The new dangers of failing to mark patents correctly

United States patent law specifically provides for patent owners to mark their goods that are covered by patents. Patent marking is virtually ubiquitous, and most people have been exposed to patent marking in their daily lives.

On one hand, it is quite advantageous for patent owners to use patent marking to indicate that goods they sell are patented. Under the patent law, such marking provides constructive notice to the public that the goods are patented. This constructive notice comes into play in a patent infringement lawsuit by relieving the patent owner of the requirement of proving that an individual infringer was notified of the infringement. Thus appropriately marking patented articles provides a clear advantage to the patent holder, and attorneys routinely advise their clients to appropriately mark their products according to the marking provisions of the patent law.

On the other hand, and in order to protect the public, the patent law provides penalties in the form of fines against those who falsely mark goods as patented "for the purpose of deceiving the public." The fine is "not more than $500 for every such offense." The action is called a "Qui Tam" action, and any person, even though not personally injured by a defendant's conduct, may assert claims on behalf of the government.

An appellate court decision in 2009 (Forest Group Inc. v. Bon Tool Co.) has made false marking a hot topic in the law by interpreting the statutory language "for every such offense" to mean every article sold rather than every decision to false mark. This can make a big difference in the total penalty assessed. For example if a patent owner produces a batch of 1,000 items that are falsely marked with a patent number and a court levies the maximum penalty of $500, the penalty under the "per decision" standard is $500, but the penalty on a per-item basis is $500,000.

The decision in the Bon Tool case has had a significant impact. Since the decision, more than 800 false marking complaints have been filed in federal courts. The Bon Tool ruling has, in effect, spawned a new industry; most of the suits having been filed by "marking trolls" who are persons or organizations that simply search for instances of improperly marked articles and then file suit against the manufacturer.

In some instances, the person marking the goods has never owned a patent relating to the goods. In these cases, liability based on intent to deceive the public may be relatively easy to establish.

However, in other circumstances that are much more likely to occur in the normal course of operating a business, a patent expires and the patent owner does not remove the marking identifying the expired patent from subsequently sold articles. There is a certain degree of unpredictability in litigation, and therefore the results of such failures to remove markings relating to expired patents can be potentially devastating.

In Pequignot v. Solo Cup Co., the unpatented articles were plastic cups. It was alleged that over 21 billion of the cups had been manufactured after the patent marked on the cups had expired. Fortunately for Solo, the court found no intent to deceive the public even though Solo had become aware of the expired patent number two years after the patent had expired. Solo had adopted a policy to remove the expired patent numbers when the mold cavities had to be repaired or replaced and it relied on opinion of counsel that it did not have to affirmatively remove the expired patent numbers until that time.

From the above example alone, it is clear that there is a potential for disaster for business owners resulting from their failure to police their patent marking programs. Inappropriately marking articles after a patent has expired, combined with knowledge of the circumstances, creates a presumption of intent to deceive. The presumption is rebuttable, but presence or absence of such intent in any individual case depends on the particular facts surrounding the false marking. Even if intent is not proved and liability is not established, the cost to the business accused of false marking, both in lost time and legal fees, can be very substantial.

"Patent reform" legislation has been introduced into Congress that includes a provision that would change this law by requiring that false marking actions may be brought only by a person who has suffered a competitive injury as a result of a violation of the false marking statute. The prospect for passage of these changes is, at present, uncertain.

Business owners should pay attention to this aspect of the law, and should both provide internal controls and work with their patent counsel in order to both take advantage of the marking provisions of the patent law and avoid the pitfalls of false marking.

Ken D'Alessandro is a partner at Lewis and Roca. Nancy J. Thompson is an associate at Lewis and Roca. Contact them through www.lrlaw.com.