially huge liability for wrongly marking their products.
Because false marking is a qui tam action and the statute appeared to authorize anyone to file suit, there was no need for patent attorneys to find clients who had been actually injured by the alleged false marking. Instead, patent attorneys were filing suit on their own or creating their own corporations to file suit against alleged false markers. The lawsuits tended to focus on products that had expired patent numbers, rather than products that were marked with inappropriate, but still valid, patent numbers. The reason was obvious—there was no need to go through the costly exercise of proving that the patent did not cover the product when the patent had expired. One could immediately jump to the question of whether the product was falsely marked with the intent to deceive the public.
Two later decisions by the Federal Circuit only intensified the flames sparked by the Forest Group decision. In Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010), the Court confirmed that marking a product with an expired patent number fell within the scope of the false marking statute (although it affirmed the judgment against Pequignot because he could not prove that Solo Cup acted with an intent to deceive). And, in Stauffer v. Brooks Brothers, Inc., 619 F.3d 1321 (Fed. Cir. 2010), the Court confirmed that anyone had standing to bring suit under the false marking statute, even if they did not suffer any direct personal injury.
The Federal Circuit appeared to be showing no inclination to beat back this fire. All indications were that a new form of patent “trolling” litigation was here to stay.
In February 2011, the Northern District of Ohio determined that the Qui Tam False Marking Statute, 35 U.S.C. § 292, was unconstitutional under the Take Care Clause in Article II of the United States Constitution. See our post on this decision. On June 2, 2011, Judge Eduardo Robreno from the United States District Court for the Eastern District of Pennsylvania dismissed plaintiff’s qui tam action on the same constitutional grounds. See Memorandum for a complete analysis of the legal issues by Judge Robreno. This issue is expected to be resolved by the Federal Circuit following argument in FLMC v. Wham-O Inc. in July 2011.
Check out this article published in The National Law Journal on April 1, 2011. The Federal Circuit’s decision in In Re BP Lubricants USA Inc. has had an impact already (in only a 3 week period of time) on the number of false marking cases on the dockets across the country.
In In Re BP Lubricants USA Inc., No. 960, 2011 U.S. App. LEXIS 5015 (Fed. Cir. March 15, 2011), BP Lubricants USA Inc. filed a petition for a writ of mandamus after the Northern District of Illinois denied BP’s motion to dismiss a complaint filed by a patent attorney as a qui tam relator on behalf of the United States pursuant to 35 U.S.C. § 292. The complaint alleged generally that BP falsely marked products as covered by a patent that expired in 2005. The district court relied on Exergen Corp. v. Wal-Mart Stores, Inc. and determined that the complaint alleged circumstances with enough particularity regarding the intent to deceive to satisfy Rule 9(b).
In its petition, BP asserted that the complaint lacked sufficient facts for a court to reasonably infer that BP knew its patent had expired when it was marking its products. The Federal Circuit concluded that false marking claims should be treated analogously to actions brought under the False Claims Act and held that “Rule 9(b)’s particularity requirement applies to false marking claims and that a complaint alleging false marking is insufficient when it only asserts conclusory allegations that a defendant is a ‘sophisticated company’ and ‘knew or should have known’ that the patent expired.”
Comments Off on High Pleading Standard Imposed by Federal Circuit for False Marking Claims
Plaintiff commenced an action in the Northern District of Ohio (Civil Action No. 5:10-cv-1912) as a relator alleging that Defendant falsely marked a series of industrial valve products with a patent that expired and used the patent in advertising its products after the expiration date. Defendant subsequently moved to dismiss the action on the grounds that the False Marking Statute, 35 U.S.C. § 292(b), violated the Appointments and Take Care Clause of the U.S. Constitution, Article II, § 3. On February 23, 2011, the Northern District of Ohio agreed with Defendant and declared the qui tam provision of 35 U.S.C. § 292(b) unconstitutional.
