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.
In Kappos v. Hyatt, 566 U.S. ___ (2012), decided on April 18, 2012, a unanimous Supreme Court affirmed a Federal Circuit decision that (a) a patent applicant faces no limitations on their ability to introduce new evidence in a Section 145 (35 U.S.C. § 145) proceeding beyond those already in place in the Federal Rules of Evidence and the Federal Rules of Civil Procedure, (b) the district court must take de novo factual findings of both new evidence presented on a disputed question of fact and the administrative record before the PTO, and (c) the district court may consider what weight to afford any new evidence taking into account whether the applicant had an opportunity to present the new evidence before the PTO.
In this case, Gilbert Hyatt (Respondent) filed a patent application that included 117 claims. The PTO’s patent examiner denied each of the claims for lack of an adequate written description pursuant to 35 U.S.C. § 112. Hyatt appealed the decision to the Board of Patent Appeals and Inferences (Board), and after receiving approval of 38 claims, Hyatt filed a Section 145 action in federal district court against the Director of the PTO (Petitioner). In support of his position that the patent application included an adequate written description, Hyatt included a written declaration with his submission to the district court setting forth the portions of the patent specification that, in his opinion, supported the claims that were deemed unpatentable by the Board. The district court refused to consider the declaration on the grounds that applicants are precluded from presenting new issues, at least in the absence of some reason of justice put forward for failure to present the issue to the PTO. The district court then applied a deferential substantial evidence standard under the Administrative Procedure Act (APA) in reviewing only the PTO’s administrative record and subsequently granted summary judgment to the Director.
Hyatt appealed to the Federal Circuit, and a divided panel affirmed the district court’s decision that the APA imposed restrictions on the admission of new evidence in a Section 145 proceeding and that the district court’s review is not wholly de novo. The Federal Circuit granted rehearing en banc and vacated the grant of summary judgment. The Supreme Court granted certiorari following the ruling from the en banc court. The Director argued before the Supreme Court that a district court should admit new evidence in a Section 145 action only if the proponent of the evidence had no reasonable opportunity to present the evidence to the PTO in the first instance. Also, the Director argued that, when new evidence is introduced, the district court should overturn the PTO’s factual findings only if the new evidence clearly establishes that the agency committed error in its findings.
The Supreme Court began its analysis of the Director’s arguments by first reviewing the text of Section 145: “An applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a) may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director . . . . The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Board, as the facts in the case may appear, and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law.” The Supreme Court concluded that the plain text neither imposes unique evidentiary limits in district court proceedings nor establishes a heightened standard of review for factual findings by the PTO.
The Supreme Court next considered the Director’s argument that the statute should be read in light of traditional principles of administrative law under the APA. The Director argued that (a) the district court should defer to the PTO’s factual findings and (b) in line with the traditional rule that a party first must exhaust administrative remedies, the district court should consider new evidence only if the party did not have an opportunity to present the evidence to the PTO. The Supreme Court disagreed with the Director’s positions. First, the Director conceded that Section 145 proceedings are not limited in the same manner as judicial review of an agency decision under the APA, which is typically limited to the administrative record. The Supreme Court noted that the PTO cannot account for evidence that was not presented, and as a result, the district court must make its own findings de novo. Also, the Supreme Court determined that administrative exhaustion does not apply to Section 145 because, while administrative exhaustion avoids premature interruption of the administrative process, the PTO’s process is complete by the time a Section 145 proceeding occurs.
The Supreme Court then analyzed the evidentiary and procedural rules in effect at the time when Congress enacted Section 145 in 1952. The Supreme Court traced the history of Section 145 back to the 1836 Act, which established the Patent Office, and noted that the specific language in Section 145 originated in the 1870 Act. According to the Supreme Court, in 1878, the relevant provision of the 1870 Act was codified by Congress as Revised Statute § 4915 (R.S. 4915), which served as the immediate predecessor to Section 145. The parties agreed that R.S. 4915 and judicial interpretations of that statute provided the foundation for the understanding of Section 145. The Supreme Court analyzed the two primary cases describing the nature of R.S. 4915, and concluded that Congress intended that applicants would be free to introduce new evidence in Section 145 proceedings subject to the rules applicable to all civil actions and that, where new evidence is presented to the district court, a de novo finding would be necessary.
