Over the past several weeks, nearly one hundred lawsuits have been filed against several large companies under the “false marking” section of the Patent Act. These suits are qui tam actions, which allow “any person” to file suit against an alleged false marker and split the monetary penalty with the federal government. This Alert summarizes the current state of the law and provides suggestions to patent holders.
The Patent Act provides significant advantages to patent holders who indicate that their products are patented by “either by fixing thereon the word ‘patent’ or the abbreviation ‘pat.’, together with the number of the patent.” Specifically, in a patent infringement action, no damages may be recovered for infringement occurring prior to the infringer receiving actual notice of the infringement if the article was not properly marked. Thus, many patent holders choose to mark their products to notify the public that the products are patented and to improve the likelihood that higher damages will be available if infringement occurs.
Although marking is often advantageous, it must be done properly to minimize risk to the patent holder. A penalty provision in the false-marking section, 35 U.S.C. § 292(a), provides a fine of not more than $500 for every false-marking offense. False marking includes marking an unpatented article with the word “patent” (or similar language), or using such language in advertising in connection with the unpatented article, for the purpose of deceiving the public. The fine also applies to falsely marking or falsely advertising articles as “patent pending.”
The steep rise in false-marking suits is no doubt related to the recent decision in Forest Group, Inc. v. Bon Tool Co., No. 2009-1044 (Fed. Cir. Dec. 28, 2009), in which the Federal Circuit held that the penalty for false marking is up to $500 for every falsely marked article. Previously, the majority of district courts had held that every “offense” meant every decision to mark and included continuous acts of false marking, such as a single production run. In Forest Group, the Federal Circuit rejected this interpretation and held that each article that is falsely marked with the intent to deceive constitutes an “offense.” Thus, instead of a single production run exposing a manufacturer to liability for a single false-marking fine of up to $500, now a single production run may involve the risk of a fine based on the number of articles produced.
An award of $500 per article, however, is not automatic. Instead, district courts have “the discretion to strike a balance between encouraging enforcement . . . and imposing disproportionately large penalties for small, inexpensive items produced in large quantities.” Where inexpensive articles are mass produced, district courts have “the discretion to determine that a fraction of a penny per article is a proper penalty.” Nonetheless, damages calculated per article under Forest Group are potentially staggering and, even in cases where small per-article penalties are imposed, the financial and managerial costs associated with defending against a false-marking claim may be onerous.
In the wake of Forest Group, the possibility of an award of $500 per article gives potential qui tam plaintiffs strong financial incentives to pursue false-marking suits. Thus, patent holders should be more diligent than ever in ensuring that marked products are marked accurately. We therefore recommend the following:
While patent holders should promptly attend to any marking concerns to minimize their potential liability in light of Forest Group, the long-term impact of the case may be substantially mitigated by the proposed patent reform legislation. On March 4, 2010, the Senate Judiciary Committee posted a new manager’s amendment to the proposed legislation that would remove the ability of qui tam plaintiffs to bring suit for false marking. Instead, the amendment requires plaintiffs to have “suffered a competitive injury as a result of a violation” and would allow “for recovery of damages adequate to compensate for the injury.” Regardless of whether Congress ultimately amends the Patent Act, however, the “per article” method of calculating damages announced in Forest Group exposes patent holders to significant liability, and patent holders, therefore, should take steps now to ensure that their products are properly marked.
If you have any questions about the material presented in this alert, please contact the authors listed below or your regular Baker Hostetler contact.
Authorship Credit: Kevin W. Kirsch, David A. Mancino, John F. Bennett and Matthew P. Hayden
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