The False Marking Statute provides that it is unlawful for one to mark or advertise a product with a patent number that does not exist or has expired. Also, this statute has a provision that allows any person (a “relator”) to sue for the penalty, wherein the penalty would be divided in one-half between the person suing and the United States. Previously, the courts have confirmed that relators have standing under Article III to bring such suits in federal court, yet have deferred in deciding whether qui tam suits violate Article II. In this particular case, upon suggestion by the court, Defendant raised the argument that this statute failed to give the Executive Branch sufficient control over the litigation in which the United States was the real party in interest. The Take Care Clause of Article II provides that the President “shall take Care that the Laws be faithfully executed,” and Defendant argued that the False Marking Statute violated this clause.
In support of its holding, the court distinguished between qui tam claims brought under the False Marking Statute and qui tam claims brought under the False Claim Act, 31 U.S.C. § 3730. Under the False Claim Act, the government (a) must be informed of cases filed and pursued by relators even if the government decides not to intervene, (b) has a right to invervene after first refusing to intervene, upon showing of good cause, (c) has a right to limit the role of the relator in the litigation, and (d) has a right to seal the relator’s filings for more than 60 days. Thus, the court concluded that the Executive Branch retains sufficient control over the relator’s conduct. On the other hand, the court in the present case decided that the False Marking Statute lacks any of the statutory controls necessary to satisfy the Take Care Clause of Article II. The court noted that the False Marking Statute is unlike any other statute in the Federal Code because it allows a person to file a criminal lawsuit in the name of the United States without any approval from or notification to the Department of Justice and that such action could be litigated wihtout any control or oversight.
Whether this decision will be appealed, whether other district courts will follow such a decision in the interim, and whether this decision will have any impact on the 2011 Patent Reform Act are just some of the questions with answers unknown, and we will continue to monitor this hot topic.
Posted By PSMN: Here is the take on this weeks Senate Judiciary Committee Action on the Patent Reform Act as reported by AIPLA DIRECT®:
Legislation/Patent Reform Senate Judiciary Approves Patent Reform Bill 15-0
The Senate Judiciary Committee on February 3, 2011, approved 15-0 the “Manager’s Amendment” to S. 23, patent reform legislation that would, among other things, implement a first-inventor-to-file system, revise provisions on damages awards, create a new post-grant review system, and grant the PTO fee setting authority.
At the Judiciary Committee markup session, several amendments to the bill were approved (1) to delete provisions that would have addressed willful infringement; (2) to delete provisions that would have repealed the requirement that Federal Circuit judges reside within 50 miles of the District of Columbia; and (3) to add a provision addressed to Holmes Group v. Vornado Air Circulation Sys., 535 U.S. 826 (2002), defining the Federal Circuit’s exclusive appellate jurisdiction as including compulsory counterclaims arising under the patent or plant variety protection laws.
AIPLA President David Hill said “the Senate Committee’s action is very encouraging, and Senator Leahy’s comments about his cooperation with the leadership in the House have us hopeful that patent reform may soon become a reality.” Referring to next week’s planned hearing in the House on reform legislation, AIPLA Executive Director Q. Todd Dickinson said “We are pleased that both houses are taking up patent reform so soon after convening, which we hope is a positive sign about eventual passage.”
Yet to be resolved are two important proposals: (1) provisions to give the PTO funding that protects against diversion of its fee revenue; and (2) a proposal to create a special reexamination procedure to reconsider the business method patents under Sections 101 and 112 of the Patent Act.
Some other changes have been made to the legislation to refine and clarify language or to make changes that conform to other provisions. For example:
Amendments to Section 292(b) in S. 515 would have eliminated qui tam actions for false marking, allowing only actions for those suffering competitive injury; S. 23 would now also amend Section 292(a) to expressly state that only the United States may bring a penalty action under that provision;
Section 32 on the statute of limitations for PTO actions against attorneys for misconduct no longer runs from discover, whenever that occurred; now the provision states that proceedings must begin either within 10 years of the misconduct or 1 year after the misconduct is discovered, whichever is earlier; and
Language in Section 282 on the presumption of validity which cross referenced Section 103(b) is deleted because Section 103(b), addressing patented processes to make biological products, would be repealed based on case law development and non-use of this provision.
