In December, 2009 the Court of Appeals for the Federal Circuit issued its opinion in Forest Group v. Bon Tool Company (Forest Group v. Bon Tool Co., (Fed Cir. 2009) 590 F.3d 1295) and changed the landscape relating to damages under the “false marking” section of the patent laws. The decision in Forest altered nearly 100 years of precedent by dramatically increasing potential damage awards available to plaintiffs complaining that products are improperly identified as “patented” or “patent pending.”
The false marking statute applies in circumstances where a party “marks upon, affixes to, or uses in advertising in connection with any unpatented article the word ‘patent’ or any word or number importing the same is patented, for the purpose of deceiving the public.” (35 U.S.C. 292). The statute is enforced through the imposition of a fine of, “not more than $500 for each offense,” but is not instructive as to what constitutes “an offense.” Prior to Forest, the decision to falsely mark products was considered to be a single offense for purposes of calculating fines associated with false marking. As a result, an entire production run of products, often generating thousands of units of falsely marked goods, would result in a fine of $500 or less.
The government relies on private citizens to enforce the false marking statute through qui tam actions, where the individual enforcing the law is permitted to keep half of any proceeds received as a result of the lawsuit. Under the pre-Forest application of the statute, however, the incentive to initiate litigation based on false marking was extremely weak. Forest changed this. Finding that the previous application of the law was contrary to the “plain language” of the statute, the Federal Circuit held that the false marking statute “clearly requires a per article fine.” As a result, those who violate the false marking statute now face a fine of up to $500 per article of goods that is improperly marked.
The extent of the impact of this new interpretation of the false marking statute was dramatically highlighted when attorney Matthew Pequignot learned of the Court’s decision in Forest. In Pequignot v. Solo Cup Matthew Pequignot brought suit against the Solo Cup Company, seeking to enforce the false marking statute. (Matthew A. Pequignot v. Solo Cup Company (2010) 608 F.3d 1356). Mr. Pequignot had learned that Solo was producing and selling plastic drink cup lids and marking them with expired patent numbers. Solo had produced more than 20 billion such lids. Applying the holding in Forest, and doing some simple arithmetic, Mr. Pequignot determined that his action could potentially yield an award in excess of $10 trillion. Not deterred by the fact he would only be permitted to keep half of this recovery, Mr. Pequignot pursued his case. It appeared to be the bitter end for the heady and carefree days of readily available plastic cup lids.
Solo found refuge when the Court of Appeals for the Federal Circuit weighed in. Although the Court first determined that liability could attach where companies continued to sell marked products after the expiration of the underlying patent, the Court reasoned that the presumption that the marking party’s actions were intentional was much weaker than in cases where no patent had ever covered the product. The Court ultimately found that Solo lacked the intent to deceive the public, and therefore could not be liable under the false marking statute. In reaching this conclusion, the Court determined that Solo’s decision to sell falsely marked cup lids had been made after considering the cost of interruptions to its production lines, and after consulting with counsel regarding the legal consequences of selling products bearing expired patent numbers. As a result, the Court held, Solo did not intend to deceive; rather, Solo based its decision on business rationale.
The Solo case provides instruction, but its outcome demonstrates that there is very little refuge for businesses who choose to mark their products with patent numbers (especially those who sell mass-produced goods). As a practical matter, many businesses will simply lack the resources to defend high stakes litigation of this type. (Presumably those businesses also would be unable to pay a damage award that is close to the United States’ annual GDP). Further, although Solo was able to avoid liability based on business rationale and advice of counsel, this defense may require a business to divulge sensitive and confidential information, and likely would require waiving the attorney-client privilege. While these sacrifices might make sense in the context of “bet the company” litigation, they could have longer-term adverse implications that must be considered.
For so long as Forest continues to control the interpretation of the false marking statute, businesses should carefully consider the decision to place patent numbers or patent pending claims on their products. Additionally, when a company elects to mark its products with a patent notice, it should take care to monitor the expiration date of those patents so that they do not continue to manufacture products bearing the patent mark after the patent has expired.