In its decision on December 28, 2009 in The Forest Group, Inc. v. Bon Tool Company, the Federal Circuit clearly set forth the standards and possible penalties for false marking (placing a patent number on a product when the product is not covered by that patent).
False marking is covered under 35 U.S.C. §292. Pursuant to §292, a false marking claim consists of (1) marking an unpatented article with (2) intent to deceive the public. See Clontech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005). “Intent to deceive is a state of mind arising when a party acts with sufficient knowledge that what it is saying is not so and consequently that the recipient of its saying will be misled into thinking that the statement is true.” ld.(citing Seven Cases of Eckman's Alterative v. United States, 239 U.S. 510, 517–18 (1916)). A party asserting false marking must show by a preponderance of the evidence that the accused party did not have a reasonable belief that the articles were properly marked. Id. at 1352–53. An assertion by a party that it did not intend to deceive, standing alone, “is worthless as proof of no intent to deceive where there is knowledge of falsehood.” Id. at 1352.
Once it is clear that a product is not properly marked, the analysis comes down to whether the defendant had intent to deceive. The court looks to such Factors as: how obvious it was that the product was outside the patent claims, whether the defendant was advised by patent counsel to mark the product and the educational level and sophistication of the defendant. Proving intent to deceive may be difficult in situations where the scope of the claims has not been interpreted and the product is close to the claimed language. However, in circumstances where knowledge of falsehood is clear, defendants may be face hefty fines in suits that can be brought by any member of the public.
In The Forest Group, Inc. v. Bon Tool Company, the Federal Circuit was asked to opine on whether §292 intended a fine for the entire act of false marking not to exceed $500 regardless of the number of falsely marked products or whether each falsely marked product could be assessed a fine of up to $500. The Federal Circuit held that each falsely marked product could be assessed a fine of up to $500 even though prior courts had reached a contrary result, mostly because the wording of the statue was changed over time. The Court pointed out that the statute clearly intended this measure of damages, that a fine not to exceed $500 regardless of the number of falsely marked products would clearly eviscerate the statute, and that policy considerations support the per article interpretation of §292.
The policy considerations pointed out by the Federal Circuit include: “that acts of false marking deter innovation and stifle competition in the marketplace”; that “[i]f an article that is within the public domain is falsely marked, potential competitors may be dissuaded from entering the same market”; that “[f]alse marks may also deter scientific research when an inventor sees a mark and decides to forego continued research to avoid possible infringement”; and that “false marking can also cause unnecessary investment in design around or costs incurred to analyze the validity or enforceability of a patent whose number has been marked upon a product with which a competitor would like to compete.” The Court noted that the injuries occur each time an article is falsely marked, and that the more articles that are falsely marked the greater the chance that competitors will see the falsely marked article and be deterred from competing.
The Forest Group argued that interpreting the fine of §292 to apply on a per article basis would encourage a rash of false marking litigation by plaintiffs in qui tam suits who had not suffered any direct harm. The Federal Circuit held that such suits were explicitly provided for and encouraged by 35 U.S.C. §292 so that individuals can help control false marking. The language of 35 U.S.C. §292(b) states that “Any 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.” The Court noted that a maximum fine of $500 for the entire act of false marking regardless of the number of falsely marked products would not provide sufficient financial motivation for plaintiffs in qui tam suits.
However, before you run out and bring a bunch of qui tam suits for false marking you should note that a court does not have to fine at a rate of $500 per article marked. The Federal Circuit held that 35 U.S.C. §292 provides for a maximum of “not more than $500 for each such offense” thereby allowing for a range of fines. The district courts should “balance encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities.” The Federal Circuit did not provide a list of factors for district courts to use in determining the appropriate fine per article falsely marked. However, the Federal Circuit noted that in case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.
In The Forest Group, Inc. v. Bon Tool Company, the false marking claim was brought as a counterclaim by a defendant accused of patent infringement. Clients accused of patent infringement should carefully evaluate whether a counterclaim for false marking is warranted.
Additionally, clients who believe a product in the marketplace is falsely marked should consider action to put the producer and seller of the article on notice of the false marking. In situations where the producer and seller are clearly aware that the article is falsely marked, then a qui tam suit may be justified.
Karish & Bjorgum, PC is a full service intellectual property law firm specializing in intellectual property litigation in the federal and state courts. We help our clients protect the names of their businesses and their products and the ideas behind them.