To read the Manager’s Amendment approved by the Senate Judiciary Committee, click here.
Thanks to AIPLA DIRECT® for this report and update.
UPDATE TO POST BELOW: Please see the following from our friends at DRI (www.dri.org and http://www.dritoday.org ):
SENATE JUDICIARY COMMITTEE APPROVES PATENT REFORM BILL S. 23 WITH AMENDMENTS – This week, the Senate Judiciary Committee approved Patent Reform Bill S. 23 with amendments. Most notably, the committee deleted proposed amendments clarifying the standard for awarding enhanced damages for willful infringement (ALB11066) , changed the effective date of the amendments from one year after enactment to 18 months, and added provisions related to the removal of patent actions and requiring the mandatory remand of claims not falling within the original or supplemental jurisdiction of the federal courts (GRA11079). In addition, the amendments added a provision requiring the Federal Circuit to transfer appeals that do not involve a patent or plant variety protection claim to the appropriate circuit court. (GRA11079).
ORIGINAL POST: On January 25, 2011, President Obama stressed during his State of the Union Speech that Americans must focus on innovation, research and new technologies in order to be able to compete in this new technologically-advanced world. Also on this same day, patent reform legislation (S. 23) was reintroduced to the 112th Congress. The key provisions of the new legislation include the following: (a) changing from a first-to-invent to a first-to-file system, which would create a U.S. patent system that is more similar to other countries; (b) creating a post-grant review procedure, which would allow challenges on the validity of issued claims based on patentability to be raised within nine months of the grant of an issued patent; (c) creating a new system for determining damage awards; and (d) limiting standing for false marking claims to the United States and those who have suffered a competitive injury as a result of the alleged violation.
Advocates believe that the new legislation would serve to reduce the amount of frivolous patent lawsuits, streamline the application process, improve the overall quality of patents and create jobs. On the other hand, opponents believe that the new legislation could ultimately decrease the level of innovation and result in a loss in value for companies that currently own patents.
If you would like to read the complete text of the proposed bill, click here. Patent Reform Act 2011. We will continue to monitor and update the progress of this new legislation.
With the dawn of the new year, it is time to consider getting your annual checkups. IP assets often form the core assets of a company—enabling the company to provide its goods and services and to prevent others from encroaching on its valuable property. Regardless of the size of your company, maintaining the health of these assets should be a key priority, so a company’s IP portfolio should undergo a routine review to make sure the assets are in top shape and no issues have arisen.
Among the many things that can be done in an IP checkup (or audit) is to determine which assets are currently being used. Are their underutilized assets that should be utilized? Or, can these assets be sold or licensed to someone else? An IP audit can verify that you have the proper title or license to the IP assets you do use and that all maintenance fees have been paid to maintain the enforceability of these assets. An IP audit can not only assess the assets you have, it can serve as preventative medicine to help ward off lawsuits. With the recent plague of false patent marking cases that have been filed throughout the country, verifying that the goods you provide are properly marked and any expired patent numbers have been removed can help avoid needless and expensive litigation.
An IP audit provides the mechanism to obtain a current snapshot of the status of a company’s IP assets. Like any other kind of checkup, an IP audit can range from a broad, general review and inventory of the assets to a detailed analysis of some or all of the assets. Often, the audit begins with the broad review to identify potential problems and then prioritizes which problems to focus on.
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Contact our Pittsburgh Intellectual Property, Data Security, Trade Secret, DTSA and Technology Attorneys at Houston Harbaugh, P.C. through IP Section Chair Henry M. Sneath at 412-288-4013 or firstname.lastname@example.org. Some posts herein were published by the law firm Picadio Sneath Miller & Norton, P.C. (PSMN®) which has merged with HoustonHarbaugh, P.C. and are used by permission. DTSALaw® is a federally registered trademark. See Firm Website at: www.hh-law.com