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.
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.
2010 gave us a number of important decisions in the intellectual property field. The Bilksi decision regarding the patentability of business methods was eagerly awaited from the Supreme Court. In addition, the Federal Circuit issued a number of key decisions involving false marking, the written description requirement, patent misuse, and patent term extensions.
Bilksi v. Kappos—130 S.Ct. 3218 (2010)
Bilski was one of the most anticipated cases of the year. The Supreme Court considered whether business method patents are patentable subject matter under the Patent Act. As the Court is want to do, it did not substantially clarify the standards. Nonetheless, three key points emerged from this decision.
1. Business method patents are not per se unpatentable subject matter, although they still might be (or should be) difficult to get.
2. The Federal Circuit’s machine or transformation test for patentability under § 101 is not the sole test, although it is still a very useful clue for determining whether a process meets the requirements of § 101. Few processes that do not meet this test would be patentable.
3. The three previous exceptions to the broad standards of patentability under § 101 still exist—laws of nature, physical phenomena, and abstract ideas are not patentable.
American Needle, Inc. v. National Football League—130 S.Ct. 2201 (2010)
American Needle was a non-exclusive National Football League Properties (NFLP) licensee for certain apparel that bore NFL team insignias. In December 2000, the NFL decided to only grant exclusive licenses, and American Needle did not receive one. American Needle sued, claiming that the NFL’s licensing practices violated § 1 of the Sherman Antitrust Act. The Seventh Circuit found no violation, but the Supreme Court reversed.
While not a purely IP case, this case is at the intersection of IP and antitrust laws. The NFL claimed that the NFLP was a joint venture that was formed to develop, license, and market NFL IP rights. Section 1 of the Sherman Act prohibits concerted action that restrains trade. The key inquiry in this case was whether the NFL acts as a single decisionmaker in the IP licensing arena or whether the NFLP brings together independent decisionmakers. The Court concluded that while the NFL may in some areas act like a single decisionmaker (for scheduling, rules, etc.), in the IP arena each team is pursuing its own interests and directly competing against the other teams. Thus, the decision by the NFLP to issue exclusive licenses was concerted action that deprived the marketplace of independent action by each team and thus could state a claim for a violation of § 1 of the Sherman Act. The Court noted that a joint venture could be governed by antitrust laws in some aspects of its business, while not in others. The Court remanded to the lower courts to address the substance of the claims.
In United States of America ex rel. FLFMC, LLC v. T.F.H. Publications, Inc., No. 2:10cv437, 2010 U.S. Dist. LEXIS 111434 (W.D. Pa. Oct. 20, 2010) (opinion by J. Cercone), the court granted Defendant’s motion and transferred a false patent marking lawsuit to the Defendant’s home forum of New Jersey. Plaintiff had alleged that Defendant marked a Frisbee® Flying Disc with expired patent numbers in violation of 35 U.S.C. § 292.
Plaintiff, a Pennsylvania limited liability company with its principal place of business in Pennsylvania, was formed in 2010 for the sole purpose of filing false patent marking lawsuits. It did not manufacture or produce anything. Defendant, a Delaware corporation located in New Jersey, was founded over fifty years ago and manufactured and sold a wide range of pet products.
The court applied Third Circuit law to Defendant’s motion to transfer under 28 U.S.C. § 1404(a). The court considered a number of factors in its analysis, including the convenience of the parties and witnesses, the interests of justice, and a variety of public and private factors. The court found that the public factors, such as the interests of Pennsylvania and New Jersey, the ability to enforce a judgment, court congestion, local policies, and familiarity with the law were balanced and did not weigh in favor of either party. In contrast, the court found that the private factors weighed in favor of transfer because all of the evidence and witnesses were located in New Jersey.
The court gave relatively little weight to Plaintiff’s choice of forum because this was a qui tam action, and therefore, the U.S. government was the real party in interest. The court also found that the convenience of the parties and witnesses favored Defendant’s choice of forum. All of the relevant witnesses were likely located in New Jersey, as were all of the relevant business records. In contrast, Plaintiff, who was only in the business of filing false marking lawsuits, had no witnesses or documents of note in Pennsylvania. Moreover, the court gave little weight to Plaintiff’s argument that it would be more of a burden for it to litigate in New Jersey, reasoning that litigation was what this company was formed to do. Finding that the private interests favored transfer and the public interests did not favor either side, the court granted Defendant’s motion and transferred the action to New Jersey.
Thus, in this case, the court gave little deference to a plaintiff’s choice of forum when that plaintiff was recently formed solely for the purpose of taking advantage of the Federal Circuit’s recent decisions regarding false marking. When no witnesses or documents were located in the chosen forum, and the only connection to the forum is the location of the plaintiff, the court found little reason not to transfer the action.
In Hollander v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., No. 2:10-cv-00836-RB, 2010 U.S. Dist. LEXIS 113005 (E.D. Pa. Oct. 21, 2010) (opinion by J. Buckwalter), Plaintiff sued Defendant for falsely marking 39 prescription drug products with expired patent numbers. Judge Buckwalter denied Defendant’s motion challenging Plaintiff’s standing to bring suit, but granted defendant’s motion to dismiss for failure to meet the heightened pleading standards of Fed. R. Civ. P. 9(b).
