Forest Group Decision Has Led To Great Rise In Patent Marking Lawsuits

By Phillip Articola

The recent Forest Group case decided by the United States Court of Appeals for the Federal Circuit (CAFC) has made it more financially viable for plaintiffs to sue for under the false marking patent statute (35 U.S.C. § 292). However, legislation currently before Congress, as well as another patent marking case to be decided by the CAFC in the near future, Pequignot v. Solo Cup, may level the playing field more towards defendants in such lawsuits.

In Forest Group, Inc. v. Bon Tool Company et al., ___ F.3d ___ (decided December 28, 2009), the Court of Appeals for the Federal Circuit (CAFC) has made it more viable for entities to sue patent owners for products that they have improperly marked with “patent” or any word or number connoting that the products are patented (e.g., patent number), in order for those entities to obtain one-half of a statutory penalty for making such a false patent marking. However, given recent IP legislation before Congress and other patent markings cases to be heard by the CAFC, only time will tell if the large rise in such lawsuits will continue in the foreseeable future. At the very least, Forest Group provides a useful counterclaim that an alleged infringer may be able to make against a patent owner who has asserted his/her patent(s) against them and in which the patent owner has sold or has offered for sale “patent marked” products.

False Marking Statute

35 U.S.C. § 292 imposes a civil penalty for falsely marking a product as patented. Under § 292(a), false marking occurs when one intentionally marks or affixes or uses in advertising in connection with any unpatented article, the word “patent” or any word or number importing the same. This section also considers false marking to be when one uses “patent pending” or “patent applied for,” for the purpose of deceiving the public, when in fact no patent application has been filed or if a patent application has been filed but no longer is pending (e.g., it is abandoned).

Section 292(a) imposes a $500 penalty “for every such offense.” Furthermore, § 292(b) states that “[a]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.”

Given that an entity would have to incur the typically high costs of a patent litigation to sue under Section 292, a broader interpretation of the phrase “every such offense” would provide more financial incentive to sue.

District Court Decision in Forest Group

Forest Group is the assignee of US Patent No. 5,645,515 (the ’515 patent), which is directed to spring-loaded stilts having a resiliently lined yoke. These stilts are used in construction, where workers wear them as an alternative to using ladders to reach high places. A licensee of the ’515 patent, Southland Supply Company (“Southland”), initially sold stilts to Bon Tool, whereby Bon Tool later stopped purchasing stilts from Southland and started purchasing stilts from a foreign supplier, Shanghai Honest Tool Co.

Forest Group sued Bon Tool and Shanghai Honest Tool Co. in the US District Court for the Southern District of Texas, for infringing the ’515 patent. Bon Tool counterclaimed, alleging, among other things, false marking under 35 U.S.C. § 292.

The district court construed pertinent claim terms, and then found that Bon Tool did not infringe any claims of the ’515 patent. Furthermore, the district court found that Forest Group falsely marked its S2 stilts with its ’515 patent number, and assessed a $500 fine for a single offence of false marking. In coming to this decision, the district court found that Forest Group knew that its S2 stilt was not covered by the ’515 patent after a district court in a related case granted summary judgment of non-infringement. The $500 fine was due to Forest Group placing one order to its manufacturer for S2 model stilts marked with the ’515 patent number after the date of summary judgment in the related case.

Federal Circuit Decision in Forest Group

Bon Tool appealed the district court’s decision to the CAFC. One of Bon Tool’s arguments on appeal was that the district court erred in its interpretation of the false marking statute when it determined that the statute provided for a penalty based on each decision to mark rather than on a per article basis.

The CAFC agreed with Bon Tool that § 292 imposes a $500 penalty for each falsely marked article. The CAFC first analysed the statute’s plain language. The Court found that it did not support the district court’s penalty of $500 for a decision to mark multiple articles; rather, the statute’s plain language requires the penalty to be imposed on a ‘per article’ basis. In doing so, the CAFC focused on the statutory language that prohibits false marking “of any unpatented article,” and that it imposes a fine for “every such offense.” From this, the CAFC came to the conclusion that the statute clearly requires that each article that is falsely marked with intent to deceive constitutes an offence under 35 U.S.C. § 292.

The CAFC distinguished older cases that had adopted a “time-based” approach to § 292. These cases imposed a penalty for each week or each day that false marking occurred. The CAFC considered those cases to be creative attempts to reconcile the statute’s language with the 1910 decision in London v. Everett H. Dunbar Corp. 179 F.506 (1st Cir. 1910). Because the time-based approach was not supported by the plain language of § 292, the CAFC could not countenance these efforts.

