From Bon Tool to Bowties: the Patent Marking Landscape after Stauffer
Under current U.S. law, a patent has a term of 17 or 20 years, provided that maintenance fees are paid on time. Once a patent has expired, the patent holder must remove the expired patent number(s) from the products to which they are affixed or face liability under 35 U.S.C. § 292, the “false marking” statute.
35 U.S.C. § 292(a) provides that anyone marking an unpatented article “for the purposes of deceiving the public” will be fined “not more than $500 for every such offense.”
35 U.S.C. § 292(b) states that “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.” Thus, any person can bring a qui tam action for false marking, whether or not he has an interest in a patent or has suffered actual injury.
For almost 100 years, courts had followed the “per decision” rule, holding that an offense under the statute was considered one continuous act of false marking, regardless of how many products were improperly marked during that time. This changed in December 2009, when the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) overruled the per decision rule in Forest Grp., Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009), holding that “the [false marking] statute’s plain language requires the penalty to be imposed on a per article basis.” The three-judge panel reasoned that only a per article application of the penalty would encourage private enforcement of the statute. However, the court was careful to point out that the statute affords district courts “the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities.” Bon Tool Co., 590 F.3d at 1304.
The Bon Tool decision produced a flood of false marking litigation. In the three months following the decision, plaintiffs filed more than 150 false patent marking suits: a number approximately equal to the number of suits filed in the previous ten years. Corporations have since been scrambling to check the status of their own and their suppliers’ patents while so-called “marking trolls” scour store shelves and online advertising in search of products whose labeling is not up-to-date. Some of the products under scrutiny – mentioned in a recent Wall Street Journal article on patent marking – include Etch A Sketch toys, Crest toothpaste and L’Oréal mascara.
Two recent Federal Circuit decisions have shed light on two key elements of a patent marking claim: intent to deceive and standing. The former came in June 2010, when the Federal Circuit weighed in on the § 292(a) intent to deceive requirement in Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010). In that case, patent attorney Matthew Pequignot sued Solo Cup Co. alleging that that more than 21.7 billion of Solo’s cup lids were marked with the numbers of expired patents. Pequignot sought $500 in damages for each lid: a total of $10.9 trillion dollars. The district court granted Solo’s motion for summary judgment, and the Federal Circuit affirmed, holding that while Solo’s knowledge of the false marking created a rebuttable presumption of intent to deceive, Solo could and did show that it had good faith reasons for mismarking its products.1
On August 31st, the Federal Circuit addressed the issue of standing in Stauffer v. Brooks Bros., Inc., Nos. 2009-1428, 2009-1430, 2009-1453, 2010 WL 3397419 (Fed. Cir. Aug. 31, 2010). In that case, Raymond Stauffer, also a patent attorney, sued Brooks Brothers for falsely marking bow ties with patent numbers which had expired in the 1950s. The district court granted Brooks Brothers’ motion to dismiss for lack of standing, holding that Stauffer, standing in the place of the United States, failed to sufficiently demonstrate that the government had suffered an injury. The Federal Circuit reversed, holding that the government inherently suffers an injury-in-fact when its statutes are violated and, accordingly, has standing to sue to enforce its laws. Because a qui tam plaintiff sues as the assignee of the government’s claim, the court reasoned, Stauffer had standing to sue on behalf of the government. Although the Federal Circuit sided with the plaintiff, it remanded the case to the district court with instructions to consider Brooks Brothers’ argument that Stauffer’s complaint failed to plead intent to deceive with sufficient specificity. The Stauffer court did not address several other key issues.2 However, many cases, which had been stayed pending the outcome in Stauffer, will now move forward.
The recent surge in false marking litigation has prompted Congress to consider legislation that would limit who can bring suit under the false marking statute. Both H.R. 4954 and the Manager’s Amendment to S. 515, the Patent Reform Act of 2009, propose to amend 35 U.S.C § 292(b) to read as follows:
“A person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.”
The bills would eliminate the qui tam provision and provide that only competitors have standing to sue for false marking. Under the amended language, persons could no longer sue to receive compensation simply for vindicating the public interest. A recent think-tank policy paper argues that it would be best to craft a legislative remedy rather than rely on the Solo Cup decision to limit possible excesses in damage awards, but no Congressional action is expected before the end of the year.
1 Because immediately replacing the molds used to manufacture the mismarked lids would be “costly and burdensome,” Solo developed a plan to phase out the mismarked lid molds on the advice of outside counsel. Solo Cup. Co., 608 F.3d at 1359. Instead of promptly replacing all of the molds, which often last fifteen to twenty years, Solo allowed the mismarked molds to wear out before replacing them with unmarked molds. The court found that Solo had produced credible evidence that it developed the plan “in good faith reliance on the advice of counsel and out of a desire to reduce costs and business disruption” and had “implemented and followed” the plan. Id. at 1364.
2 For example, the court’s decision did not address a challenge to the constitutionality of § 292(b), in which amicus curiae Ciba Vision Corp. argued that the law impermissibly strips the executive branch of its duty to “take Care that the Laws be faithfully executed” by giving such power to the public. Stauffer, 2010 WL 3397419, at *5. Additionally, the court took no view on whether § 292 addresses a proprietary injury, a sovereign injury or both, “as either one would confer standing on the government, and therefore Stauffer.” Id.