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Patent Owners Should Use Caution When Making Their Mark

Federal Circuit Expands False Marking Statute to Extend Liability on a Per Product Basis

Robert J. Tribeck, Esquire and Amanda Lavis, M.B.A.

Introduction

For the first time, on December 28, 2009, the United States Court of Appeals for the Federal Circuit interpreted the false patent marking statute, 35 U.S.C. § 292, to impose a penalty of up to $500 per article/product falsely marked or advertised as patent protected.  Prior to the decision in Forest Group v. Bon Tool, district courts generally imposed a single penalty for § 292 violations, regardless of the number of products marked.  By changing the penalty from a per marking decision basis to a per product marked basis, the ruling significantly increases the amount of penalties that a court may impose. 

As any person may sue for a violation of § 292, with any damage award split between the federal government and the plaintiff, this decision is likely to increase the number of lawsuits brought.  Numerous companies elect to mark their products to provide constructive notice of the patent to potential infringers.  Accordingly, companies should consult with counsel to ensure their products are properly marked to prevent § 292 violations.

The False Marking Statute:

Section 292 imposes a fine upon those who falsely mark a product with a patent number or with “patent pending” with the intent to deceive the public as being covered by a patent or patent application.  In pertinent part, the statute provides:

Whoever, without the consent of the patentee, marks upon, or affixes to, or uses in advertising in connection with anything made, used, offered for sale . . . the patent number, or the words "patent," "patentee," or the like, with the intent of counterfeiting or imitating the mark of the patentee, or of deceiving the public . . .  or [w]hoever marks upon, or affixes to, or uses in advertising . . .  the words "patent applied for," "patent pending," or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public. . . [s]hall be fined not more than $ 500 for every such offense.

35 U.S.C. § 292.  Simply put, the statute prohibits (1) marking an unpatented article with (2) intent to deceive the public.  See Clontech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005).

To establish intent to deceive, the plaintiff must demonstrate by a preponderance of the evidence that the accused offender did not have a reasonable belief that the products were properly marked.  Id. at 1352-53.  “Intent to deceive is a state of mind arising when a party acts with sufficient knowledge that what it is saying is not so and consequently that the recipient of its saying will be misled into thinking that the statement is true.”  Id. at 1352.  Accordingly, an honest, though mistaken, mismarking of an article would not trigger liability under the statute. See Brose v. Sears, Roebuck and Co., 455 F.2d 763, 768-69 (5th Cir. 1972).

Due to policy considerations, the statute permits any person to bring a suit for § 292 violations.  Moreover, the person may keep fifty-percent of any penalty imposed, with the remaining amount awarded to the government.  This broad standing provision has lead to “trolling” by individuals seeking to bring litigation for personal gain.  Awards, however, have traditionally been limited.

Historically, courts interpreting § 292’s “per offense” penalty provision have only imposed a penalty for each distinct decision to mark a product, rather than for each falsely marked product.  See e.g., London v. Everett H. Dubar Corp., 179 F. 506, 507-509 (1st Cir. 1910) (“It can hardly have been the intent of Congress that penalties should accumulate as fast as printing press or stamping machine might operate.”); accord Pequignot v. Solo Cup Co., 646 F. Supp. 2d 790, 801 (E.D. Va. 2009) (noting “[n]early all the courts that have addressed this issue have followed London, either explicitly or implicitly.”).  In Forest Group, Inc. v. Bon Tool, Co., the Federal Circuit declined to apply the London decision and held that § 292 imposed a penalty of up to $500 for each product marked.

The Decision: The Forest Group, Inc. v. Bon Tool, Co., 2009 WL 5064353, 93 U.S.P.Q.2d 1097 (Fed. Cir. 2009)

In Forest Group, the assignee of a patent for spring-loaded stilts, Forest Group, Inc. (“ Forest”), brought an infringement action in the Southern District of Texas against a competitor, Bon Tool, Co.  Id. at * 1.  Bon Tool counterclaimed, alleging, among other things, false marking under § 292.  Id.  Examining liability under § 292, the district court found that Forest had the requisite knowledge that its stilts were not covered by the patent and accordingly falsely marked it products.  Id. at *2.  Specifically, the court noted that Forest had actual knowledge that its stilts were not covered by the claims of the patent as construed after a district court in a related case granted summary judgment on non-infringement.  Id.  The court found intent to deceive based on evidence that Forest decided to place an order for marked stilts after it knew its product was not covered by the patent.  Id.  Accordingly, the court fined Forest $500 for a single offense of false marking.

Bon Tool appealed, arguing that the district court misinterpreted § 292 when it assessed only a $500 fine for a single decision to mark its stilts after it knew the product did not meet all the claims of the patent.  Id. at *3.  Vacating the ruling of the district court, the Court of Appeals for the Federal Circuit agreed with Bon Tool and found that the statutory language did not support a single penalty of $ 500.  Id.  Rather, the Federal Circuit found that the plain language of the statute “clearly requires that each article that is falsely marked with intent to deceive constitutes an offense.”  Id. 