The CAFC then considered policy considerations for assigning a $500 penalty for each article that is falsely marked, whereby “Congress intended the public to rely on marking as a ready means of discerning the status of intellectual property embodied in an article of manufacture or design,” and that acts of false marking deter innovation and stifle competition in the marketplace. The CAFC states that such injuries to the public occur each time an article is falsely marked, thereby justifying the court’s “per article” interpretation of § 292 as being consonant with the purpose behind marking and false marking.

The CAFC further supported its conclusion by reasoning that a single $500 fine for each decision to falsely mark would render the statute completely ineffective. Thus, a “time-based” approach would be inconsistent with Congress’ evident desire to prevent false marking. As the Court noted, Congress so desired to prevent these offences that it allowed private parties to sue for violations. As discussed above, § 292(b) allows any person to sue for false marking and to keep half of the civil penalty imposed on the violator.

Will this Lead to a Rise in Patent Marking Lawsuits?

An initial reaction to the Forest Group decision is to speculate that it might create a cottage industry for entities to sue patent owners for their products that are falsely marked. In fact, Forest Group argued before the CAFC that interpreting § 292 to assign a $500 penalty on a “per article” basis would have this effect. The CAFC addressed this argument and noted that an amicus brief was filed in this case by an individual who created a holding company to bring such actions. The CAFC first found that the false marking statute explicitly permits these actions. The CAFC explained that these fears were overblown because a court need not find that those guilty of false marking would be fined $500 per article marked. It noted that the statute provides for a fine of “not more than” $500 for every such offence, and that this provides a district court discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities (whereby a district court has the discretion to assign a penalty of a fraction of a penny per article in such a case).

Pending Legislation May Affect Patent Marking Lawsuits

Possibly in response to the Forest Group decision, it has been reported by Justin Gray in an article entitled “False Marking: Senate Proposes to End False Marking Onslaught,” published in www.grayonclaims.com, that Senate Patent Reform bill S.515 currently before Congress includes a provision that would put a stop to plaintiffs from suing under § 292 who have not been competitively injured by acts of false marking. This provision would not stop lawsuits such as the Forest Group case, but it would curtail other lawsuits, such as the Solo Cup case (discussed below). The bill in its current form would apply retroactively to all pending litigation.

Conclusion

Forest Group appears to have made it more economically viable for entities to file lawsuits against patent owners who may have improperly marked their products as “patented” or with a patent number. Indeed, there has been a large rise in “patent marking” lawsuits in the short time since the Forest Group decision came out. For example, the Chicago Tribune recently reported that Thomas Simonian of Geneva, Illinois, filed 28 such patent marking lawsuits in late February, through three law firms. Several law firms, such as Howrey & Simon and Womble, Carlyle, Sandridge and Rice, have recently formed patent marking teams to deal with the rise in such lawsuits.

Also, the CAFC will hear oral arguments in April in Pequignot v. Solo Cup, Fed. Cir. 2009-1547, which is another case involving a plaintiff suing under § 292. In the Solo Cup case, the false marking action was made against a manufacturer who sold billions of cup lids that had an expired patent number marking provided on those cup lids, in which some of the patents had expired more than 10 years from the date of manufacture of the cup lids having those patent numbers on them. In the Solo Cup case, the main issue on appeal is what is needed to show false marking “for the purpose of deceiving the public,” which is required in order to have a viable claim for damages under § 292. The potential award to the plaintiff (who is a patent attorney based in the Washington, DC area) is astronomical to say the least! If the CAFC places a high burden on what is required by a plaintiff to show that a false marking was made for the purpose of deciding the public, this may lead to a dismissal of many of the recently filed patent marking lawsuits on summary judgment motions.

Based on the Forest Group decision, § 292 will not only lead to a rise in patent marking lawsuits, but it will also likely be the case that patent marking suits will be included more frequently as a counterclaim in patent infringement lawsuits brought by patent owners against accused infringers. Of course, if the S.515 bill [US patent reform] in its current state eventually becomes law, this will certainly affect the number of such lawsuits. Also, based on how the Solo Cup case is decided by the CAFC, the playing field for plaintiffs suing under § 292 may change one way or the other.

Phillip Articola is a special counsel with Foley & Lardner LLP, in the Washington, DC office. He specializes in patent prosecution, particularly in the fields of computers and communications. Articola may be reached at particola@foley.com.