The recent decision by the Court of Appeals for the Federal Circuit (CAFC) in The Forest Group, Inc. v. Bon Tool Co. (“Bon Tool”) has dramatically increased the liability for falsely marking a product as patented. According to the Bon Tool decision, false marking fines are to be calculated up to $500 per item, whereas prior courts assessed fines up to $500 per batch of manufactured items. This new calculation scheme markedly increases the penalty faced by patent owners found liable for false marking. What is more, any person can file a false marking lawsuit, even people who aren’t affected by the patent marking, and the courts have seen a substantial increase in filings of false marking cases since the Bon Tool decision was announced. Because of the greater risk to patent owners, we strongly recommend that our clients use caution in marking a product as patented. Manufacturers should seriously consider auditing their patent marking labels to remove reference to any expired patents, and confirm that the patent claims cover the marked product.
Patent Marking Statutes
Marking a patented article provides constructive notice to the public that the article is protected by the patent number marked thereon. Compliance with the patent marking statue, 35 U.S.C. § 287, establishes the right to collect damages for patent infringement even where the infringer is unaware of the patent. Failure to mark a patented article may reduce the available infringement damages, because damages may only begin accruing at the date the infringer has actual notice of the patent.
The benefits of patent marking are tempered by the dangers of false marking. False marking is defined in 35 U.S.C. § 292 as (1) marking on, affixing to, or using in advertising, the word “patent” (or the like) in connection with anything made, used, offered for sale, or sold in the United States when no such patent covers the product (e.g., the patent has expired or the claims of the patent do not cover the product); with (2) an intent to deceive the public. The false marking statute also prohibits marking a product as patented without the consent of the patent owner, or marking a product as “patent pending” when no application for a patent is pending.
Penalties for False Marking
The false marking statute states that the fine for false marking is not more than $500 for “every such offense.”
In the Bon Tool case, the patent owner, Forest Group, sued Bon Tool for infringement of a patent covering certain construction stilts. In a counterclaim, Bon Tool accused Forest Group of falsely marking its own stilts. The trial court found Forest Group liable for falsely marking a batch of stilts produced to fill a single manufacturing order, then assessed a fine totaling only $500 for the whole batch of stilts. Under the then-accepted interpretation of the “every such offense” language, falsely marking a “batch” of goods was viewed as a single offense.
On appeal, the CAFC evaluated the “every such offense” language and discarded the interpretation relied on by the trial court. The CAFC concluded that a $500 fine is such a paltry sum when applied to a large number of articles that it had no deterrent effect. Instead, the CAFC’s Bon Tool opinion holds, Congress intended that every individual article that is falsely marked can expose the marker to a fine of up to $500. The CAFC remanded, instructing the trial court to reassess how much it should fine Forest Group for the false marking.
Upon remand from the CAFC, the District Court assessed a fine of several thousand dollars, constituting a fine of almost $200 per falsely marked item. The falsely marked goods were each sold for a maximum retail price of almost $200, and this price was assessed as the fine per item. Presumably, if the maximum retail price would have been above $500 the court would have assessed the maximum statutory fine of $500 per item.
The “maximum retail price” method used by the District Court to calculate the fine assessed against Forest Group is not legally binding on other District Courts elsewhere in United States, but it remains an early example of how trial courts may interpret Bon Tool. Regardless of how other trial courts apply the Bon Tool decision, one certainty is that fines for false marking will now be greatly increased. For example, falsely marking 1000 copies of a product may lead to a fine of $500,000 ($500 x 1000); whereas prior to Bon Tool such false marking may have only incurred a $500 fine.
Opportunistic Plaintiffs Are Exploiting the Bon Tool Decision
The potential for increased false marking fines creates a financial liability that can arise in two different situations. Historically, the most common suits to include a false marking claim were patent infringement suits in which the defendant raised false marking as a counterclaim. Bon Tool was such a suit.
Post-Bon Tool, a second type of false marking suit is quickly rising in popularity: the qui tam suit brought by an individual on behalf of the U.S. government. The false marking statue allows any person to file an action for false marking: half of any fine goes to the plaintiff, half to the government. While qui tam false marking suits have long been available, they have never before made financial sense. But given the potential for larger fines in the wake of the Bon Tool opinion, opportunistic parties have filed a large number of qui tam false marking suits in the hope of capitalizing on companies that have not been diligent in removing expired patents from the markings on their products. Targets of recent qui tam suits include Pfizer, 3M, and Cisco. While these suits may lack merit if the patent owners had no intent to deceive the public, the appearance of an expired patent on a marked product may be enough evidence to support a false marking claim. The unfortunate product manufacturer must incur the expense of defending the suit, and may be motivated to pay a settlement to dispose of the case.
Protection Against False Marking Claims
Some best practices for protecting your company against false marking include diligence in reviewing existing markings and caution when producing products that are noted as “patented” or “patent pending.” If a product is marked with a patent that has expired, remove that patent from the marking. (There is no need to recall items already produced as of the date of the expiration of a marked patent, however.) Additionally, it is important to confirm that one or more claims of a patent actually cover the product marked with the patent number.
To guard against false marking, knowing when a patent expires is essential. As a reminder, U.S. patents filed on or after June 8, 1995 expire 20 years from filing, plus any patent term adjustment/extension, but only to the extent the patent owner has paid the periodic maintenance fees at intervals of 3.5, 7.5 and 11.5 years. Patents filed prior to June 8, 1995 expire at the longer of 17 years from issuance or 20 years from filing; but again, the patent may go abandoned earlier unless the maintenance fees have been paid. The necessary information for calculating patent term can be found on the first page of a U.S. patent. Our letters reporting the issuance of a patent include its expiration date, and unless instructed otherwise we docket and report maintenance fees when due. Furthermore, we have implemented a courtesy letter to our clients several months prior to the expiration of a patent. We also assist clients in a comprehensive audit of their patent portfolio and product marking system.
Additionally, as has been demonstrated in the recent CAFC decision in Pequignot v. Solo Cup Co., the good faith reliance on the advice of counsel can negate the inference of intent to deceive the public created by falsely marking a product. In the Pequignot decision, the court found that Solo Cup did not have the required intent to deceive the public of the false marking statute—even though it knowingly falsely marked its products—because the marking activities were informed by the advice of counsel. Therefore, obtaining the opinion of counsel regarding marking issues may provide a shield against false marking claims; particularly if no evidence of an intent to deceive the public exists. As false marking is an evolving area of the law, it is difficult to predict what the future will bring for false marking suits. However, we recommend erring on the side of caution when marking products with patent numbers, or as “patent pending.” Failure to do so may create exposure to false marking suits, and the increased fines that may result in the wake of Bon Tool.
If you have questions about patent marking issues, please contact Robert Carlson, Rhys Lawson or your COJK attorney.
