False-Marking Cases Might Soon be Extinct

By Thomas Carey. A member of our Business Practice Group

March 2011 IP Update

It is a federal offense to mark goods as “patented” when they are not in fact protected by a patent. Such “false marking” often occurs when a patent owner neglects to discontinue marking goods after his patent has expired.

False marking was an obscure topic until a judge held, in a 2009 case involving coffee-cup lids, that a separate penalty is potentially due for each such article sold. Our analysis of that case previewed the unusual results that could arise from private lawsuits to enforce the patent-marking statute.  Solo Cup, the maker of those lids, faced a potential penalty of $500 per lid for marking the product with patents that had expired, if it had demonstrably intended to deceive the public with the false markings.

While statutes that threaten potentially unreasonable penalties are seldom enforced to the limit, the marking statute has an unusual feature that increases the risk of irrational results:  It authorizes anyone to sue to recover the penalty, splitting the recovery 50-50 with the United States government.

When the plaintiff seeking $500 per lid enjoyed some initial litigation success, he inspired a horde of others to seek a quick score under the guise of enforcing the patent laws.  The flood of false-marking lawsuits was reduced to a trickle when Solo Cup persuaded the Federal Circuit that it did not intend to deceive the public with its markings, making the penalty inapplicable.  As we reported, the Federal Circuit declared that plaintiffs bear a heavy burden of proof in such cases.

Recent developments have given this nascent cottage industry a dubious future.  First, on March 15 the Federal Circuit held, in In re BP Lubricants USA Inc., that a false-marking suit must be quite specific about the evidence supporting the claim of intent to deceive.  Absent these particulars a lawsuit will be dismissed, and that was the fate of the lawsuit in that case.

Then, in Unique Product Solutions Ltd. v. Hy-Grade Valve Inc., a federal judge held that the patent-marking statute is unconstitutional because it improperly delegates to private citizens the enforcement of a statute.  After all, Article II, Section 3 of the Constitution provides that the President “shall take Care that the Laws be faithfully executed.”

The district court judge ruled that this administrative function cannot be delegated to the public at large without reserving to the executive branch of government some control over the enforcement. With his ruling, the judge rejected the argument of the United States–which had intervened in the case—that the marking statute was in fact constitutional.

It quickly became apparent, however, that these developments are not enough to choke off all false-marking cases. In Public Patent Foundation Inc. v. GlaxoSmithKline Consumer Healthcare LP, a federal judge found the evidence-of-deception standard imposed by BP Lubricants to have been met.  The plaintiff had pointed out that Glaxo had, as late as 2004, filed suit to enforce a patent due to expire in 2005, but continued through 2007 to mark a product with a reference to that patent.

The judge was persuaded that Glaxo’s patent enforcement action was a sufficient reminder of the imminent expiration of its patent, and that an intent to deceive could be inferred from the failure to stop marking that product when the patent expired.

As for constitutionality, the judge in Public Patent disagreed with the judge inUnique Product Solutions and accepted the government’s argument that the marking statute is constitutional.  Thus, the constitutionality of the statute remains an unsettled question.

While the courts struggle with these cases, Congress may soon wash them away entirely.  The pending patent reform bill approved by the Senate would eliminate a key element of the false-marking statute:  the right of the public to sue to enforce it.  Under proposed revisions, only the government and affected competitors would be able to complain about false marking.

If the bill becomes law, creative litigants will have to look elsewhere for their fun and profit.  Until then, they must at least deal with the evidentiary and constitutional issues arising out of the recent flurry of court rulings.