Patent Update

False Marking Penalty Is Imposed on a Per-Article Basis

Tuesday, January 05, 2010

On December 28, 2009, the Court of Appeals for the Federal Circuit held that the penalty for false marking is applied on a per-item basis. This decision means that a company that runs afoul of the false marking statute could be liable up to $500 per falsely marked item.

In The Forest Group Inc. v. Bon Tool Co., the defendant alleged that the patentee had falsely marked its product. To prove a false marking claim under 35 U.S.C. § 292, the evidence must show that there was (1) a marking of an unpatented article, and (2) intent to deceive the public by the patentee. Here, the patentee had actual knowledge of the false marking due to another court action that held that the patent did not cover the product that was being marked. The court did not further explain the amount of evidence that would be needed to prove intent, leaving open the question of what types of claims would be successful going forward.

More importantly, the Federal Circuit reversed the district court’s assessment of only $500 in total penalties against the patentee for a single decision to mark the product after the patentee knew that the product was not within the scope of the patent. “The plain language of the statute [35 U.S.C. § 292] does not support the district court’s penalty of $500 for a decision to mark multiple articles. Instead, the statute’s plain language requires the penalty to be imposed on a per article basis.” (emphasis by authors.) Accordingly, the statute “clearly requires that each article that is falsely marked with intent to deceive constitutes an offense under 35 U.S.C. § 292.” Adopting the district court’s interpretation, which was the patentee’s proposed statutory construction, “would render the statute completely ineffective. Penalizing those who falsely mark a mere $500 per continuous act of marking, which act could span years and countless articles, would be insufficient to deter in nearly all cases.”

The court noted that the $500 fine is a maximum amount and not a mandatory penalty. The court stated that it is not required to “fine those guilty of false marking $500 per article marked. The statute provides a fine of ‘not more than $500 for every such offense.’” (emphasis in original.) 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.” Therefore, the aggregate penalty may be limited by the court’s discretion.

The complete decision can be found at http://www.cafc.uscourts.gov/opinions/09-1044.pdf.

Pepper Hamilton's Intellectual Property Practice Group is an interdisciplinary team that procures intellectual property rights and litigates or otherwise resolves intellectual property disputes. Our lawyers are capable and experienced in all areas of intellectual property. If you have any questions or comments regarding this update, please contact your representative in Pepper's Intellectual Property Practice Group.

Daniel M. Scolnick, Ph.D. and Paul K. Legaard, Ph.D.

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