Tag Archives: patent damages

Will Patent False Marking Litigation Flame Out?

Posted on July 1, 2011 by | Comments Off on Will Patent False Marking Litigation Flame Out?

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

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.

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Federal Trade Commisssion Issues Report on The Evolving IP Marketplace, Patent Trolls and Competition

Posted on March 8, 2011 by | Comments Off on Federal Trade Commisssion Issues Report on The Evolving IP Marketplace, Patent Trolls and Competition

Posted by Henry M. Sneath, a principal, shareholder and IP Group Chair at Picadio Sneath Miller & Norton, P.C. in Pittsburgh, Pennsylvania.

The FTC has issued a lengthy, exhaustive, relatively benign (309 pages) report on the state of competition in the IP Marketplace and the role of what they politely call “patent assertion entities” (PAE) – Patent Trolls formerly known politely as “non-practicing entities” (NPE).  Forgetting the changing face of politically correct nomenclature for Trolls, the FTC has examined the role of these entities in the IP Marketplace and it is clear that the FTC is not a big fan of the PAE crowd. They are seen as driving up cost, without any corresponding addition to the community of technological advancement. The FTC March 2011 released report is entitled: “The Evolving IP Marketplace – Aligning Patent Notice and Remedies with Competition.” Bottom line: The FTC urges that Patent drafters utilize clearer language to describe claims; that the PTO utilize “an indefiniteness standard that weeds out claims reasonably susceptible to multiple interpretations;” that courts reign in infringement damages and cap royalty payments and; that courts consider the leverage that injunctions provide to patent holders when they seek to extract a favorable royalty or damage deal. I’d like to say that our government dollars were hard at work here, but who didin’t know all that.

As to the PAE community – The FTC critically writes:

“Some argue that PAEs encourage innovation by compensating inventors, but this argument ignores the fact that invention is only the first step in a long process of innovation. Even if PAEs arguably encourage invention, they can deter innovation by raising costs and risks without making a technological contribution.” See FTC Report at P. 9

Here were some of the problems that the FTC examined in hearings and study. None are particularly novel or inventive:

  • Patent language is inherently imprecise (wow – that’s news);
  •  Some art areas, such as software, lack clear nomenclature and common vocabularies for claiming (didn’t know that);
  • Claiming using functional language, which describes what the invention does rather than what it is, can produce abstract, ambiguous claims (ok – that’s mildly newsy);
  • Some applicants may have incentives to draft ambiguous claims that might be viewed narrowly by the PTO and then construed broadly in litigation (no S—!);
  • PTO examination often focuses on issues of novelty and nonobviousness and may result in deferring clarification of claim boundaries until litigation (OK – decent insight here)   (Disclaimer – Editors comments are in bold and may represent some facetiousness) (See actual FTC Report at page 10)

The report is an attempt to examine the delicate balance between the promotion of,  or the stifling of, competition in the IP marketplace. It throws bones both to the tech transfer community and to true product producers and manufacturers, but remember, it’s a government report.  Here’s an example:

“Courts should not presume irreparable harm based on a finding of infringement or the patentee’s use of the patent. Conversely, courts should recognize that infringement can irreparably harm the ability of patentees that primarily engage in technology transfer through licensing to compete in a technology market.” See FTC report at page 27.

In other words, the FTC was for injunctions, before they were against them. Or – they voted for irreparable harm, before they voted against it.  We will continue to review the lengthy report and provide more analysis in the near future. Read the full FTC report here on our law firm site: http://www.psmn.com/CM/Custom/TOCResourceLibrary.asp

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Senate Passes Patent Reform Bill – Small Entrepreneurs are Miffed

Posted on March 8, 2011 by | Comments Off on Senate Passes Patent Reform Bill – Small Entrepreneurs are Miffed

Posted by Henry M. Sneath, a principal, shareholder and IP Group Chair at Picadio Sneath Miller & Norton, P.C. in Pittsburgh, Pennsylvania.

From our friends at DRI Today, here is a good summary of the Patent Reform Bill that was passed by the Senate – click here. The US House claims that Patent Reform is on its agenda, but no timetable has apparently been set for a vote. Bottom line – big corporations win. Little guys lose.  Here is a link to the bill that passed:  http://www.psmn.com/CM/Custom/TOCResourceLibrary.asp

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Big Patent Paydays for Pennsylvania Doctor

Posted on February 2, 2011 by | Comments Off on Big Patent Paydays for Pennsylvania Doctor

Posted by Henry M. Sneath, a principal, shareholder and IP Group Chairman at Picadio Sneath Miller & Norton, P.C. in Pittsburgh, Pa.

