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Beware: Federal Circuit Clears the Way for Large False Patent Marking Fines
January 6, 2010
A little case about construction stilts could mean big fines for companies found liable under the false patent marking statute. In a huge expansion of the fines available under the statute, the Federal Circuit has distinguished century old precedent, and now every article falsely marked with a patent number is subject to the maximum fine, rather than each decision to falsely mark.1 By law the maximum fine is $500 for each item. This means a batch of 100,000 falsely marked products could face fines of $50,000,000, with qui tam litigants eligible to collect half.2
In Forest Gp., Inc. v. Bon Tool Co.,3 Forest Group, Inc. ("Forest") patented improvements to a construction stilt and brought suit against Bon Tool Co. ("Bon Tool"), a former licensee of the patent, for infringement. Bon Tool asserted non-infringement of the patent and countersued Forest for falsely marking products. Bon Tool won. At issue, was claim language directed to the stilt's yoke or clamp, which operated to connect the stilt's leg support to a shoe platform. The patent claim language specified that the yoke was "resiliently lined ", and the District Court interpreted this language to mean the "yoke or clamp [is] lined with a material that is capable of being elastically or reversibly deformed".4 In other words, the District Court ruled that the claim required a lining separate and distinct from the yoke and Bon Tool's yoke did not have such a lining. In perhaps an oversight by Forest, however, its yoke also did not have such a lining. After the adverse claim construction ruling, a summary judgment ruling of non-infringement in another case on the same issue, and a meeting with patent counsel, Forest placed at least one more order to its manufacturer for products without a lining, but requested the manufacturer to remove patent marking from the footplate of its stilt.5 The manufacturer failed to remove the patent marking, and Forest failed to inspect its stilts to ensure this was done. The District Court found Forest guilty of falsely marking its products and charged it a $500 penalty for a single offense of false marking. Bon Tool appealed what it alleged was an improper calculation of penalties.
In reversing the District Court, the Federal Circuit found that the false marking statute, 35 U.S.C. § 292 (a), expressly required that each product falsely marked be subject to a civil penalty.6 Section 292 states in relevant part:
Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word “patent” or any word or number importing that the same is patented, for the purpose of deceiving the public . . . shall be fined not more than $500 for every such offense.7
The Federal Circuit held that the century old First Circuit precedent in London v. Everett H. Dunbar Corp.,8 which provided that each act of false marking was subject to only one continuous fine, was based upon the 1870 Patent Act, and was rendered completely erroneous by the amendments to the Act in 1952. The 1870 Patent Act provided for a minimum penalty of $100 per act of false marking.9 The London Court held that the imposition of such a fine per article, without taking into account the value of the goods at issue, could impose severe penalties out of proportion with the value of the goods.10 In 1952, however, Congress changed the minimum penalty of $100 to a maximum penalty of $500.11 The Federal Circuit found that this change allowed district courts to assess any penalty up to $500 per article alleviating the inequity concerns of London and rendering this previous decision moot. Moreover, while the Federal Circuit acknowledged that district courts have generally followed London, even after the 1952 amendments, the Court found that since none of the district courts analyzed the effect of the 1952 amendments on the rationale of London, these decisions could also be distinguished.12
The Federal Circuit did not stop there. Noting that qui tam actions for false marking could increase with this ruling, the Federal Circuit affirmed that such actions were clearly intended by Congress and that large awards, and potentially more litigants, supported the Court's interpretation of the statute.13 Moreover, though false marking claims still require the accused to have an intent to deceive the public as shown by knowledge of the claim's falsity, the Court provided that the knowledge of falsehood does not have to be shown by multiple adverse claim construction rulings or summary judgment of invalidity of the patent.14 Therefore, even though the Court noted that district courts could assess nominal fines per article to minimize the penalty,15 patent holders that continue to mark products with expired patents, have multiple product redesigns, or fail to ensure commercial embodiments are covered within patent claims are now vulnerable to a new kind of litigant.
