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Friday, December 30, 2011

False Patent Marking: Litigation and Legislation

Brian T. Yeh
Legislative Attorney

A patent holder who manufactures or sells a patented product will usually mark it with the patent number or other words that provide notice to the public that the article is patented. Such marking also permits the patent holder to recover an increased amount of damages in patent infringement lawsuits. However, marking a product with an expired patent number or inapplicable patent number is a violation of the false marking statute, Section 292 of the Patent Act. Section 292 provides that anyone who falsely marks an unpatented product with either a patent number, the words “patent,” “patent pending,” or any other words or numbers implying that the product is protected by a current or pending patent when, in fact, it is not, and does so with the intent of deceiving the public, shall “be fined not more than $500 for every such offense.”

Until late 2009, false marking lawsuits were relatively rare, and federal courts often assessed one $500 fine for the decision to falsely mark, without regard to the number of articles that had been mismarked by the defendant. Yet in December 2009, the U.S. Court of Appeals for the Federal Circuit issued Forest Group, Inc. v. Bon Tool Company, which interpreted § 292 to require a penalty of up to $500 for every article that is falsely marked. The Federal Circuit explained that this calculation is mandated by the plain language of the statute. Furthermore, the Federal Circuit identified policy considerations that support its interpretation of § 292, noting that false marking deters innovation and stifles competition in the marketplace because a falsely marked article may dissuade potential competitors from entering the same market.

The Patent Act’s false marking provision expressly allows qui tam civil actions—any member of the public may sue a false marking offender on behalf of the federal government, in which event the fine is shared evenly between the person bringing the suit and the United States. The Forest Group decision helped fuel a surge of false patent marking lawsuits nationwide, filed by so-called “whistleblower” plaintiffs who targeted defendants that sold thousands of products marked with expired patent numbers, such as plastic cups, dental floss, and mouse traps. Such product manufacturers could face considerable financial liability for false patent marking.

In an effort to curb the proliferation of false patent marking suits, the 112th Congress enacted legislation in September 2011 that amends the false marking statute in a way that eliminates qui tam false marking suits. Section 16(b) of the Leahy-Smith America Invents Act (AIA) (P.L. 112- 29) alters the Patent Act’s false marking provision by establishing that the statute may only be privately enforced by a “person who has suffered a competitive injury as a result of the violation.” The AIA also limits the available damages in such cases to those “adequate to compensate for the injury.” However, under the false marking statute as amended by the AIA, the U.S. government may continue to bring false marking suits without regard to competitive injury, and also retains the ability to recover a maximum fine of $500 per falsely marked article. In addition, the AIA eliminates liability for marking a product after the expiration of the patent that covered it.

The likely impact of the AIA’s amendments to the false marking statute is the considerable reduction of future false marking lawsuit filings. Furthermore, because the AIA provides that the “amendments made by this subsection shall apply to all cases, without exception, that are pending on … the date of the enactment of this Act,” the AIA retroactively applies to false marking cases filed before September 16, 2011 (the AIA’s enactment date), thus allowing courts to dismiss such cases unless the plaintiff can prove that it has suffered a “competitive injury as a result of the violation.”

Date of Report: December 15, 2011
Number of Pages: 11
Order Number: R41418
Price: $29.95

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