Finally, in agreeing with the Federal Circuit that the district court may decide what weight to afford an applicant’s newly admitted evidence, the Supreme Court noted that the proper means for the district court to accord respect to decisions of the PTO would be through the court’s broad discretion over the weight to be given to such new evidence in Section 145 proceedings.
In In Re MSTG, Inc., Misc. Doc. No. 996, 2012 U.S. App. LEXIS 7092 (Fed. Cir. April 9, 2012), the Federal Circuit found that license negotiations between a patent holder and its licensees relating to reasonable royalties and damages are not protected by a settlement negotiation privilege.
MSTG sued various cell phone service providers claiming infringement of two patents. MSTG eventually settled with all but one of the defendants (AT&T), wherein most defendants entered into settlement agreements and were granted licenses under the patents-in-suit and other patents owned by MSTG. MSTG also licensed the patents-in-suit to a technology consortium around the same time period.
As part of the litigation, the amount of a reasonable royalty was a primary issue to the extent AT&T was found to infringe the patents-in-suit. AT&T sought discovery into the negotiations of the settlement agreements and argued that such information was relevant in calculating a reasonable royalty. MSTG’s damages expert offered an opinion relating to a reasonable royalty based on comparable licenses, industry survey results, and other published rates for similar technology. The expert reviewed but discounted the pertinent license agreements on the grounds that the royalty rates were “litigation related compromises” and not comparable to a hypothetical negotiation between MSTG and AT&T. AT&T then moved to compel the license agreements reviewed by the expert as well as the underlying negotiations. The magistrate judge determined that the negotiation documents could disclose reasons why the parties reached the royalty agreements, which could provide guidance on whether such licenses could be considered in a calculation of a reasonable royalty between MSTG and AT&T. The district court denied MSTG’s objections and agreed with the magistrate judge.
MSTG petitioned the Federal Circuit for a writ of mandamus, and the district court’s discovery order was temporarily stayed pending review. MSTG asserted that, under Rule 501 of the Federal Rules of Evidence, the Federal Circuit should create a new privilege in patent cases that would prevent discovery of litigation settlement negotiations related to reasonable royalties and damages. The Federal Circuit analyzed the relevant rules of procedure, rules of evidence and case law and concluded that settlement negotiations related to reasonable royalties and damage calculations are not protected by a settlement negotiation privilege. Also, MSTG asserted that the district court abused its discretion by ordering the production of negotiation documents underlying the settlement agreements. The Federal Circuit agreed with AT&T that, because the expert offered opinions that went beyond the four corners of the settlement agreements, MSTG could not deny discovery of that same information to AT&T. The Federal Circuit did not address whether such settlement negotiation materials would be admissible in front of a jury.
What constitutes patentable subject matter under 35 U.S.C. § 101 has been a topic of keen interest, especially since the Supreme Court issued its decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010) that rejected the Federal Circuit’s machine-or-transformation test. On Tuesday, the Federal Circuit further clarified what can be patented, affirming a rejection under § 101 of a claim for detecting fraud in credit card transactions over the internet. Written by Judge Dyk, the unanimous decision in CyberSource Corp. v. Retail Decisions, Inc. (Case No. 2009-1358) found that claims involving mental processes that can performed by the human mind are not patent eligible.
The Underlying Claims
Two claims were at issue in CyberSource. They both involved a method for detecting fraud in credit card transactions over the internet by looking at the customer’s IP address. The claims were very broad with no specific algorithms for identifying fraud claimed.
The first was a method claim with no linkage to any physical structures:
3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:
obtaining information about other transactions that have utilized an Internet address that is identified with the [ ] credit card transaction;
constructing a map of credit card numbers based upon the other transactions and;
utilizing the map of credit card numbers to determine if the credit card transaction is valid.
