Saturday, 19 November 2011

Patent Reform Bill Could Curtail False Marking Trolls

Patent reform legislation designed to curtail the proliferation of “False Marking” lawsuits under 35 U.S.C. §292, has been passed by the U.S. Senate and is now before the U.S. House of Representatives. In introducing the “False Marking” provision of the patent reform bill, Senator Robert Latta (R.- Bowling Green) stated that:”Because of the Forest Group decision, this legislation is now needed to help companies fend off frivolous lawsuits and strengthen current law. During this time of economic uncertainty, companies should not have to worry about expending additional resources on lawsuits based on one court’s interpretation of current law.” Patent holders often mark their product with patent numbers which provide notice of the patents relating to the product. In fact, the Federal Patent statute requires notice to the public that the product is patented in order to be awarded damages from infringers in a patent infringement lawsuit. 35 U.S.C. §287.However, false marking is illegal. Section 292 of the current Federal Patent Statute provides for a qui tam action in which a private person may sue for a penalty, part of which the government would receive if the plaintiff was successful. In particular, Section 292 provides for a fine of $500 for “every offense” of falsely marking a product as being patented, half of which would go to the U.S. Government. In 2009, the Federal Circuit ruled that the term “every offense” means $500 for each article falsely marked, versus each court decision which found that products were falsely marked. Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009). The Forest decision opened the flood gates for qui tam actions under Section 292, especially for mass produced items. Such law suits were seen by false marking trolls as being potentially quite lucrative. For example, a penalty of $50 million could result from 100,000 falsely marked products.In 2010, it became even more attractive for the false marking trolls to bring forth lawsuits under Section 292 because the Federal Circuit held that false marking includes marking products with expired patent numbers. Pequignot v. Solo Cup Co., No. 2009-1547 (Fed. Cir. June 10, 2010). Sometimes manufacturers continue to produce product marked with expired patent numbers for cost saving purposes. For example, it would be costly to reconfigure expensive molds for product to change the patent markings.However, the Pequignot Court also established that violation of Section 292 requires a showing of deceptive intent and that there is a particularly high bar for finding such intent. The defendant in Pequignot was able to circumvent a showing of deceptive intent by relying on an advice of counsel defense. In particular, the defendant had sought advice of counsel on the marking of its products with expired patent numbers and established a policy to remove expired patent numbers when the molds for its product needed to be replaced. In addition, in the Pequignot case, the packaging for the defendant’s products included the words “this product may be covered by one or more U.S. or foreign pending or issued patents. For detail contact…”Defendants facing false marking lawsuits continued to push back by arguing before the Federal Courts that Section 292 plaintiffs lacked standing under Article III of the U.S. Constitution. Issues regarding the constitutionality of Section 292 were also raised in the Federal Courts. However, defendants in false marking cases were dealt another setback when the Federal Circuit held that Section 292 plaintiffs had standing. Stauffer v. Brooks Brothers, Inc., (Fed. Cir. 2010). However, in the Stauffer case, the Federal Circuit did not rule on the constitutionality of Section 292.In view of all the court cases regarding false marking, legislators saw a need for reform. As a result, patent reform legislation has been proposed which would limit false marking lawsuits to those brought by the United States. In addition, the proposed legislation adds the provision:Any person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.The proposed legislation is now before the U.S. House of Representatives for vote. If the proposed patent reform legislation becomes law, it would be applied to all cases pending on or after the date of enactment of the legislation.In view of the above, patent holders may find it prudent to seek advice of counsel regarding their patent marking policies and take caution to ensure proper marking of their products.

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