Possibility of repeal of false marking statute is not a basis to stay litigation

Last week, I wrote about Judge Merryday's denial of a motion for leave to add an equitable estoppel defense to a false marking claim in the Advanced Cartridge Technologies v. LexMark International dispute. Another interesting order has come out. The defendant had filed an inter partes reexamination request, and asked the court to stay the litigation while the reexamination runs its course. The court refused that first motion.

The defendant filed a second motion to stay, this time arguing not only that the reexamination would simplify the litigation, but also that "Congress will likely repeal the false patent marking statute, and that the Federal Circuit will likely hold the statute unconstitutional." The Court was not convinced:

Although either the re-examination or a change to the false patent marking statute promises to simplify the issues, neither the re-examination, nor the legislative effort to modify the false patent marking statute, nor the constitutional challenge before the Federal Circuit demonstrably will conclude before this litigation. The occurrence and content of each prospect is speculative and offers no sound basis to frustrate a litigant’s access to the court.

Second Motion to Stay denied.

Advanced Cartridge Technologies, LLC v. Lexmark International, Inc., slip op. Case No. 8:10-cv-0486 (M.D. Fla. Apr. 21, 2011) (J. Merryday)

"Equitable estoppel" as a defense to false marking? Nah

Advanced Cartridge Technologies has sued Lexmark here in Tampa for infringement of a handful of patents and false marking. Regarding the false marking allegations, ACT claims that Lexmark lists a bunch of patents on various products, and there are various issues with those patents. ACT also argues that each product is not covered by each patent, and thus it is false marking to include all of them on the packaging. Lexmark responds that it is not subject to false marking liability in part because it includes a disclaimer stating that the product is covered by one or more of the listed patents. Thus, because each product is covered by at least one of the listed patents, Lexmark argues it should not be subject to false marking liability because of its disclaimer. ACT disagrees that the disclaimer shields Lexmark.

In discovery, Lexmark learned that ACT marked a waste bin product with some toner patents. Lexmark asked for leave to file an amended answer so that it could assert the affirmative defenses of unclean hands and equitable estoppel "in light of [plaintiff's] interpretation of the false marking statute."

The Court took a paragraph to deny Lexmark's motion:

The plaintiff asserts a false patent marking claim. Alleging that the plaintiff also engages in false patent marking, the defendant moves (Doc. 105) for leave to file an amended answer asserting “the affirmative defenses of unclean hands and judicial estoppel.” However, the proposed defenses, perhaps legally and factually dubious in this instance, are untimely raised and probably productive of unwarranted delay and unnecessary expense.* The defendant's motion (Doc. 105) to file an amended answer is DENIED.

* The defense of "equitable estoppel" appears meritless in the present circumstances. The defense of "unclean hands," if available, requires a distinct showing of inequitable and pertinent conduct. Interestingly, the defendant identifies no case in which the equitable defense of "unclean hands" has barred a statutory false patent marketing claim.

Advanced Cartridge Technologies, LLC v. Lexmark International, Inc., slip op. Case No. 8:10-cv-0486 (M.D. Fla. Apr. 14, 2011) (J. Merryday)

False marking claims must satisfy heightened pleading standard

There's been some back and forth on this issue. To plead a claim for false marking, a plaintiff must allege that the defendant marked something as patented with an "intent to deceive the public." Does a plaintiff asserting a false making claim need to satisfy the heightened pleading requirements of Rule 9? The Federal Circuit provided an answer yesterday:

This court holds that Rule 9(b)'s particularity requirement applies to false marking claims and that a complaint alleging false marking is insufficient when it only asserts conclusory allegations that a defendant is a "sophisticated company" and "knew or should have known" that the patent expired.

Here, BP Lubricants was sued for its CASTROL brand motor oil. It had a design patent which protected the ornamental design of the bottle. BP marked the bottles with this patent number. According to the complaint, BP continued to mark the bottles after the patent expired and, on the plaintiff's information and belief: (1) BP knew or should have known the patent was expired; (2) BP is a sophisticated company; and (3) BP marked the products for the purpose of deceiving the public.

