Jan 20, 2010

CAFC Interpretation of False Patent Marking Statute Creates Serious Damages Risk for Consumer Products Companies

A recent decision by the Court of Appeals for the Federal Circuit has raised the possibility of unexpected and significant damage exposure to consumer-products companies and others that continue to sell products marked with patent numbers after the patents have expired. In Forest Group, Inc. v. Bon Tool Co., — F.3d —-, 2009 WL 5064353 (Fed. Cir. Dec. 28, 2009), a false-marking case involving a patent that did not cover the product, the Federal Circuit focused on the interpretation of the penalty provision for false marking in 35 U.S.C. § 292. It overturned the district court’s interpretation that a maximum penalty of $500 should be imposed on each decision to falsely mark an item, instead holding that the plain language of the statute required that the penalty be imposed on a per-article basis. Id. at 3-7.

While the Federal Circuit in Forest Group noted that district courts will still have discretion to award less than $500 for each false-marking violation – including even a “fraction of a penny per article,” id. at 6 – its interpretation remains a potential bombshell for companies that could be selling products marked with expired patents. The problem is that 35 U.S.C. § 292 is a qui tam statute, which means that it allows suits to be brought by private citizens to enforce the government’s interest in preventing false marking. As 35 U.S.C. § 292(b) states: “any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.” In fact, the court in Forest Group acknowledged that its interpretation could give rise to “a new cottage industry” of false-marking litigation brought by plaintiffs who have not suffered any direct harm, but who stand to collect potentially massive damage awards. Id. at *6. Thus, companies that place millions of identically marked items in commerce could face huge damages awards, often for wholly inadvertent behavior.

However, there is one potential silver lining from the Forest Group decision. Since Forest Group involved a company falsely marking a product with patents that never covered the products at all, it is not yet clear whether courts will apply the same interpretation to cases where a company falsely marks a product with a patent that formerly covered the product, but has since expired. This question may be answered by the Federal Circuit in the pending appeal of the lower court’s decision in Pequinot v. Solo Cup Co., 646 F. Supp. 2d 790 (E.D. Va. 2009). In the Solo Cup case, a company had falsely marked a product with two patents that formerly covered the product, but had since expired. The court found on the facts before it that there was no requisite intent to deceive the public, and thus no liability. In expiration cases, the court found, the presumption of intent to deceive is weaker than when a company falsely marks a product with patents that never covered the products at all, because the possibility of actual deceit, as well as the benefit to the false marker, are diminished. Id. at 797-98. As for damages in such cases, the court in Solo Cup stated that an offense under 35 U.S.C. § 292 is only committed when a party makes a distinct decision to falsely mark, as opposed to each falsely marked item constituting an offense. Id. at 801-04. It remains to be seen how the Federal Circuit will reconcile its conclusions in Forest Group with the Solo Cup facts in the pending appeal.

A number of qui tam actions against major companies have been filed since the December 29, 2009 decision in Forest Group. Companies will be well-served to audit their products and take reasonable steps to change out inventories to avoid serious exposure.

For more information, contact your SGR Intellectual Property counsel.

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