The second was a “Beauregard claim,” which is a claim to a computer readable medium containing programing instructions regarding a particular process:
2. A computer readable medium containing program instructionsfor detecting fraud in a credit card transaction between a consumer and a merchant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of:
obtaining credit card information relating to the transactions from the consumer; and
verifying the credit card information based upon values of plurality of parameters, in combination with information that identifies the consumer, and that may provide an indication whether the credit card transaction is fraudulent,
wherein each value among the plurality of parameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the merchant with a quantifiable indication of whether the credit card transaction is fraudulent,
wherein execution of the program instructions by one or more processors of a computer system causes that one or more processors to carry out the further steps of;
[a] obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;
[b] constructing a map of credit card numbers based upon the other transactions; and
[c] utilizing the map of credit card numbers to determine if the credit card transaction is valid.
Claim 3 Is an Unpatentable Abstract Mental Process
The Federal Circuit found that the method of claim 3 was nothing more than an abstract mental process. While the Supreme Court in Bilski rejected the machine-or-transformation test as the sole test of patentability under § 101, the Federal Circuit began its analysis there. It found that the claim recited no machines and did not perform any transformations. Following Bilski, it considered whether the claim was nonetheless patent eligible. It concluded that it was not because the claim recites a mental process, which is unpatentable under the Supreme Court’s decision in Gottschalk v. Benson, 409 U.S. 63, 67 (1972). Here, all of the steps of claim 3 could be performed by the human mind using a pen and paper. The Court suggested that if claim 3 had recited a more complex algorithm that could not have been performed easily using pen and paper, the result may have been different.
Thus, claim 3’s steps can all be performed in the human mind. Such a method that can be performed by human thought alone is merely an abstract idea and is not patent-eligible under § 101. Methods which can be performed entirely in the human mind are unpatentable not because there is anything wrong with claiming mental method steps as part of a process containing non-mental steps, but rather because computational methods which can be performed entirely in the human mind are the types of methods that embody the “basic tools of scientific and technological work” that are free to all men and reserved exclusively to none.
Claim 2 Is Also an Unpatentable Abstract Mental Process
Claim 2 required a slightly different analysis. It basically recited the same method as in claim 3, but it tied it to a computer readable medium. The question was whether tying it to this structure created a machine that was patent eligible under § 101. The Federal Circuit concluded that it was not sufficient because the underlying invention was the method, not a manufacture for storing computer-readable information. To be patent eligible, the machine “must impose meaningful limits on the claim’s scope,” so the “the incidental use of a computer to perform the mental process of claim 3 does not impose a sufficiently meaningful limit on the claim’s scope.” Thus, claim 2 (like claim 3) was not patent eligible under § 101.
The Federal Circuit Is Looking Carefully at Software/Method Claims
Inventors seeking to patent computer software or method claims should consider this decision carefully. If the claims simply recite steps that a human could perform with pen and paper, there is a real chance that the claim might not be eligible for patenting. Merely adding a limitation requiring a computer to perform the steps may not be sufficient to overcome this problem. Courts can look behind the words of the claim to determine what the underlying invention is and whether the use of a computer is meaningful. As always, careful claim drafting is very important if an inventor wants to obtain and enforce his or her patent.
In the CBT Flint Partners, LLC v. Return Path, Inc.decision last week (No. 2010-1202, -1203), the Federal Circuit considered when a court can rewrite a claim during litigation to fix mistakes in drafting. The Court concluded that a district court has the authority to rewrite claims to correct obvious errors even if there are multiple ways to “fix” the claim, as long as all the possible solutions leave the claim with the same scope and meaning.
The Claim at Issue
The patent at issue in CBT Flint involved an e-mail spam filtering system. One of the claim limitations required a computer to detect and analyze an e-mail. The patent drafters forgot the word “and” between these words, which led to problems. The claim at issue (with the problematic term highlighted) read:
13. An apparatus for determining whether a sending party sending an electronic mail communication directed to an intended receiving party is an authorized sending party, the apparatus comprising:
a computer in communication with a network, the computer being programmed to detect analyze the electronic mail communication sent by the sending party to determine whether or not the sending party is an authorized sending party or an unauthorized sending party, and wherein authorized sending parties are parties for whom an agreement to pay an advertising fee in return for allowing an electronic mail communication sent by the sending party to be forwarded over the network to an electronic mail address associated with the in-tended receiving party has been made.