Declining to apply the holding of London, which imposed a penalty per decision to mark a product, the Federal Circuit examined the history of the false marking statute and concluded that its per article interpretation was consistent with the language of the statute and public policy. Id. at * 4.  First, the Federal Circuit found that the language of the statute supported an interpretation of a per article offense.  Id. at * 3.  In reaching this conclusion, the Federal Circuit relied on the amended language of the statute.  Id. at * 4.  Distinguishable from the current statute, the London Court interpreted an earlier version of the marking statute, which provided for a $100 minimum penalty per violation.  Id. (emphasis added).  The crux of the London holding was that the statute’s $100 minimum penalty would make application on a per article basis inequitable, especially for products made in large quantities.  Id.

The Federal Circuit noted, however, in 1952 Congress amended § 292 to impose a maximum fine of up to $500 per violation, rather than the imposition of a $100 minimum fine per violation.  Id.  The Federal Circuit reasoned that the amended language of the statute “eliminated the policy consideration expressed by the court in London of not imposing disproportionate fines for the false marking of small and inexpensive articles.”  Id.  District courts, however, failed to analyze the effect of the 1952 amendment on the false marking statute and continued to impose a fine per decision to mark a product.  Id.  The Federal Circuit noted, however, that interpreting the amended language to impose a single $ 500 fine for each decision to falsely mark a product would render the statute “completely ineffective [and] . . . would be insufficient to deter in nearly all cases.”  Id. at * 6. 

Importantly, the Federal Circuit emphasized that a per article penalty did not mean that district courts must impose fines of $500 per article.  Rather, the court noted the district court’s discretion to impose fines of “not more than $500” per offense.  Under this wide discretion, a court could impose a “faction of a penny per article” penalty in appropriate cases 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.”  Id. at * 6.  Accordingly, Federal Circuit found that the expressed language of the statute, as amended in 1952, permitted courts to impose up to a $500 fine for every article falsely marked.  Id.

Second, the Federal Circuit found that policy considerations supported a per article penalty.  The court noted “Congress intended the public to rely on marking as a ‘ready means of discerning the status of intellectual property embodied in an article of manufacture or design.’”  Id. at * 5 (quoting Clontech Labs., 406 F.3d at 1356).  False marking of products deters innovation by discouraging further research and development for fear of infringement and stifles competition by dissuading competitors from entering the same market.  Id.   The Federal Circuit found that these injuries occur each time an article is falsely marked.  Id.  As such, public policy supported a per article interpretation of § 292.

After concluding the statutory language and public policy supported a per article penalty, the court conceded that such an interpretation would likely increase the number of false marking lawsuits.  Id. at * 6.  The Federal Circuit, however, noted that the rise of such “marking trolls,” as persons who bring litigation purely for personal gain are commonly called, would not be contrary to the intent of the statute.  Id.  Rather, the court found that the statute permits such activities by allowing any individual to bring an action.  “By permitting members of the public to sue on behalf of the government, Congress allowed individuals to help control false marking.”  Id.  In fact, the Federal Circuit found imposing a fine on a per decision basis would be insufficient to financially motivate individuals to bring false marking suits.  Id.  Thus, even though imposing the penalty on a per product basis would likely increase lawsuits, this was in accordance with the purpose and intent of the statute.

Practical Considerations

The Federal Circuit’s holding that § 292 penalties should be assessed for each product improperly marked increases the potential liability for patentees, assignees, or licensees that mark their product.  Currently, product marking is a common mechanism of providing constructive notice of the patent to potential infringers.  Proper notice, especially through marking, enables patentees to maximize their award of damages against infringers. 

This benefit, however, must now be weighed against the potential risks associated with improperly marking products.  The statute of limitations for § 292 is five years, which exposes companies to current liability for previously improperly marked products.  Additionally, as noted by the Federal Circuit, the per article penalty is likely to increase the number of suits filed by individuals seeking monetary gain.  Such “marking trolls” will be actively looking for improperly marked patents, exposing any marked product to careful scrutiny.

In making the decision to mark a product, patentees should keep in mind that parties who accidentally mark their products incorrectly are not subject to liability under § 292.  Rather, liability under § 292 will only arise if there is an intent to deceive the public, which normally occurs after notice that the product is not covered by the claimed patent or when the patent expires.  Patentees should institute internal policies and procedures to ensure marked products are in compliance with the law.  Moreover, patentees who require licensees to mark a product as part of a licensing agreement should carefully monitor marking procedures.  Similarly, licensees should consider seeking indemnification for false marking from patentees who require product marking.  

Given the ruling in Forest Group, patentees should consult with counsel to evaluate the risk and benefits associated with product marking.  If you have any questions as to whether your product is properly marked, whether your competitor’s products are properly marked, or any other questions or concerns, please contact Robert J. Tribeck at rtribeck@rhoads-sinon.com