Legal View: The twilight of false-marking suits against patent owners

By Alexander J. Smolenski Jr.

The Daily Record Newswire

Litigation over false patent marking, like a case filed this year in the U.S. District Court in Rhode Island, is becoming an endangered species.

In Promote Innovation LLC v. Little Kids, Inc., the plaintiff claims that the defendant's bubble-bucket products were falsely marked.

But judicial and legislative trends are converging to dim the prospects for false-marking claimants.

Marking goods as "patented" when they are, in fact, protected by a patent is appropriate and desirable under the patent laws. That way the public is put on notice that an item is covered by a patent.

Furthermore, patent marking is often a prerequisite to obtaining pre-litigation damages in an infringement lawsuit.

However, an item that is falsely marked discourages innovation and competition because it creates the misimpression that the product is covered by a patent. Such "false marking" often occurs when a patent owner simply neglects to discontinue marking goods after his patent has expired.

The false patent-marking statute seeks to curtail such deception. Under 35 U.S.C. §292, any person may bring a suit on behalf of the government for false marking for the purpose of deceiving the public, and if successful, receive damages of up to $500 per offense (with half of that going to the United States).

That any private person can bring a false-marking action on the government's behalf has been a source of ongoing controversy. Many assert that lawsuits have been filed by a new breed of "patent trolls" specifically formed to litigate false-marking suits for financial gain only and who have no claim of competitive injury.

A federal District Court added fuel to the controversy and dramatically increased the number of false-marking cases by holding, early in the proceedings of a case involving coffee-cup lids, that a separate penalty is potentially due for each such article sold (see Pequignot v. Solo Cup Co., 640 F. Supp. 2d 714 (E.D. Virginia 2009), see also In Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 93 U.S.P.Q.2d 1097 (Fed. Cir. 2009)).

Since the defendant, Solo Cup Co., had produced more than 21 billion lids, the potential fine to be awarded to plaintiff Pequignot (who suffered no personal harm from Solo's markings) approached trillions(!) of dollars.

As a result, hordes of other gold diggers were encouraged to seek a quick score under the guise of enforcing the patent laws.

However, in a blow to such opportunists, Solo Cup ultimately persuaded the Federal Circuit that it did not intend to deceive the public with its markings, as required by the false-marking statute, making the penalty inapplicable (see Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010)).

More significantly, the Federal Circuit heightened the requirements of the false patent-marking statute, holding that a party's knowledge that a statement is false does not conclusively prove an intent to deceive. Rather, such facts merely create "a rebuttable presumption of intent to deceive the public."

Further, the presumption is a weak one when the "false markings at issue are expired patents that previously covered the marked products."

As explained by the Federal Circuit, "a good faith belief that an action is appropriate, especially when it is taken for a purpose other than deceiving the public, can negate the inference of a purpose of deceiving the public."

The Federal Circuit concluded that Solo had successfully rebutted Pequignot's presumption by showing that it had relied on the advice of its counsel in waiting to replace existing cup molds until they were worn or damaged, as immediate replacement of all the molds would have been "costly and burdensome."

To further stem the flood of false patent-marking cases, a provision in the "America Invents Act," a/k/a the Patent Reform Act of 2011, imposes limits of its own on false-marking litigation.

Under the proposed legislation, only the United States, or a person who has suffered a competitive injury as a result of the false marking, may bring suit.

Furthermore, while the government may still sue for up to $500 for every offense, the draft law provides that persons bringing suit may recover only damages adequate to compensate for the injury.

With the House of Representatives passing its version of the bill, H.R. 1249, on June 26, the House bill must now be reconciled with the Senate bill (S. 23, which passed in March) before being sent to the president.

The new law, if passed, along with recent court decisions, will effectively halt the onslaught of false-marking cases. Since the effective date of the anticipated legislation will make it applicable to all cases that are pending on or after the date of enactment, a vast majority of false-marking lawsuits now pending in federal courts will be shut down.

Published: Mon, Sep 12, 2011

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