Defendant initially challenged Plaintiff’s standing to bring suit, arguing that Plaintiff suffered no concrete injury himself. Citing the recent Federal Circuit decision in Stauffer v. Brooks Brothers, Nos. CIV.A 2009-1428, 2009-1430, 2009-1453, 2010 U.S. App. LEXIS 18144, 2010 WL 3397419 (Fed. Cir. Aug. 31, 2010), the court rejected Defendant’s argument. The Federal Circuit held in Stauffer that any person has standing to bring claims under 35 U.S.C. § 292, because this is a qui tam statute, and the plaintiff acts as the assignee of the government.
Moving to Defendant’s Rule 9(b) challenge, the court stated that under 35 U.S.C. § 292, a plaintiff must show “(1) a marking importing that the article is patented (2) falsely affixed to (3) an unpatented article (4) with the intent to deceive the public.” Courts in the Third Circuit have found that intent to deceive element of § 292 claims must meet the heightened pleading standard of Rule 9(b).
Plaintiff relied on boilerplate allegations based “on information and belief” that Defendant knowingly violated § 292(a) by falsely marking its products with expired patent numbers with the intent to deceive the public. Plaintiff supported this allegation by claiming that Defendant was a “highly sophisticated business entity” with “extensive experience with the application for, procurement of, and publication of its patents.” The court found these allegations insufficient under Rule 9(b) because Plaintiff offered no factual support for his allegations that Defendant knew it had falsely marked its product or that it intended to deceive the public. Thus, In Hollander, the court rejected boilerplate, conclusory allegations of fraud and intent, finding that Rule 9(b) requires specific allegations of at least some facts to support an inference of fraudulent intent.
In Hollander v. Etymotic Research, Inc., No. 10-526, 2010 U.S. Dist. LEXIS 116619 (E.D. Pa. Nov. 1, 2010) (opinion by J. Tucker), Plaintiff sued Defendant for falsely marking certain earphones and earplugs that it sold with expired patent numbers, allegedly in violation of 35 U.S.C. § 292. The court denied Defendant’s motion to dismiss Plaintiff’s amended complaint.
Defendant marked its products with a series of patent numbers, including three patents that expired before 2008. On most of Defendant’s products, it used the following language: “[X products] are covered by one or more of the following U.S. patents: [#A, #B, #C, #D] and other patents pending.” Plaintiff alleged that this marking violated 35 U.S.C. § 292 because three of the patents had expired and that the false marking was done with the intent to deceive the public.
The main issue in this case was whether Plaintiff sufficiently pleaded Defendant’s intent to deceive under Fed. R. Civ. P. 9(b). A claim for false marking under 35 U.S.C. § 292 requires that plaintiff prove that defendant falsely marked an item with the intent to deceive the public. The court previously concluded that Plaintiff had to meet the requirements of Rule 9(b) when pleading the intent deceive and dismissed Plaintiff’s complaint for failure to do so. Plaintiff amended his complaint to add specific allegations of intent, which Defendant again challenged with a motion to dismiss.
Plaintiff’s amended complaint added allegations that Defendant received copies of the patents after they issued, which gave notice of the expiration date; reviewed its patent portfolio in order to timely pay the 4, 8, and 12 year maintenance fees on these patents; and marked new products with patent numbers after they expired. Plaintiff argued that together these showed that Defendant was aware of when the patents expired and consciously chose to mark new products with these expired patent numbers.
Defendant argued that these allegations did not meet the Rule 9(b) standard because they showed at most that it failed to remove the markings when the new products were introduced. Defendant also argued that the conditional language (“are covered by one or more of the following U.S. patents”) used on the products indicated that it had no intent to deceive.
Quoting Clontech Laboratories, Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005), the court stated that “the fact of misrepresentation coupled with proof that the party making it had knowledge of its falsity is enough to warrant drawing the inference that there was a fraudulent intent.” The court rejected Defendant’s arguments and found that the alleged facts were sufficient to meet the heightened Rule 9(b) pleading standard. The allegations supported a reasonable inference that Defendant knew the patents had expired and chose to falsely mark its products with an intent to deceive the public. With respect to the conditional language, the court found that the language could have the opposite effect suggested by Defendant—namely, that the public could be deceived into believing that all of the patents applied to the products.
In addition to challenging the amended complaint under Rule 9(b), Defendant argued that the marking of its products was not literally false because the markings on the product only claimed that the products were “covered by one or more of the [listed patents],” and the products were covered by at least one of the unexpired patents. The court first considered whether the marking of an expired patent fell within the prohibitions of the statute. Citing the recent decision in Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010), the court concluded it did, noting that “articles marked with expired patent numbers are falsely marked.” The court then looked to the Clontech decision and concluded a product must be covered by at least one claim of every patent listed in order to be properly marked—“[o]ne valid patent listed among several expired patents is not suffice to have this court hold that the markings were not false under the meaning of § 292.”
In this case, the court addressed what specificity is needed under Rule 9(b) to allege the intent to deceive the public. The tipping point for the court appeared to be when Defendant marked a new product with an expired patent number. Given the allegations that Defendant was aware of when the patent expired by virtue of having monitored the patent sufficiently to timely pay the maintenance fees, the court found that the allegations were sufficient to plead intent. In addition, the court found that using conditional language to mark a patent is not sufficient to shield a defendant from liability under 35 U.S.C. § 292. A defendant can potentially be liable for false marking unless the product is covered by at least one claim of every patent listed.
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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