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The Rise in Qui Tam False Patent Marking Litigation

VIEWS: 3 PAGES: 32

									         The Rise in Qui Tam
    False Patent Marking Litigation


            September 13, 2010


               Jason C. White



1
            Issues Addressed
   False Patent Marking Background
   Forest Group v. Bon Tool Decision
   Increase in False Marking Lawsuits
   Pequignot v. Solo Cup Decision
   Hot Topics in False Marking Lawsuits




2
           The False Marking Statute
                35 U.S.C. § 292
 Definition of Liability
    • (a) ¶ 2: Whoever marks upon, or affixes to, or uses in
      advertising in connection with any unpatented article the
      word "patent" or any word or number importing the same is
      patented, for the purpose of deceiving the public
 Definition of the Fine
    • (a) ¶ 4: Shall be fined not more than $500 for every such
      offense
 Qui Tam Provision
    • (b) Any 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


3
       False Marking Background

 False Marking Statute: 35 U.S.C. § 292
 Amended numerous times (most recently
    in 1994)
 Little used statute
 Typically raised by a defendant as a
    counterclaim to a claim of patent
    infringement


4
       Forest Group v. Bon Tool Co.
                      Overview

 Background Facts
    • Plaintiff-Patentee sued for patent infringement
    • After an adverse claim construction ruling, the
       defendant counter-claimed for false marking (a
       companion case also construed the claims the
       same way)
    • District Court then ruled that neither the accused
       infringer’s nor the patentee’s products were
       covered by the patent-in-suit

5
       Forest Group v. Bon Tool Co.
                       Overview

• Patentee’s “bad” facts
    • Patentee had been advised by two law firms that
       it could no longer mark its products
    • Patentee claimed that it told its distributor to stop
       marking the product
       • But the product continued to be marked
       • There was no evidence (e.g., documents,
           emails, or phone records) that the patentee
           ever contacted the distributor


6
        Forest Group v. Bon Tool Co.
                          Overview

   The District Court found false marking based on
    patentee’s knowledge after the court’s order that its
    patent did not cover its products
   The District Court’s damages analysis
    •   District Court construed “$500 for every such offense” as
        $500 for each “decision to mark”
    •   The District Court awarded $500 because there was only
        one order placed after the court ruled that the patent did
        not cover the product



7
       Forest Group v. Bon Tool Co.
                       Overview

 The Federal Circuit’s Holding
    • Liability
      • Holding: District Court’s finding of intent to
          deceive as of a certain date was upheld
       • Basis: the patentee received two legal
          opinions, two adverse claim construction
          rulings, and two court orders that its patents
          did not cover its products


8
       Forest Group v. Bon Tool Co.
                      Overview

 The Federal Circuit’s Holding
    • Damages
      • Holding: reversed and held that “$500 for
          every such offense” should be construed to
          mean a fine of up to $500 “on a per article
          basis”
       • The Federal Circuit remanded to the District
          Court for a new damages calculation


9
         Forest Group v. Bon Tool Co.
                            Overview

 Purported Policy considerations underlying
     the damages holding
     •   “[T]he statute’s plain language requires the penalty to be
         imposed on a per article basis. The statute prohibits false
         marking of “any unpatented article,” and it imposes a fine for
         “every such offense.”
     •   “Congress’ affirmative change of the statute’s penalty from a
         minimum to a maximum fine eliminated the policy
         consideration expressed by the court in London of not
         imposing disproportionate fines for the false marking of small
         and inexpensive articles.”


10
         Forest Group v. Bon Tool Co.
                             Overview
  Purported Policy considerations underlying
     the damages holding
     •   “If an article that is within the public domain is falsely marked,
         potential competitors may be dissuaded from entering the
         same market.”
     •   “False marks may also deter scientific research when an
         inventor sees a mark and decides to forego continued
         research to avoid possible infringement.”
     •   “False marking can also cause unnecessary investment in
         design around or costs incurred to analyze the validity or
         enforceability of a patent whose number has been marked
         upon a product with which a competitor would like to
         compete.”