At the trial level, the Court held that this pleading did satisfy Rule 9(b). Applying Federal Circuit law (Exergen), the trial Court held that this pleading provided the specific who, what, when, where, and how required to state a claim. Specifically, BP (who) had deliberately and falsely marked (how) at least one line of motor oil (what) with an expired patent, and continues to do so (when) throughout the US (where) with an intent to deceive.

But the Federal Circuit said this wasn't enough. To plead a claim:

a complaint must in the 292 context provide some objective indication to reasonably infer that the defendant was aware that the patent expired.

So, just saying the Defendant is a sophisticated player who "should have known better," isn't enough. A plaintiff must allege some objective indication that the defendant did know better. Without that, the pleading falls short of Rule 9(b), and is ripe for dismissal.

This case is also interesting from a procedural standpoint. BP lost its motion to dismiss at the trial level. Typically, you can't appeal that decision because it is not final. Instead, BP petitioned the Federal Circuit for a writ of mandamus -- an extraordinary remedy. An appellate court can issue a writ -- ordering someone (here, the trial court) to do something -- only when there has been a "clear abuse of discretion or 'usurpation of judicial power.'"

The Court found such extraordinary circumstances here. It had not yet decided the issue of whether Rule 9(b) applied to false marking cases. And this issue has been causing quite a bit of attention and disagreement lately. So, by granting the writ, the Federal Circuit is able to decide an "issue important to 'proper judicial administration.'"

And a last saving point for plaintiffs -- the Federal Circuit reminded trial courts that they should freely grant leave to plaintiffs to amend their complaints.

Petition for a writ of mandamus, directing the district judge to grant defendant's motion to dismiss granted in part.

In re BP Lubricants USA, Inc., Misc. Doc. 960 (Fed. Cir. Mar. 15, 2011)

Do false marking complaints need to satisfy heightened pleading requirements? Court won't answer that question if the complaint falls short of Rule 8

Another false marking post this week. This one comes from the Ft. Myers division. Herengracht sued American Tombow for false marking. The Court ignored the various "shotgun" allegations in the complaint. Tombow asked for dismissal for failure to state a claim, arguing that the plaintiff must plead the heightened requirements of Rule 9(b) because the claim is based on fraud.

First, the Court laid out the elements necessary to survive a motion to dismiss:

(1) that a word or number indicating an article is patented (2) was marked upon, affixed to, or used in advertising in connection with (3) an article which was in fact not covered by the patent, (4) for the purpose of (the intent of) deceiving the public.

* * *

An article whose patent is expired is "unpatented."

Digesting the complaint, the Court found that plaintiff had pleaded that a Tombow product has been marked with U.S. Patent No. 4,851,076. The '075 Patent is currently expired. And Tombow is a sophisticated company. The Court didn't need to delve into whether or not heightened fraud pleading was required here, because these allegations didn't even satisfy Rule 8's notice pleading:

Because the instant Complaint does not even comply with the ordinary pleading rules of Rule 8, there is simply no need to address [the issue of whether heightened pleading requirements should apply.]

The complaint did not allege that Tombow marked its products with an expired patent number after the patent had expired.

Motion to dismiss granted, without prejudice. Plaintiff was given the ability to file an amended complaint. But Plaintiff did not, so the court closed this matter.

Herengracht Group LLC v. American Tombow, Inc., Case No. 2:10-cv-362 (M.D. Fla. Dec. 30, 2010) (J. Steele)

False marking statute held unconstitutional

Regular readers of my blog are familiar with recent developments in false patent marking litigation. The Northern District of Ohio has added another development -- the statute has been found unconsitutional. (I've embedded the order below.) Procedurally, this is somewhat interesting to me. The defendant initially moved to dismiss for a number of reasons. The court held a telephone conference with the parties and, on its own perhaps, asked the parties to file briefs explaining the constitutionality of 35 U.S.C. 292(b) (the qui tam provision of the false marking statute). The court also required notice be provided to the U.S. Department of Justice so that the department (who is charged with enforcing the law) could express its views on the constitutionality of the false marking statute. Apparently, the DOJ did not file any brief.