The district court determined that there were three possible ways to fix this problem—(1) remove the word “detect”; (2) remove the word “analyze”; or (3) add the word “and” between the words “detect” and “analyze.” Because it felt that it was debatable which solution should be used, it concluded it lacked the authority to rewrite the claim. Thus, it found the claim indefinite under 35 U.S.C. § 112, ¶ 2 and granted summary judgment in favor of the defendant. The Federal Circuit reversed.
Case Law History for Rewriting Claims
The Federal Circuit noted that courts have long had the power to fix obvious drafting mistakes, citing to the Supreme Court’s decision in I.T.S. Rubber Co. v. Essex Rubber Co., 272 U.S. 429, 442 (1926). The Court further noted that it held in Novo Industries L.P. v. Micro Molds Corp., 350 F.3d 1348, 1357 (Fed. Cir. 2003) that“[a] district court can correct a patent only if (1) the correction is not subject to reasonable debate based on consideration of the claim language and the specification and (2) the prosecution history does not suggest a different interpretation of the claims.”
The Court determined that the district court erred because the three alternative solutions it was considering were not meaningfully different when viewed from the perspective of one skilled in the art. The concepts of “detecting” and “analyzing” were implicit in the rest of the claim, even if one of these terms was explicitly deleted. Thus, the scope and meaning of the claim were the same regardless of which solution the district court could have adopted. In these situations, the district court does have the authority to fix this kind of obvious mistake.
Practice Pointers and Takeaways From This Case
While this case suggests that courts are willing to bail out patentees and fix mistakes in claims during litigation, patentees should not rely on courts fixing their problems for them. In this particular case, the Federal Circuit found that the three possible solutions were all functionally identical. That will not always be the case, and, it is far more likely it will not be the case.
Obviously, the best practice is not to make mistakes in the first place, but that is often easier said than done. Patentees should be especially vigilant about reviewing the claims during prosecution to make sure that there are no mistakes. In addition, patentees should make sure to review the final, published version from the Patent Office, as mistakes sometimes do happen in the printing process. If a mistake happens after issuance, there are mechanisms to correct a patent (e.g., a certificate of correction). Finally, if a patentee is going to sue on a patent, it is especially important to review the patent again to make sure there are no mistakes. Don’t count on the court to bail you out!
The other takeaway from this case from the defense viewpoint is that courts may be more reluctant to find claims indefinite for obvious mistakes or typographic errors. Significant errors are still likely to doom patent claims, but it is not prudent to count on minor errors sinking them, too.
The bottom line with minor mistakes is that neither side should be confident in how a court will react. It may fix them, but it may not. And how a court will act likely depends on some very specific facts.
Non-practicing entities (NPEs) are often criticized for bringing meritless lawsuits against companies with the sole intention of forcing settlements by offering amounts far less than the cost of litigation. Even though the claims may be baseless or tenuous at best, the cost of fighting often far outweighs the settlement demands. Faced with paying a relatively small amount to assure the case goes away versus paying substantially more to defeat the claim through litigation, companies will often acquiesce to the settlement demands even if they feel that they have not infringed a valid patent.
On Friday, the Federal Circuit issued a decision in Eon-Net LP v. Flagstar Bancorp, (No. 09-1308) reminding defendants that there are other options for defendants facing frivolous lawsuits. The Court in a unanimous decision affirmed a district court’s decision to award over $600,000 in attorney fees and sanctions under 35 U.S.C. § 285 and Rule 11 against an NPE for filing a frivolous patent infringement lawsuit. The Federal Circuit panel consisted of Judges Lourie, Mayer, and O’Malley.
Eon-Net LP—Non-Practicing Entity
Eon-Net LP (and its related companies) are NPEs that have filed over a hundred lawsuits against a variety of different defendants. They typically offer to settle cases for $25,000–$75,000, based on the amount of the defendant’s sales, which are amounts far lower than the potential damages or the litigation costs. This is the typical non-practicing entity
35 U.S.C. § 285 and Attorney Fees in Exceptional Cases
A district court has the discretion under § 285 to award attorney fees to the prevailing party in a patent infringement lawsuit if it determines the case is “exceptional.” The Federal Circuit, while indicating that it will review these determinations, also indicated that it will not lightly disturb a court’s finding because of the court’s lengthy and personal experience with the case, the parties, and the attorneys.