At the other end of the Commonwealth, there are some big paydays for a patent holder who developed a drug coated arterial stent. While a medical resident, interventional radiologist Bruce Saffran developed technology that resulted in three patents for this drug delivering arterial stent system. This is his second large verdict against major medical companies. This time, a Marshall Texas Jury awarded $482,000,000 against Johnson and Johnson and its subsidiary Cordis Corp for Patent infringement. He has previously hit Boston Scientific for $431,000,000, but settled for $50,000,000. Don’t cry however for J&J/Cordis as they are  alleged to have sold over $13,000,000,000 in these stents.  This seems to be the price of doing business these days when your due diligence on the openness of the marketplace to your product is poor or incorrect, your assessment of the patent holder’s patent validity is incorrect, or if your design around just doesn’t go far enough around. We will follow the case for any post trial opinions or posting of trial transcripts to see if there is a way to determine more details about the case and whether these issues played a part. There were some interesting pre-trial rulings on Daubert Motions and Markman Claim Construction which are interesting reading.  See below.

Here are some rulings from the court on the eve of trial in response to the Daubert motions: http://scholar.google.com/scholar_case?case=1316670698427000974&hl=en&as_sdt=2&as_vis=1&oi=scholarr

Here is the court’s opinion on Markman issues including an analysis of the difficult state of claim construction on “means plus function” issues: http://scholar.google.com/scholar_case?case=4276281445267303239&hl=en&as_sdt=2&as_vis=1&oi=scholarr

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Patent Litigation 2011

Posted on January 22, 2011 by | Comments Off on Patent Litigation 2011

Posted by Henry M. Sneath principal and shareholder at Picadio Sneath Miller & Norton, P.C. in Pittsburgh, Pa.

I was recently interviewed by Levick Strategic Communication in Washington, DC about general patent litigation issues and the current state of patent litigation for businesses. Here is the link to the Bulletproof Blog at Levick Strategic Communications in Washington DC. http://www.bulletproofblog.com/

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Fed Circuit Nixes 25 Percent Rule of Thumb for Determining Baseline Royalty Rate

Posted on January 8, 2011 by | Comments Off on Fed Circuit Nixes 25 Percent Rule of Thumb for Determining Baseline Royalty Rate

  by: Joseph Carnicella, an intellectual property associate at Picadio Sneath Miller & Norton, P.C. jcarnicella@psmn.com

The Federal Circuit in Uniloc USA, Inc. v. Microsoft Corp., Nos. 2010-1035, 2010-1055, 2011 U.S. App. LEXIS 11, at *56 (Fed. Cir. 2011), concluded that the 25 percent rule of thumb should no longer be used as a tool for determining a baseline royalty rate in a hypothetical negotiation.  Furthermore, the Federal Circuit decided that any evidence relying on the 25 percent rule of thumb that does not tie a reasonable royalty base to the facts of the case shall be inadmissible under Daubert and the Federal Rules of Evidence.

35 U.S.C. § 284 provides that damages shall be awarded in an amount no less than a reasonable royalty, together with interest and costs as fixed by the court, to compensate the claimant for the use of the invention by the infringer.  “In litigation, a reasonable royalty is often determined on the basis of a hypothetical negotiation, occurring between the parties at the time that infringement began.”  Uniloc, 2011 U.S. App. LEXIS, at *47 (citing Wang Labs Inc. v. Toshiba Corp., 993 F.2d 858, 869 (Fed. Cir. 1993)).  In the past, the 25 percent rule of thumb served as an approximation for the reasonable royalty rate that a manufacturer of a patented product would be willing to pay to the patent holder.

At the district court level, the jury awarded Uniloc $388 million based on certain testimony provided by Uniloc’s expert, who utilized the 25 percent rule of thumb as part of his damages calculation.  The expert then considered the Georgia Pacific factors and concluded that the factors did not change the royalty rate.  Microsoft challenged the application of the rule prior to trial, and while “the district court noted that ‘the concept of a ‘rule of thumb’ is perplexing in an area of the law where reliability and precision are deemed paramount,’” the district court determined that the use of the rule was reasonable since the rule had been widely accepted.  Uniloc, 2011 U.S. App. LEXIS, at *46.  However, with its first true opportunity to address this specific issue, the Federal Circuit decided to do away with the application of such an abstract theory.  “In short, [the expert’s] starting point of a 25 percent royalty had no relation to the facts of the case, and as such, was arbitrary, unreliable, and irrelevant.  The use of such a rule fails to pass muster under Daubert and taints the jury’s damages calculation.”  Uniloc, 2011 U.S. App. LEXIS, at *65.

This recent decision by the Federal Circuit will surely have a significant impact on future cases.  We intend on monitoring the impact of this decision and discussing these matters as they become relevant so stay tuned for future blogs.

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