11
Why Bon Tool is Important to Patentees

 Bon Tool changed the prevailing
     damages calculation rule
      Since London v. Everett, 179 F. 506 (D. Mass.
        1910), most courts calculated damages on a “per
        decision basis”
      A major rationale at the time was to avoid
        damages that would “accumulate as fast as a . . .
        stamping machine might operate”



12
Why Bon Tool is Important to Patentees

 Bon Tool opened the door to potentially
     large damages claims by plaintiffs
      The new “per article basis” means that a fine
        should be assessed for each marked article
      Bon Tool did not address how to calculate the
        fine associated with the marking of each article




13
 Recent Rise is False Marking Lawsuits

    In 2007, Solo Cup was sued by qui tam plaintiff
     for expired type false marking
    Since then, over 250 companies have been sued
     in over 200 lawsuits for false marking
     •   Qui tam plaintiffs have not chosen any specific forum,
         instead there are cases pending in a wide variety of courts
         •   N.D. Ill.: over 60 companies sued
         •   E.D. Tex., N.D. Tex., S.D. Tex., and N.D. Cal.: over 15
             companies sued per district
     •   Many qui tam plaintiffs are patent attorneys


14
             District Court Opinions
                Since Bon Tool
    In Presidio Components (Chief Judge Gonzalez),
     the court awarded a fine of $228,086.25
       •   The court adopted an expert witness’ opinion of a fine
           of 32% of the average sales price of the falsely marked
           products
       •   The fine was substantial enough to enforce public
           policy and deter similar violations; but not so high that
           it would impose a disproportional liability
       •   The specific facts of this case were especially
           egregious



15
             District Court Opinions
                 Since Bon Tool
    In Bon Tool (J. Atlas), the court awarded a fine
     of $6,840.00
        • There were only 38 falsely marked products, but the
            court assessed the fine at $180.00 per article, which
            was the highest selling price in the record
        •   The court reasoned that this fine will deprive the false
            marker of more than it received for the falsely-marked
            products
        •   The court seemed to question the wisdom of the
            Federal Circuit’s decision and questioned whether
            Congress indeed wanted to encourage this new
            cottage industry given the proposed Senate Bill


16
           Pequignot v. Solo Cup
             Background Facts
 Lawsuit was filed in December 2007 in E.D.
     Virginia (Judge Brinkema)
 First of the recent qui tam false patent
     marking cases
 Plaintiff was a Washington DC based patent
     attorney
 Only claims were for false patent marking
 Initial settlement demand was $9,000,000

17
               Pequignot v. Solo Cup
                 Background Facts
 Two different allegations of false marking
     • Expired patents appeared on two different cup
        lids
     • Packaging was marked with “may be covered by”
        language
 Solo became aware of expired patents
     before lawsuit was filed
 Patent numbers appeared on thousands of
     molds

18
           Pequignot v. Solo Cup
             Background Facts
 Contacted attorneys for advice on dealing
     with them
 Developed a plan to remove patent numbers
     as molds wore out or were replaced
 Phase out plan was implemented for
     business reasons based on attorney advice



19
             Pequignot v. Solo Cup
           District Court Proceedings
    District Court granted Solo’s motion on liability
     •   Found no intent to deceive the public
     •   Phase out plan was implemented for business
         reasons and based on attorney advice
     •   Phase out plan was followed – “no slippage”
     •   Not a “scintilla” of evidence that Solo acted with intent
         to deceive the public
     •   Pequignot v. Solo Cup Co., 646 F. Supp. 2d 790
         (E.D. Va. 2009)


20
             Pequignot v. Solo Cup
            Federal Circuit Decision
 Expired patents can constitute false marking
     • When patent expires, product is “unpatented”
     • Patent expiration dates can be difficult to
        calculate
     • Public policy concerns arise from expired patents
        – externalizes costs of determining patent’s
        status
     • Pequignot v. Solo Cup Co., No. 2009-1547 (Fed.
        Cir. 2010)


