Thursday, June 10, 2010

Will this curtail the infestation of dandelions? Federal Circuit decides the Solo cup false marking appeal

As I discussed earlier, a cottage industry has developed in the patent community of plaintiffs asserting, on behalf of the Government, false marking claims against defendants who are marking their products with expired patents. One of the key cases to kick this frenzy off was a patent lawyer's attempt to recover damages from Solo Cup for distributing cups that were marked with expired patents. I briefly discussed this matter here and here.

To recap, Solo Cup was sued for falsely marking billions (yes, billions) of cups with expired patent numbers. The penalty for falsely marking an item as patented is $500/item. (As I discussed in a prior post on the Forest Group v. Bon Tool decision, the Federal Circuit recently explained that the damage award was per falsely marked article -- not just for each act of falsely marking). Half of the damage award goes to the government, the other half goes to the plaintiff. You can see why plaintiffs would be willing (encouraged) to bring these cases.

Returning to Solo's exposure, it had sold billions of cups marked with expired patent numbers. As you can imagine, this is a pretty steep penalty to be facing. Today, the Federal Circuit affirmed the grant of summary judgment in favor of Solo Cup and even quantified its exposure:
...such an award to the United States [which would be half of the entire damage award] of approximately $5.4 trillion, would be sufficient to pay back 42% of the country's total national debt.
There are some notable points in the decision. I don't think the decision will entirely curtail the infestation of dandelions that has become false marking cases (at least in 1 Judge's opinion).

Unpatented article

To be on the hook for false marking, the article must be an "unpatented article." Solo argued that products which were previously covered by patents, which have since expired, are not "unpatented articles" because, at one point in time, they were actually patented articles. The Court disagreed. article covered by a now-expired patent is 'unpatented.' As the district court pointed out, '[a]n article that was once protected by a now-expired patent is no different [from] an article that has never received protection from a patent. Both are in the public domain.
The Court further agreed with the plaintiff that it was too much to impose upon the public "the cost of determining whether the involved patents are valid and enforceable."

For the Purpose of Deceiving the Public

This is the substantive issue in many false marking cases. Did the defendant falsely mark the article as patented for the purpose of deceiving the public? That question is what the false marking statute is there to prevent. The plaintiff's evidence of this intent to deceive was that Solo cup knew its patents were expired, and it still marked them anyway. Solo, on the other hand, had asked its patent lawyers whether it needed to remove the markings to avoid liability under the statute. Here's what he said:
When a patent expires you don't have to take the old number off. However, I'm going to do a little research to see if the situation is different when adding an already expired number to a product. My gut fee[ing] is that as long as the patent claims would have covered the product, there isn't a problem.
He later added
The false marking of a product with a patent number does create liability for the offender. However, it appears liability hinges on the 'intent to deceive the public.' Best case scenario is to remove the number, if possible. If not, it is important that Solo not further any unintentional falsity in product literature or the like. If you want to discuss, please give me a call.
The patent lawyers later advised Solo to add the following language: "This product may be covered by one or more U.S. or foreign pending or issued patents. For details, contact"

So, did Solo "intend to deceive?" No.

When you put an expired patent number on an article, the law creates a rebuttable presumption that you did this with an intent to deceive. But again, the presumption is rebuttable, which means the defendant has to prove that it did not intend to deceive. The Court explained succinctly
Thus, mere knowledge that a marking is false is insufficient to prove intent if Solo can prove that it did not consciously desire the result that the public be deceived.
And Solo's burden of proof is a preponderance of evidence -- not the more challenging clear and convincing standard. The Court then explained that the presumption that a party intended to deceive with a falsely marked article is even weaker when that article was previously protected by the patent number at issue.

Solo offered the Court 2 main reasons for keeping the expired marking on its cups: (1) specific advice of its counsel; and (2) its true intent to reduce costs and business disruption by replacing and retooling the cup molds.
Such evidence rebuts the presumption of deceptive purpose, as Solo's actions indicate its good faith. Solo did not state on its packaging that any product was definitely covered by a patent, and it provided the consumer with an easy way to verify whether a specific product was covered; the consumer could 'contact' for details.
Time will tell if this stems the flow of false marking cases for companies marking their products with expired patent numbers. I doubt it will, as the burden remains on the defendants to prove that they didn't intend to deceive.

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