Publications

4 Feb 2010

Will Bon Tool decision open the floodgates to patent marking trolls?

Intellectual Property and Technology Alert

Andrew Valentine

In one of its last opinions of 2009, the United States Court of Appeals for the Federal Circuit may have opened the floodgates for a cottage industry of new litigation to “enforce” the false marking statute – a potential wave of so-called patent marking trolls. The decision is Forest Group Inc. v. Bon Tool Company, 93 U.S.P.Q.2d 1097 (Fed. Cir. 2009).

Companies often mark products with patent numbers to trigger constructive notice for purposes of seeking damages for a period greater than if only actual notice (e.g., filing a complaint or sending a letter) is provided. Federal law, however, prohibits marking products with a patent number when the product does not fall within the scope of the patent, for the purpose of deceiving the public. This is commonly referred to as “false marking.” The enforcement mechanism for false marking is found in the Patent Act (35 USC §292). Section 292 states that any person can sue a company for false marking and, if it prevails, share half the penalties with the US government. A plaintiff who brings such a suit is called a qui tam plaintiff.

The statutory penalty for false marking is a fine of “not more than $500 per offense.” Over the last hundred years, most courts have found that each decision to falsely mark, or each continuation of decisions to falsely mark, is a single offense irrespective of the number of products improperly marked. Not surprisingly, there have been few false marking claims, given the expense of litigation as balanced against the potential for only minimal damages.

On December 28, 2009, in the Bon Tool decision, the Federal Circuit overruled prior decisions and found that the penalty can be up to $500 per each article sold. While the Bon Tool court found that the penalty applied to each article, the ruling also made clear that it is up to the individual court to decide what the penalty should be and that “a court has the discretion to determine that a fraction of a penny per article is the proper penalty.” Given the wide discretion the courts will have on determining the appropriate penalty, it is unclear how significantly this ruling will affect the severity of penalties levied and thus the financial incentive in bringing such lawsuits.

However, it took one qui tam plaintiff, San Francisco Technology, Inc. (SFT), only two days after the Bon Tool decision to file false marking claims against 14 defendants in the Northern District of California (C-09-06083 RS). SFT alleges that the named defendants continued to mark products after the expiration of a patent or patents.

The SFT case presents numerous issues. Does SFT have standing to bring this claim? Does the false marking statute apply to expired patents? Can SFT establish by a preponderance of the evidence that the alleged marking (even if false) was done “for the purpose of deceiving the public”?

Two additional cases relating to patent marking are currently working their way through the federal court system – Pequignot v. Solo Cup Co., 07-cv-897 (E.D.Va.) and Stauffer v. Brooks Bros., 08-cv-10369 (S.D.N.Y.) – and these opinions will likely further shape the scope and applicability of section 292.

For more information about the impact of this case on your business, please contact:

Andrew Valentine

Alan A. Limbach

Stacy Snowman