After the invitation from the Court, the defendant filed a motion to dismiss, arguing that the qui tam provision of the statute violated the Appointments and Take Care Clauses of the U.S. Constitution. Specifically, the defendant argued that the qui tam provision didn't give the executive branch sufficient involvement in false marking litigation.

The Constitution's Take Care Clause provides that the President "shall take care that the Laws be faithfully executed." The Appointments Clause provides that the President "shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the Supreme Court, and all other Officers of the United States." The Court found the false marking statute violated the Take Care Clause (the Court did not address the Appointments Clause, but suggested it would not apply to this situation).

The false marking statute lacks any of the statutory controls necessary to pass Article II Take Care muster. The False Marking statute essentially represents a wholesale delegation of criminal law enforcement power to private entities with no control exercised by the Department of Justice

The Court granted defendant's motion to dismiss (with prejudice).

Unique Product Solutions Ltd. v. Hy-Grade Valve, Inc., Case No. 5:10-CV-01912 (N.D. Ohio Feb. 23, 2011) (J. Polster)

Notably (as recognized by the Court), the FLFMC, LLC v. Wham-O, Inc. case -- another false marking case -- is still pending before the Federal Court. One of the issues that has been preserved in that appeal is the constitutionality of the False Marking statute under the Take Care clause.

unique products v hy-grade - 10-cv-1912 - N.D. Ohio

"Any person" may pursue a patent false marking claim on behalf of the government.

SDJP Patent Group, LLC sued Macho Products, Inc. for allegedly falsely marking some of its martial arts products. As you may know by now, false marking litigation has become a cottage industry for plaintiffs allowing the recovery of up to $500 for each offense of falsely marking a product as patented with an intent to deceive.

Macho asked the court to stay the proceedings until after the Federal Circuit rendered its Stauffer decision, addressing who can bring a false marking suit. The court said no.

Macho then sought dismissal, arguing that SDJP has no standing because there has been no injury. The Stauffer decision was dispositive:

Defendant's primary defense that the United Slates did not suffer an "injury in fact" is erroneous, in light of the Stauffer decision. Therefore, Defendant's motion to dismiss is DENIED for the following reasons.

Section 292 (b) is a qui tam provision authorizing "any person"' to pursue an action on the government's behalf. A qui tam provision is a statutory assignment of the United States' rights, and the assignee of a claim has standing if the United States has suffered an injury in fact, even if the assignee has suffered no injury himself. Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 773 (2000). According to the Federal Circuit a violation of section 292 inherently constitutes an injury to the United States:

In passing the statute prohibiting deceptive patent mismarking. Congress determined that such conduct is harmful and should be prohibited. The parties have not cited any case in which the government has been denied standing to enforce its own law. Because the government would have standing to enforce its own law, [the plaintiff], as the government's assignee, also has standing to enforce section 292.

Stauffer, 2010 U.S. App. LEXIS 18144. at *11-12. Macho asserts that Plaintiff has been unable to allege any specific injury to Plaintiff or to the United States. However, Defendant violated section 292, which is sufficient to show an "injury in fact" to the United Slates. Consequently, Plaintiff has sufficiently alleged (1) an injury in fact to the United States that (2) is caused by Macho's alleged conduct, marking its equipment with expired patent numbers, and (3) is likely to be redressed, with a statutory fine, by a favorable decision. Plaintiff's standing arises solely from his status as "any person," under section 292 (b) and he need not allege more for jurisdictional purposes.

