Recent Developments in False Marking Litigation
When the United States Court of Appeals for the Federal Circuit decided Bon Tool, it unwittingly triggered an avalanche of litigation against major corporations brought under 35 U.S.C. § 292, the false marking statute. The opinion resolved a split of authority regarding whether a manufacturer of a product could be subjected to a fine based on each article that had been falsely marked, or each decision to mark the article. Combined with the fact that the qui tam nature of the false marking statute obviated the need to establish traditional Article III standing, a new breed of patent trolls sprung into existence seemingly overnight, dedicated to the task of tracking down mis-marked products, and seeking to share half of a maximum $500 per falsely marked item bounty. The economic appeal in bringing such suits is obvious. A major manufacturer could potentially produce millions of falsely marked articles. Even if a court decided not to assess the full $500 penalty (which it has discretion to do), a successful plaintiff could still stand to reap a sizeable award based on the sheer number of falsely marked articles injected into the stream of commerce. Since that time, several cases have been decided that have helped to provide guidance to litigants on both sides of this rapidly evolving area of law.
Pequignot v. Solo Cup Revisited
On June 10, 2010, the Federal Circuit decided Pequignot v. Solo Cup Company, largely affirming the holding of Judge Leonie Brinkema of the United States District Court for the Eastern District of Virginia. Defendant Solo Cup had prevailed at the district court when Judge Brinkema held that Pequignot failed to establish that Solo Cup had acted with deceptive intent with respect to its falsely marked products. The decision clarified several key points.
First, the Federal Circuit confirmed that an article that was covered by an expired patent is the same as an unpatented article. This determination is important, because it satisfies the first prong of the false marking statute, which requires the marking of an unpatented article by the defendant.
Second, the court addressed burden shifting with respect to establishing deceptive intent to deceive the public, which is the second prong of the false marking statute. The court noted that “the combination of a false statement and knowledge that the statement was false creates a rebuttable presumption of intent to deceive the public, rather than irrebuttably proving such intent.” According to the court, not only may defendants rebut this presumption, but “the bar for proving deceptive intent here is particularly high, given that the false marking statute is a criminal one . . .” The court held that the standard of proof of intent for false marking is a “preponderance of the evidence.” Interestingly, the court also held that in regard to false marking related to expired patents, the “presumption of intent is weaker.” A defendant may not defeat an inference of an intent to deceive with “blind assertions of good faith.” The court confirmed that Solo had successfully rebutted the presumption when it provided evidence that it had relied on advice of counsel, and had carried out a plan to replace molds with unmarked ones as they wore out over time. When Pequignot was unable to raise a genuine issue of material fact showing otherwise, the case was decided in Solo’s favor.
Last, some practitioners had hoped that the Federal Circuit would use the Pequignot decision to revisit the “per article” standard of fines determined in the Bon Tool case. However, the Court threw cold water on such hopes, finding that because the other issues were case dispositive, a determination relating to the assessment of damages was rendered moot, vacating Judge Brinkema’s holding to the contrary at the district court level.
Developments Since Pequignot
Two recent cases have been decided in the district courts of Texas and Florida that address the level of specificity required by a plaintiff when pleading a false marking cause of action. In Patent Compliance Group, Inc. v. Interdesign, Inc., the defendant sought dismissal of the case based partly on a failure to state a claim upon which relief may be based and for failure to plead its false marking claim with requisite specificity under Fed. R. Civ. P. 9(b). In its complaint, plaintiff alleged that the defendant “intended to deceive the public by marking the Patent Expired Product with the ‘842 patent after its expiration.” In support of its allegation, plaintiff attached a copy of the patent, establishing the expiration date, as well as a picture of the actual product labeled with the expired patent number. The court held that this was a sufficient showing to survive the defendant’s motion to dismiss the complaint. Although the court declined to decide whether false marking claims were subject to the heightened fraud pleading standard of Rule 9(b), the court stated that, “[a]rmed with actual documentation that a product was falsely marked, a court may draw an inference of the defendants’ knowledge simply by the finite nature of patents and the ordeal an entity must go through to actively create and maintain a patent . . . Similarly, an actual photograph of a product recently injected into the stream of commerce with an expired patent number also creates an inference of a false statement.” The court cited to Pequignot, noting that defendant’s conclusory statements that it acted in good faith were insufficient to rebut the inference of deceptive intent.
In Advanced Cartridge Technologies, LLC v. Lexmark International Inc., the court took a more skeptical view of the plaintiff’s complaint. Although the Interdesign court specifically avoided the issue of whether Rule 9(b) is applicable to false marking cases, the United States District Court for the Middle District of Florida cited to the rule in holding that that the plaintiff’s complaint was factually deficient. Specifically, the court noted that, “Providing only sparse factual detail, the complaint utterly fails to state with particularity the circumstances constituting fraud.” The court dismissed the false marking claim, but provided the plaintiff leave to refile the complaint with the required degree of specificity.
A Legislative Fix on the Horizon?
In response to the unexpectedly high level of false marking litigation, legislators are scrambling to craft a fix. The Patent Reform Act of 2010 is currently under consideration by Congress (H.R. 4954). If passed, this legislation would eliminate qui tam suits by requiring plaintiffs to show competitive injury related to false marking. Damages would be assessed in a manner “adequate to compensate for the injury,” as opposed to the current statute, which allows a fine of up to $500 for each article. The legislation as drafted would apply to all pending cases. However, it is not clear when or if this legislation will ever be enacted.