The Federal Circuit mentioned a variety of actions by a losing party that can make a case exceptional—(1) litigation misconduct, (2) unprofessional behavior, (3) misconduct in getting the patent at issue, and (4) bringing an objectively baseless litigation in bad faith. The Court found that Eon-Net’s litigation misconduct and filing of a baseless infringement action in bad faith made the case exceptional.
The Eon-Net case is pretty much a checklist for what not to do in filing a lawsuit. First, Eon-Net intentionally destroyed potentially relevant documents prior to filing suit. Next, it failed to participate in the litigation process in good faith by not offering constructions for any of the disputed claim terms, lodging incomplete and misleading evidence with the court, and submitting contradictory declarations. In short, “[t]he district court also found that [Eon-Net’s principal] displayed a ‘lack of regard for the judicial system’ and that Eon-Net and [its principal] had a ‘cavalier attitude’ towards the ‘patent litigation process as a whole.’” Taken together, the Federal Circuit found this behavior unprofessional.
The Federal Circuit also affirmed the finding that Eon-Net filed a baseless lawsuit in bad faith. The written description in the patent clearly refuted Eon-Net’s need construction to find infringement, which it should have known before filing suit.
In finding that Eon-Net filed suit for an improper purpose, the Federal Circuit looked beyond the litigation before it and to Eon-Net’s history of filing what it considered to be “extortionate” lawsuits with settlement demands far lower that the litigation costs. “The record supports the district court’s finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar.” On its face, the Court’s analysis brings into question the entire business model for many NPEs.
In addition, the Court was troubled by the disproportionate and asymmetric discovery costs often present in cases like these. NPEs will often have little, if any, relevant documents or personnel to depose. In contrast, defendants may have enormous amounts of potentially relevant documents and witnesses. Because discovery costs are generally borne by the producing party, an NPE can force a defendant to expend hundreds of thousands or millions of dollars during discovery—costs that it will never have to bear because of the dearth of information it has.
Finally, the Court was troubled by the fact that NPEs are rarely put at risk in these kinds of lawsuits. They do not typically sell any products, so there is no chance of a patent infringement, unfair competition, or antitrust counterclaim. The only risk is the loss of the patent itself, which is typically only one of a number of licensing revenue sources. There is no chance that they will face increased competition from a competitor if they lose.
Taken together, the Federal Circuit had no problem with the finding that Eon-Net filed a baseless lawsuit in bad faith for an improper purpose sufficient to warrant a finding that this was an exceptional case.
Rule 11 Sanctions
In addition to awarding attorney fees, the Federal Circuit also affirmed the district court’s imposition of Rule 11 sanctions because Eon-Net and its attorneys failed to perform a reasonable pre-suit investigation. While Eon-Net’s counsel did examine Flagstar’s website before filing suit, they did not perform an objective evaluation of the claim terms when assessing infringement.
What Can We Learn From This Decision?
This decision is really a slap in the face to NPEs and indicates that the Federal Circuit does not take kindly to litigants filing baseless claims to extort settlements from defendants. While this decision serves as a warning to NPEs and their attorneys, it also serves as a cautionary tale for other litigants.
First, the decision emphasizes the need to conduct a proper pre-filing investigation, which should include a claim-by-claim analysis of infringement and the potential construction of any key claim terms. Depending on the nature of the allegedly infringing product, this analysis may be difficult. For example, if claim limitations are not observable from inspecting the product (such as limitations contained in source code), the attorneys will need to make educated assumptions about how the allegedly infringing product works and be ready to defend the legitimacy of those assumptions, if necessary.
Second, plaintiffs need to be aware that the obligation to preserve potentially relevant evidence begins before they file the lawsuit. Intentionally destroying documents before filing a lawsuit can have serious consequences, and if a company had a standard document destruction policy, it must determine if that policy needs to be suspended before (not after) filing suit.