21
             Pequignot v. Solo Cup
            Federal Circuit Decision
 Standard for proving intent to deceive
     • Combination of false statement and knowledge
        that statement was false creates only a
        rebuttable presumption of intent to deceive
     • Presumption is weaker for expired patents
     • Bar for proving deceptive intent is “particularly
        high” given the criminal nature of statute
     • Burden of proof for intent is preponderance of
        evidence


22
              Pequignot v. Solo Cup
             Federal Circuit Decision
 Standard for proving intent to deceive (cont.)
     • Intent to deceive must be proven, not intent to
         perform the act of marking
     •   Presumption can be rebutted with
         preponderance of evidence that accused party
         “did not consciously desire the result that the
         public be deceived”
     •   Evidence of no deceptive intent can include
         • reduced business costs and disruption
         • legal advice


23
             Pequignot v. Solo Cup
            Federal Circuit Decision
 Solo rebutted any inference of intent to
     deceive regarding expired patents
     • Solo provided credible evidence that its purpose
        was not to deceive the public
     • Solo’s desire was to reduce costs and business
        disruption
     • Solo relied on advice of counsel



24
             Pequignot v. Solo Cup
            Federal Circuit Decision
 Solo rebutted any inference of intent to
     deceive regarding “may be covered by”
     language
     • Statement was true
     • Statement used to address logistical and
        financial concerns with patent marking
     • Statement was used at suggestion of counsel


25
                  Hot Topics

    Forum Shopping / Jurisdiction
    Multiple Lawsuits Against Same Party
    Settlement
    Conditional Language




26
      Forum Shopping / Jurisdiction

 Most cases are filed in a small number of
     districts, each where the qui tam plaintiff (and its
     lawyer) are located
 Plaintiff’s choice of forum entitled to less weight
     given qui tam status
 Defendants have successfully transferred cases
     to their home district
     • See, e.g., PCG v. Brunswick (N.D. Tex.), SFT v. Glad et al. (N.D.
       Cal.), PCG v. Hunter Fan (N.D. Tex.), ERBE v. Canady (D.D.C.),
       SFT v. Adobe Sys. et al. (N.D. Cal.), and Jospehs v. Sigma-Altrech
       (E.D. Mich.) (citing transferor court)


27
                Multiple Lawsuits

 Many companies have faced multiple suits
     over the same patents and/or products
 Standard for dismissal is a “substantially
     similar” prior suit
     • See, e.g., Shizzle Pop v. Wham-O (C.D. Cal.),
       SFT v. Glad (N.D. Cal.)(dismissing Exergen), and
       Akbar v. P&G (E.D. Tex.)



28
                    Settlement

    Who has authority to settle?
    What scope can they agree to?
    Will an amended complaint be filed?
    Does the government need to be involved?
    Is a settlement binding on later plaintiffs?




29
            Conditional Language
 Types: “May be covered by” or “one or
  more”
 Potential conflict between Clontech
  (Fed. Cir. 2005) and Arcadia (Fed. Cir.
  1986)
     • Clontech: an unpatented article if the “article in
       question is not covered by at least one claim of
       each patent with which the article is marked.”
     • Arcadia: use of the “one or more” language found
       to be not deceptive in any way

30
             Conditional Language
 Post-Clontech, one District Court followed
     Clontech and found that conditional language
     could give rise to a violation
     • DP Wagner v. Pro Patch Sys. (S.D. Tex.)
 Pre and post-Clontech, most courts find that
     conditional language and multiple patent
     marks will not rise to the level of intent to
     deceive
     • See, e.g., Astec v. Power-One (E.D. Tex.), Pequignot v. Solo
       Cup (E.D. Va.), Amsted v. Buckeye (Fed. Cir.), Ansul v.
       Uniroyal (S.D. N.Y.), MIT v. Abacus (E.D. Tex.), and Santa
       Anita v. Lugash (9th Cir.)

31
     Questions?




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