So, with such a big fine at stake, and with a litany of potential litigants policing every product, why should you continue marking patented goods? The law requires it. By statute, each patented product must be marked to collect maximum patent damages.16 35 U.S.C. § 287(a) provides in relevant part:
Patentees . . . may give notice to the public that . . . [an article] is patented, either by fixing thereon the word "patent" or the abbreviation "pat.", together with the number of the
patent . . . In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice . . .17
Simply, patent litigation is expensive and the ability to pursue a claim is often dependent on the ability to collect past damages - available to the patent holder only if its products are marked. So, keep marking your goods, but mark wisely.
Patent holders and litigants should take the following actions:
For new product designs or inventions:
- Communicate to patent counsel the commercial embodiments of your product and update counsel as to any changes in the product's design that may need to be incorporated into a patent application. If patents claims covering the product have not issued your patent attorney may still be able to claim commercial embodiments using the same application or a continuation of your pending application.
- Analyze final product designs with patent counsel to compare all applicable issued patent claims with your commercial embodiment prior to marking. If the final product design is not covered by one or more claims of the patent, do not mark the product with the patent number.
- Once a patent issues with one or more claims covering a commercial product line – after the final review of counsel, mark the product line according to the statute, i.e., with patent or pat. and the patent number.
For existing product lines and patents:
- Determine whether any product line redesign, update, or modification is still covered by one or more claims of all applicable patents. If the redesigned product line is not covered by one or more claims of one of the patents, immediately discontinue marking the product line with this patent.
- Periodically review all patent numbers on every product to ensure expired patents are no longer marked. If a patent is expired, immediately discontinue marking the product with this patent.
- Instruct manufacturing to immediately update, retool or revise manufacturing or labeling equipment upon notice that a patent number can no longer appear on housings, labels, casings, or the like for a particular product – and have systems in place to make certain the markings have been changed or updated on the products before shipment.
In existing litigation:
- If a patent has an adverse claim construction or summary judgment ruling, analyze all product lines marked with that patent number with counsel.18 If the product no longer falls within the claim construction ruling, discontinue marking the product line with the patent.
- When defending a patent suit, obtain an opinion as to whether the patent holder's products comply with the false marking statute. If so, file or amend counterclaims to assert the statute. A successful claim could mean a windfall from any penalties assessed.
By taking prudent steps to wisely mark products with appropriate patent numbers, relying on opinions of counsel with regard to marking, and inspecting products to make certain that expired or non-applicable patent numbers have been removed, it is likely false marking penalties from inadvertent mistakes can be avoided. But, as the facts of this case suggest, ultimately there is no substitute for a good pair of eyes.
1 See Forest Gp., Inc. v. Bon Tool Co., No. 2009-1044, slip op. at *1 (Fed. Cir. Dec. 28, 2009).
2 35 U.S.C. § 292(b) (2008) provides that "[a]ny 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".
3 Forest Group, Inc. v. Bon Tool Co., No. H-05-4127 (S.D. Tex. July 29, 2008).
6 Forest Gp., Inc. v. Bon Tool Co., No. 2009-1044, slip op. at *13.
7 35 U.S.C. § 292 (a) (2008).
8 London v. Everett H. Dunbar Corp., 179 F. 506 (1st Cir. 1910).
9 Patent Act of 1870, Ch. 230, 16 Stat. 198-217 (1870).
10 London v. Everett H. Dunbar Corp., 179 F. 506 at 508.
11 See Forest Gp., Inc. v. Bon Tool Co., No. 2009-1044, slip op. at *9, citing 35 U.S.C. § 292(b) (1952).
12 Forest Gp., Inc. v. Bon Tool Co., No. 2009-1044, slip op. at *10.
13 Id at *13.
14 Id. at *7.
15 Id. at *13 ("This does not mean that a court must fine those guilty of false marking $500 per article marked. The statute provides a fine of "not more than $500 for every such offense." 35 U.S.C. § 292(a) (emphasis added). By allowing a range of penalties, the statute provides 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. In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty").
16 35 U.S.C. § 287(a) (2008).
18 See generally Forest Gp., Inc. v. Bon Tool Co., No. 2009-1044, slip op. at *1.