Third, litigants need to take the litigation seriously and respect the process, even if it feels cumbersome or annoying at times. Flippant comments, like those made by Eon-Net’s principal, can come back to haunt a losing party. Ignoring the process or filing half-hearted papers can cause serious problems.
Finally, this case is a real indictment of the standard NPE business model of making extremely low settlement offers to entice defendants to not fight the lawsuit. Many NPEs use this business model with lawsuits of questionable merit knowing that defendants will be reluctant to fight the lawsuit given the prospective costs. This decision may serve as a wake-up call for NPEs and their attorneys to be more careful in what suits they file. Given that Eon-Net only makes between $25,000–$75,000 per settlement, a $600,000 fee award against it likely is a substantial hit to its business. In addition, this decision will haunt Eon-Net in all future proceedings and likely lead to more awards against it if it continues to bring these kinds of meritless lawsuits.
This decision shows that fighting the fight can sometimes be worth the battle and help to deter other NPEs from coming after a company. Unfortunately, it is still likely a losing proposition for the defendants. Even in this best-case scenario, they are generally only compensated for their litigation costs, not all of the other costs of being a defendant (such as lost employee time, opportunity losses, and the damage to their image by being involved in a lawsuit). There is no windfall for defendants in these circumstances.
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.
When drafting a patent, there are a number of factors that a patent attorney needs to consider. I saw this post on the PresumptionofValidity blog that nicely summarizes some of them in a checklist form. With a little bit of planning before you file the application, you can avoid a number of costly and sometimes fatal mistakes. It’s well worth the read (as are a number of other articles on the blog).
In an interesting nonprecedential opinion issued this week in Stamps.com Inc. v. Endicia, Inc. (No. 10-1328), the Federal Circuit affirmed (among other things) the District Court’s decision to limit the number of claims a patentee could bring against an accused infringer. The Court held that the District Court did not abuse its discretion in arbitrarily limiting Stamps.com to asserting 15 claims against Endicia, as long as the District Court gave the patentee an opportunity to assert additional claims for good cause shown. While not a ground-breaking decision, the case is instructive for parties involved in litigating large numbers of patent claims.
The Case Below
Stamps.com sued Endicia for allegedly infringing 629 claims in 11 patents. Endicia moved the court to limit the number of claims, and the court agreed, limiting Stamps.com to 15 claims. The court did state, however, that it would remain flexible and revisit the limitation if Stamps.com could show good cause for needing to assert additional claims. The court then construed 10 claim terms in 15 claims from 7 patents. After briefing on summary judgment, the court invalidated the 7 claims.
Stamps.com then moved the court to pursue additional claims, which the court denied when it granted judgment for Endicia. Stamps.com appealed to the Federal Circuit, which affirmed and rejected Stamps.com’s challenge to the court’s 15-claim limitation, because of the “good cause” outlet the District Court provided.
Take Aways From This Case
This case confirms that trial courts have great discretion to manage their dockets, including limiting the number of claims that can be adjudicated, as long as the court provides some mechanism for a patentee to show good cause for adding additional claims. Thus, a defendant faced with allegations that it infringes hundreds or thousands of claims should consider moving the court to limit the number to a more manageable amount. At the same time, a patentee that finds itself limited to a subset of claims should take care to both choose the best claims to assert and be ready to show good cause for why additional claims may be necessary. Unfortunately, the Court did not identify what “good cause” would be sufficient to expand the number of claims asserted. Nonetheless, a patentee should begin to develop facts and arguments to be ready to use, if necessary.
Contact our Pittsburgh Intellectual Property, Cyber and Data Security, Trade Secret, DTSA and Technology Attorneys at Houston Harbaugh, P.C. through IP and Litigation Sections Chair Henry M. Sneath at 412-288-4013 or firstname.lastname@example.org. While focusing first on health care and prevention issues for family, friends and employees, we are also beginning to examine the overall Covid Law related issues in business litigation, contract force majeure, trusts and estates litigation and insurance coverage issues that will naturally follow the economic disruption of the Covid-19 pandemic.
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