CLIENT ALERT— Rising Risks of False Marking – Reducing Your Exposure
March 18, 2010Executive Summary
On December 28, 2009, the Court of Appeals for the Federal Circuit (Federal Circuit) issued a decision in the case Forest Group, Inc. v Bon Tool Company that may result in significantly higher fines for marking products with false or expired patent numbers. The court held that a fine of not more than $500 is to be imposed on a per article basis for each offense of “false marking,” rather than treating continuous markings over a given time as a single offense with a single fine.
The decision increases financial risks for patent holders who produce a product or license patents to others for production, if they mark those products or require licensees to mark them with patent numbers. Since the decision, there has been a sharp rise in the number of false marking complaints filed in U.S. courts. With fines potentially ranging to millions of dollars, it can be expected that private enforcers will begin looking for opportunities to bring suit to collect these fines.
As discussed in more detail below, recommended patent marking practices for patent holders and licensees include ensuring that:
- Products are not marked with expired patents
- There is a pending application if an item is marked “patent pending”
- Products are covered by the patents marked on the products
- In patent license situations, potential false marking liability is assigned to the patentee or licensee, as appropriate
Such steps may help limit risks of false marking claims and penalties.
Background
Consistently marking a product with a patent number gives notice to the public that the item is patented and can be a factor when determining damages if the patent is infringed. Section 287 of the Patent Act, 35 U.S.C. § 287 provides that a patent owner may mark a patent with the word “patent” and a patent number. It further provides that if a product is not so marked, no damages can be recovered until the infringer is put on notice and the infringement continues. The statute contains another provision, Section 292, the false marking statute, 35 U.S.C. § 292 (1952), which is intended to deter deception of the public and provides for civil and criminal actions against anyone that falsely marks a product as patented or as patent pending.
Grounds for filing a false-marking suit include indicating an article is patented when someone else owns the patent, marking an item as patented when it is not, and falsely claiming that a patent is pending. The statute is intended to help the public identify who controls a product, to promote (not stifle) commercial competition, and to prevent harm to the public resulting from less competition than should otherwise occur. A finding of false marking requires two elements: (1) marking of an unpatented article, and (2) intent by the party to deceive the public. The intent element can be established from circumstantial evidence.
The Forest Group case involved patent marking of a parallelogram stilt, such as those used in construction trades. The Forest stilts were marked with US patent 5,645,515 (the ‘515 patent,) which had independent claims covering a “resiliently lined yoke.” In December 2005, Forest sued Bon Tool in district court for infringing its ‘515 patent and Bon Tool filed a counterclaim alleging false marking by Forest. The court found Forest did not present any evidence that the yoke on the Bon Tool stilts was covered by the ‘515 patent, and held that Bon Tool did not infringe the ‘515 patent.
The court also found that as of November 2007, based on claim construction for the ‘515 patent in an unrelated infringement case, Forest was aware that its own stilts were not covered by the ‘515 patent. The court concluded that Forest’s continued marking of its stilts with the ‘515 patent number after November 2007 was false marking and demonstrated Forest’s intent to deceive the public. The district court ruled that Forest had falsely marked its stilts with the ‘515 patent number as of November 2007 and imposed a fine of $500 for a single offense of patent marking.
Federal Circuit’s Decision
On appeal, the Federal Circuit affirmed the lower court’s holding that Forest had falsely marked its product, but disagreed with the $500 penalty imposed by the lower court. Bon Tool argued to the Federal Circuit that the lower court had misinterpreted the statute when it treated Forest’s false marking as a single act and imposed only a single $500 fine. The Federal Circuit reviewed the civil penalty provision for false marking, Section 292(a), which states, in part:
Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word “patent” or any word or number importing that the same is patented, for the purpose of deceiving the public…Shall be fined not more than $ 500 for every such offense.
The appeals court concluded that the language of the statute was clear and did not support the lower court’s interpretation, under which it imposed a single $500 fine for a false marking offense. Instead, the Federal Circuit read the statute as requiring that a fine up to $500 be levied on a “per article basis.” The court reasoned that, although a minimum fine of $100 per offense that was mandated by the Patent Act of 1870 would be inequitable to levy on a per-article basis, Congress had changed the penalty in 1952 to a fine of not more than $500 per article. The Federal Circuit noted that the 1952 legislation also provided courts with the discretion to impose a fine as low as a fraction of a penny up to the maximum $500 fine for each article, thus allowing courts to balance “encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities.” Not only did the statute permit a “per article” reading, but also the court concluded that statutory language in the 1952 legislation indicated that Congress intended the fine to be imposed on a per-article basis.
Some lower courts have tried to reconcile the statutory language with decisions by treating continuous false marking as a single offense, or determining fines using a time-based calculus such as a fine for each day or week of production. The Federal Circuit disagreed with these strategies, stating that the statutory language of 35 U.S.C. § 292 does not support such interpretations and “clearly requires a per article fine.” According to the ruling, Congress had a great interest in preventing false marking; therefore, interpreting the statute as imposing a fine of only $500 per offense “would render the statute completely ineffective.”
Effect on Current Practice
Under the statute, any person can file a false marking complaint and, if successful, is entitled to a 50% share of any false-marking penalty imposed, with the other 50% going to the U.S. Government. In Forest, the Federal Circuit demonstrated its belief that Congress intended 35 U.S.C. § 292 to have teeth and to be used as an important tool to protect the public from misleading information resulting from false marking.
As noted above, the number of false marking complaints filed in U.S. courts has risen sharply since the Forest decision. The increase in complaints, coupled with the Federal Circuit’s clarification that false-marking penalties are to be imposed on a per-article basis, suggests that the risks of adverse false marking rulings may be increasing.
In light of this increased risk, it is advisable for patent holders to assess their products and patents to determine whether their marking practices require revision. In view of the holding in Forest and the rise in complaints filed under 35 U.S.C. § 292, if a product is marked with one or more patent numbers or with “patent pending”, actions should be taken to reduce the possibility of false marking liability. Implementing the following procedures may help minimize risk and reduce potential liability for false marking:
- Monitoring application status and patent expiration dates
- Removing expired patents and expired “pending” markings from products
- Reviewing claim coverage before initial marking to assure there is justification for listing each patent
- Reassessing claim coverage when a product is modified or there is litigation resulting in a claim construction ruling
Also, patent licensors and licensees may wish to include in their agreements how any potential false marking liability will be assigned between the parties. For example, the licensor indemnifies the licensee if the licensor insists on patent marking, or the licensee assumes the risk if the licensee patent marks without instruction from the licensor.
For Further Information
Please contact your Wolf Greenfield attorney if you would like more information on patent marking and strategies for reducing false marking risk.
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