Macho's next argument was that it didn't intend to deceive anyone. But as I argued in an earlier post, that's not going to work for dismissal. That's a fact question. You can't get out of these suits by saying "I didn't intend to deceive anyone." You've got to prove it.

Further, Defendant's assertion that there was no intent to deceive the public is a matter of fact. A trial judge may resolve factual disputes when subject matter jurisdiction turns on the resolution of contested facts. Arbaugh. 546 U.S. at 514. However, if the contested facts are also central to the cause of action then jurisdiction will be found and the trier of fact will resolve the contested facts. Here, the contested "intent to deceive the public" is an element of the cause of action (False Marking) and a matter for a jury to decide.

Motion to dismiss denied.

SDJP Patent Group, LLC v. Macho Products, Inc., Case No 8:10-cv-01232, slip op. (M.D. Fla. Nov. 2, 2010) (J. Kovachevich)

Allegations of false marking alone give a plaintiff standing?

False patent marking has become the new quick-hit area for patent infringement litigation. I have discussed these cases and issues previously. To briefly recap, Congress enacted the false marking statute (35 U.S.C. §295) to prevent people from deceiving the public into believing their goods were patented. Thus, if you mark your widget as "patented" or covered by U.S. Patent No. 1,234,567, and it isn't and you intended to deceive the public by marking it as such, then you shall be fined not more than $500 for each offense. The statue goes on to permit any person to bring an action to enforce this right. And to encourage each of us to do so, if we bring such a suit and win, we get half the fine.

These cases made the headlines when a patent attorney sued Solo Cup for falsely marking billions of cups. The potential fine there was in the trillions of dollars. (The total exposure was $10.8 trillion -- who wouldn't want half of that?) Solo Cup won that case on summary judgment -- there was no question that Solo Cup did not intend to deceive the public by marking its cups with expired patent numbers.

Most defendants present this argument, but it is not an argument you can win at the pleading stage. Whether or not you intended to deceive the public by marking a product with an expired patent number requires you to prove you didn't. You can't dismiss a plaintiff's properly pleaded case by saying "I didn't intend to deceive anyone."

This brings in another avenue of attack defendants have used -- challenging standing. Raymond Stauffer, a patent attorney, sued Brooks Brothers (and its corporate parent) for falsely marking some bow ties. The challenged bow ties contain an "Adjustolox" mechanism and are marked with U.S. Patent Nos. 2,083106 and 2,123,620.

U.S. Patent No. 2,083,106

U.S. Patent No. 2,123,620

Brooks Brothers argued that the plaintiff did not have standing to bring the claim because Stauffer's claim that Brooks Brothers' actions wrongfully quelled competition were too hypothetical to constitute an injury. The district court agreed because there had been no "injury-in-fact" to the United States. Thus, the district court dismissed the plaintiff's complaint. Stauffer appealed.

STANDING

To establish standing:

a plaintiff must show (1) that he has suffered an “injury in fact,” an invasion of a legally protected interest that is “(a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical,” (2) that there is “a causal connection between the injury and the conduct com-plained of,” and (3) that the injury is likely to be redressed by a favorable decision.

And because the false marking statute is a qui tam action, a plaintiff need not concern himself with his own injury -- he has been partially assigned the United States's injury claim:

In other words, even though a relator may suffer no injury himself, a qui tam provision operates as a statutory assignment of the United States’ rights, and “the assignee of a claim has standing to assert the injury in fact suffered by the as-signor.” Vermont Agency, 529 U.S. at 773. Thus, in order to have standing, Stauffer must allege that the United States has suffered an injury in fact causally connected to Brooks Brothers’ conduct that is likely to be redressed by the court.

The Court went on to discuss the two different types of injuries the U.S. could suffer -- proprietary and sovereign. Proprietary injury is the money the U.S. is entitled to (half of the $500 fine). Sovereign injury is the violation of a U.S. statute (i.e. the U.S. is injured if people do not respect its laws). The Federal Circuit said it did not need to state which of these injuries satisfied the injury-in-fact requirement. Stauffer properly pleaded his standing, and it was error for the district court to dismiss his complaint.

