The Cost of Improper Patent Marking

Awards of damages in cases where patent infringement is found may be dependent on whether the patent owner has marked goods sold under the patent with the number of the relevant patent or patents. 35 USC 287(a) provides:

In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.

On the other hand, to deter patent owners from making unjustifiable markings that products are patented, 35 USC 292 makes it an offense to mark an article as “patented” or “patent pending” when this is not the case if such marking is “for the purpose of deceiving the public”.

A fine of no more than $500 may be imposed for “each offense”. 35 USC 292(b) provides that “any person” can sue for the penalty, in which case the fines imposed will be split between the United States and the party bringing the suit.

Recent cases have brought these provisions into the limelight.

In Pequignot v. Solo Cup Co. (E.D. Va, 2008) it was held that failure to remove patent number indications after a patent had expired and markings that the product “may be covered by one or more U.S. or foreign pending or issued patents” could give rise to liability under this provision if done for the purpose of deceiving the public. The court reasoned that the statute created a potential offense by any marking that “imported that the product was patented and that the wordings in question were likely to suggest to the public that the product was patented.” This was enough. The public was entitled to rely on marking as an indication of the status of the intellectual property in the product and not have to check whether the patent was still in force.

In its decision of December 28, 2009, in the case of The Forest Group Inc. v. Bon Tool Company, the Court of Appeals for the Federal Circuit (CAFC) considered two questions: 1) what was needed to show that improper marking was intended to deceive the public and 2) the meaning of “each offense” in determining the magnitude of the fine.

On the first question, the court held that “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”. On the particular facts of the case, after the court had considered the low level of education of the patent owners and their scant knowledge of patent law, it was held that such lack of a reasonable belief that their patent covered the product they sold did not arise until after a court had issued a summary judgment that an alleged infringement, similar to the patent owner’s product, was not in fact an infringement.

On the second question, the court held “the statute clearly requires that each article that is falsely marked with intent to deceive constitutes an offense”. The patent owners had argued that there had been only a single offense, the decision to mark the articles in question and so they were liable only for a single $500 fine. Although this argument was based on a 1910 decision that had been followed in other cases, the Federal Circuit dismissed the argument on the basis that the language of the present statute was different from the statutory language a century ago and that the patent owner’s interpretation “would render the statute completely ineffective”. The court noted

Congress interest in preventing false marking was so great that it enacted a statute which sought to encourage third parties to bring qui tam suits [that is suits where the government shares the penalty with the private party who assists in enforcing the statute] to enforce the statute.

As to arguments by the defendant that rendering each falsely marked article an offense would “encourage a new cottage industry of false marking litigation by plaintiffs who had not suffered any direct harm”, the court found that the fact that the statute imposed a maximum, but not a minimum penalty

provides the district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small inexpensive items produced in large quantities. … a court has the discretion to determine that a fraction of a penny per article is a proper penalty.

It therefore seems that the doors have been opened to the possibility that there will be suits brought by “bounty hunters” seeking to enforce the statute and that care should be taken to make sure that articles are properly marked, and where appropriate expired patents removed from lists of patents set out on articles that are sold.