ALERT – Escape the Marking Trolls

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March 24, 2010

A recent decision by the Federal Circuit Court of Appeals creates significant new risks for patent holders.  The Federal Circuit parted with longstanding law and interpreted the false marking statute (35 U.S.C. § 292) as allowing up to a $500 fine for each separate item falsely marked.  Under the old interpretation, one run of a mass-produced product constituted a single offense and subjected the patent holder to a single fine of $500.  Under the new interpretation, the patent holder is potentially liable for a $500 fine for each separate item, resulting in significant potential exposure.  The claim is a "qui tam" action that can be brought by anyone regardless of whether they have suffered any harm.  Any recovery is shared with the federal government.  Not surprisingly, this recent ruling has given rise to a new cottage industry and a flood of new lawsuits brought by "patent marking trolls."

What is "False Marking"?
Many manufacturers identify their products as patented by marking applicable patent number(s) on their products.  Such marking is generally required to preserve the patent holder's ability to seek infringement damages.  See 35 U.S.C. § 287.  In addition to preserving damage claims, marking a product with a patent also provides a competitive advantage.  It suggests the product is innovative.  It also acts as a deterrent to would-be competitors.

To prevent companies from gaining an unfair advantage by falsely indicating their products are covered by a patent, federal law imposes a fine for false patent marking.  See 35 U.S.C. § 292.  The elements of a false marking claim are:  (1) marking an unpatented article and (2) intent to deceive the public.  "Intent to deceive" has been defined as "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."  Clontech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005).  A party asserting false marking must show by a preponderance of the evidence that the accused party did not have a reasonable belief that the articles were properly marked.  Id.  An assertion by a party that it did not intend to deceive, standing alone, "is worthless as proof of no intent to deceive where there is knowledge of falsehood."  Id.

The Fine
The Federal Circuit's recent holding does not impose an automatic fine of $500 for each product found to be falsely marked.  Rather, the statute gives the court discretion in assessing the fine, providing for a fine of "not more than $500 for every such offense."  35 U.S.C. § 292(a) (emphasis added).  Allowing for such discretion strikes a balance between encouraging enforcement of an important public policy and avoiding disproportionately large penalties for small, inexpensive, mass-produced items.  For example, a court could determine that a fraction of a penny per article is an appropriate penalty in the case of an inexpensive mass-produced item.

What constitutes "sufficient knowledge" to establish an intent to deceive remains unclear.  It also remains unclear what factors will be considered by the courts in setting an appropriate fine.  What is clear is that we will continue to see a rise in lawsuits brought by patent marking trolls.  It is also clear that companies need to continue to mark their products with applicable patent numbers to preserve their entitlement to infringement damages.  The following best practices can help you avoid being ensnared by the patent marking trolls:

  • Conduct immediate and regular audits of your products/packaging to ensure accurate and correct patent marking.
  • Ensure all expired patents are removed from your products/packaging. 
  • Request advance notice of patent expiration from your patent attorney to allow adequate lead time to remove such patents from your products/packaging.
  • Avoid marking your products with a long list of patents that "may" cover such products.
  • Consult with your patent attorney regarding proper use of "patent pending."
  • Keep up-to-date records and document all of your efforts to ensure accurate patent marking.
  • If you become the target of a patent marking troll, consult with your patent attorney immediately.
  • If you become the target of a patent marking troll, consult with your insurance agent for possible coverage.

For more information and questions, contact any member of the Briggs and Morgan Intellectual Property Group.

For a PDF of this alert, click here.

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