On December 28, 2009, the United States Court of Appeals for the Federal Circuit invited more vigorous private enforcement of false patent marking. It did so by affirming the right of "any person" to bring an enforcement action and by ruling that patent owners found to have falsely marked or advertised unprotected articles as patented or "patent pending" are subject to a penalty of up to $500 that is calculated on a per-article basis. In view of this decision, an immediate review of currently marked products and, going forward, heightened emphasis on marking due diligence are essential for companies to avoid becoming easy targets.
United States patent laws encourage patent owners to label or “mark” patented products “patent pending,” or “Protected by U.S. Pat. No. X,XXX,XXX,” to give the public notice of the owner’s patent rights and to deter would-be copycats from capitalizing on the patent owner’s inventive efforts. Moreover, marking one’s products as patented allows recovery of damages for past infringement. Section 292 of the Patent Act, in turn, protects the public from abusive patent marking practices and from companies that intentionally attempt to stifle competition by falsely marking or advertising unprotected articles as patented or “patent pending.” According to Section 292, any company engaging in false patent marking with the intent to deceive the public may be held liable to the United States government for “not more than $500 for every such offense.” By the section’s express terms, any person can bring an enforcement action and is entitled to split the proceeds equally with the U.S. government.
For years, there has been considerable debate among district courts regarding the meaning of the phrase “for every such offense” as used in Section 292. Some courts have imposed a single $500 penalty for continuous acts of false marking of multiple products. Others have employed a time-based approach, leveling separate penalties for each day, week, or month in which falsely marked products were produced. Until recently, this uncertainty regarding penalty calculation has largely kept private enforcement at bay. On December 28, 2009, however, the Federal Circuit ended this debate.
In The Forest Group, Inc. v. Bon Tool Co., Forest accused Bon Tool of patent infringement and Bon Tool countered with a false marking claim. After disposing of Forest’s infringement claim, the district court ruled that Forest was guilty of false marking and imposed a single $500 fine as the penalty for Forest’s one-time decision to falsely mark numerous products. In doing so, the district court found that Forest acted with the requisite intent to deceive the public because a different court in a co-pending patent infringement case had previously issued a ruling that put Forest on notice that its marked products were not covered by the patent at issue.
On appeal, the Federal Circuit affirmed the district court’s finding regarding Forest’s intent to deceive the public. Here, the court simply reasoned that the prior adverse ruling in the co-pending patent infringement case was more than sufficient to charge Forest with having knowledge that all marked products obtained after that ruling were not covered by its patent.
The court went on, however, to vacate the district court’s award of a single $500 penalty, ruling instead that the express language of Section 292 (i.e., the phrase “every such offense”) and the policy behind the prohibition on false patent marking clearly require the penalty for false marking to be calculated on a per-article basis. According to the panel, each time a falsely marked product enters the market there is an increased likelihood that competitors will see the falsely marked product and forego competition or incur unnecessary expense to design around or investigate the validity of the patent identified on the falsely marked products.
The court readily acknowledged that applying false marking penalties on a per-article basis would foster a new cottage industry of false marking litigation by plaintiffs who have not suffered any direct harm. The court, however, recognized that not only are such actions permitted by the clear language of Section 292, but permitting members of the public to sue on behalf of the government furthers the intent of Congress to enlist individuals to help control false marking.
The court went on to clarify that $500 is not the per-article fine that must be imposed, but rather the maximum per-article fine available under Section 292. Depending on the type and quantity of products involved, the court noted that district courts have the discretion to impose penalties ranging from $500 to a fraction of a penny per article, and that this discretion will allow courts 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.” Beyond this, the Federal Circuit provided little guidance for district courts to use in arriving at an appropriate penalty in any given false marking case.
In view of this ruling, patent owners who mark their products should proceed with caution. Review current marking practices and confirm that all products are properly marked. Going forward, prior to launch and continuing throughout the life cycle of any internally-developed or acquired product: (1) make sure that marked products are actually covered by the identified patents, (2) calendar patent expiration dates and make sure to keep product patent markings up to date, and (3) do not mark any products with expired or otherwise unenforceable or invalid patents. In licensing transactions, address marking requirements and consider explicit provisions allocating the obligation to ensure compliance and liability for violations. And as part of a corporate intelligence strategy, be aware of the marking practices of your competitors and of those who threaten patent infringement litigation. A failure to mark may prevent them from obtaining past damages, and false marking may expose them to substantial counterclaims. By implementing effective marking practices, companies will be able to maintain the benefits of marking their products as patented without the risk of becoming a target of private enforcement for false marking.
For more information, please contact any of the authors.
Joshua R. Slavitt, Matthew D. Durell and Russell J. Barron