Reversed (and remanded to address the merits of the case, including Brooks Brothers's motion to dismiss on the grounds that Stauffer didn't properly plead the required intent to deceive).

Stauffer v. Brooks Brothers, Inc., Case No. 2009-1428, -1430, 1453 (Aug. 31, 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.

...an 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 www.solocup.com."

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 www.solocup.com' 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.

Pequignot v. Solo Cup Co., Case No. 2009-1547 (Fed. Cir. June 10, 2010)

False marking suits are like an infestation of dandelions?

Following up on yesterday's post on false marking, I learned today via Docket Navigator that at least one Court rejected a false patent marking defendant's argument that, as a matter of pleading, affixing an expired patent number to a product could not be actionable. As restated by the Court, the defendant's argument was:

its challenged articles are not "unpatented" [as required for a false marking claim] because they practice a once-existing, but now-expired, patent.

The Court explained that the Federal Circuit's Forest Group, Inc. v. Bon Tool, Co. decision addressed this question:

All of those perceived evils [i.e. allowing the public to rely on marking, dissuading competitors from entering the market, deterring scientific research] are present when a patentee continues to affix the "patent" designation to an article even after it has entered the public domain by reason of the patent's expiration.

Most notable for me was the Court's introductory paragraph -- it does not seem happy:

Stanley Black & Decker, Inc has noticed up for presentment on May 14 a motion to dismiss this action brought against it by Zojo Solutions, Inc. -- an action among the very large number of lawsuits around the country that claim false patent marking in violation of 35 U.S.C. 292(a). This and all such other actions, which dot the greensward of patent litigation like an infestation of dandelions, have been prompted by the Federal Circuit's decision in [Forest Group] which has created the prospect of extraordinarily large damage awards in qui tam suits brought to enforce Sectino 292(a).

Zojo Solutions, Inc. v. The Stanley Works, Case No 1:10-CV-01175 (N.D. Il, May 12, 2010)

All that for $3,420?

In case you haven't been following, the patent community is facing a new cottage industry of false marking claims where plaintiffs pursue those who have marked their goods as patented.

Falsely marking your goods as patented (or otherwise importing that a patent application has been filed), with an intent to deceive the public can subject you to a fine for false marking under the U.S. Patent Act. (emphasis explained below) The law provides that an offender "Shall be fined not more than $500 for every such offense." The law also created a "qui tam" action, where private citizens can enforce the law on behalf of the government, with half the recovery going to the private citizen, and the other half going to the U.S. government.

This begged the obvious question -- how does one define "every such offense?" If I falsely mark 1,000,000 articles as patented, is that 1 offense, or 1,000,000?

Back in December, 2009, the Federal Circuit addressed this question, and explained that the language of the statute is clear.

The statute's plain language [35 U.S.C. § 292] requires the penalty to be imposed on a per article basis.

The Forest Group, Inc. v. Bon Tool, Co. up to $500 for each item. The Federal Circuit remanded that decision to the trial court to determine the proper fine. The result was a $6,840 penalty -- half going to the U.S.

This decision was combined with another recent development. Plaintiffs noticed that many products were on the market with old patent numbers. These patents had expired, so plaintiffs began to argue that marking a product with an expired patent constituted false marking. The issue being litigated there is whether or not putting an expired patent number on a product, in and of itself, satisfied the "intent to deceive" element required to sustain a false marking claim. In Pequignot v. Solo Cup, the Federal Circuit (which recently heard oral argument), will determine what is the proper legal test for determining intent to deceive in false marking cases.

Stay tuned...

False marking case against Solo cup is done

On summary judgment, Solo convinced the Court that it could not have acted "with the purpose of deceiving the public." (via http://271patent.blogspot.com/2009/07/patent-marking-case-against-solo-cup.html)