Marking Goods as "Patented" Will Likely Come Under More Scrutiny as the Penalty for False Marking is Increased
Patent marking refers to the practice of labeling an article sold in commerce with words implying that a patent or a patent application covers those goods. False marking covers situations where the articles are marked as "patented" or "patent pending" and this is not true. 35 U.S.C. §292. Recent court decisions discussed below have reinterpreted the false marking statute.
Companies are tempted to label their goods as "patented" or "patent pending" as early as possible. It is perfectly legitimate to do so, even on the basis of a pending patent application. Proper marking constitutes a useful notice to the public of the patent rights and can enhance damages collected in a patent infringement action. 35 U.S.C. §287. Moreover, such marking may discourage competition and perhaps creates a suggestion of technical superiority of the product.
However, product development and patent procurement are dynamic processes - the patent system encourages early filing of patent applications before products are entirely finalized; products may be improved and developed in ways that place them outside the scope of the patent's claims; patent applications get abandoned; patents expire. Deciding when to mark a product as patented can be tricky. Accordingly, a company must look at questions such as: Does my article fall outside of a patent's claim and, generally, when does liability arise for false marking? What are the consequences? What can I do to deflect liability?
Questions of false marking under 35 U.S.C. §292 have only rarely come to the attention of the Court of Appeals for the Federal Circuit ("CAFC"). In Clontech Labs. Inc. v. Invitrogen Corp., the CAFC determined that to establish a claim for false marking, one must prove both marking of an unpatented article and intent to deceive the public. 406 F.3d 1347, 1352 (Fed. Cir. 2005). The court noted that "to determine if an article is 'unpatented' for purposes of section 292 . . . the [patent] claim in question must be interpreted to ascertain its correct scope, and then it must be ascertained if the claim reads on the article in question." Id. The plaintiff must then prove "by a preponderance of the evidence that the party accused of false marking did not have a reasonable belief" that the article was properly marked in order to show intention to deceive. Id. at 1352-1353 (emphasis added).
35 U.S.C. §292 also addresses the civil penalty for false marking. It provides that "[w]hoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article the word 'patent' or any word or number importing the same is patented, for the purpose of deceiving the public ... Shall be fined not more than $500 for every such offense." 35 U.S.C. §292(a). The statute was interpreted recently by the CAFC in The Forest Group, Inc. v. Bon Tool Co., No. 2009-1044, (Fed. Cir. Dec. 28, 2009).
In Forest Group, the articles at issue were stilts, and the Forest Group did own a patent covering stilts. However, in November 2007, the Forest Group learned that its patent, albeit valid, did not cover the exact stilts it was marketing. The company nonetheless labeled one more batch of stilts as "patented."
The key issue in Forest Group on appeal was how to calculate the penalty for false marking. The lower court had imposed a penalty of $500, concluding that Forest Group knowingly made only a single decision to mark the stilts falsely. On appeal, Bon Tool successfully argued that the penalty should not be applied to each decision to mark, but rather to each article that is falsely marked. Obviously, this could make a huge difference in the penalty amount if a company decides once to falsely mark thousands of articles.
At least in part, the court's decision was made on a policy basis, to encourage the public to become involved in enforcement of the false marking statute. Under the statute, any member of the public may bring a claim of false marking, and, if successful, receive half of the fine. The remaining half goes to the federal government. The court noted that "[p]enalizing false marking on a per decision basis would not provide sufficient financial motivation for plaintiffs - who would share in the penalty - to bring suit." However, a court will still have discretion to determine the actual penalty for each article marked, which may range from a fraction of a penny to $500 per article.
It should be noted that §292(b) states 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." This qui tam action has been interpreted to mean that a plaintiff need not show injury from the marking. Even before Forest Group, pundits have speculated that a cottage industry of "marking trolls" might arise. We do not know if many players would have the appetite to undertake litigation and, in particular expensive patent litigation, in order to collect (and split with the government) the penalty, absent further interests. However, in addition to any "marking trolls," there are players with a stake in your industry who might come to a different conclusion as to litigation and may be more likely to include the false marking claim in considering the financial aspects of the litigation. The cost/benefit analysis has shifted.
A company, working with its lawyers, should vigilantly monitor the status of articles it marks as "patented." Changes in the status of the patent or patent application, as well as the scope of the claims vis-à-vis the articles, should be periodically considered. In the event of uncertainty as to the scope of the claims in relation to a product, an opinion of counsel may be desirable. Furthermore, interpreting patent claims is not an exact science. Certainly, an opinion of counsel would go a long way to deflect the assertion that the decision to mark articles as patented was made without a reasonable belief that a valid and enforceable patent covered the articles.
This article was previously published in the newsletter of the Baltimore chapter of ACC (first quarter, 2010).