In the months since the Federal Circuit’s decision in The Forest Group, Inc. v. Bon Tool Co., more than 100 patent false marking lawsuits have been filed. This article presents the top 10 questions to identify your company’s false marking risks and limit exposure.
What is a patent false marking claim?
In order to put the public on notice of a patent, the patent marking statute (35 U.S.C. §287) permits the patent owner to mark products in some circumstances with the number of any patent that covers the product. However, intentionally marking products with false patent numbers is prohibited by 35 USC § 292, which establishes a qui tam cause of action for such false marking. A qui tam cause of action empowers any private citizen to bring suit on behalf of the government, and any recovery for false patent marking is split between the party bringing suit and the government.
Does my company need to be worried about patent false marking claims?
Yes, if your company manufactures products that are marked with patent numbers. An audit should be performed to identify all products that are marked with patent numbers to determine whether the marking is correct. The numbers of any patents that have expired should be removed from all products. An opinion of counsel should be obtained for any remaining patents to verify that they are properly marked.
Does my Commercial General Liability (CGL) insurance policy cover these claims?
You should always review your CGL policy whenever you are sued. One provision that is common to many CGL policies is the “advertising injury” clause, which often provides coverage for damages arising from claims of defamation, invasion of privacy, misappropriation of advertising ideas or style of doing business, or infringement of copyright, title, or slogan. It may be difficult to argue that such a clause applies to a claim for false patent marking based solely on the placement of an expired or improper patent number on a product. However, if the false marking claim includes other allegations, such as allegations relating to improper advertising claims based on false marking, then the CGL advertising injury clause may provide some relief.
How much could a false marking lawsuit cost my company?
Because patent false marking lawsuits have not been brought in large numbers in the past, it is difficult to say for certain. The maximum liability for false marking is $500 per falsely marked article (prior to The Forest Group, Inc. v. Bon Tool Co., most courts limited liability to $500 per continuous act of marking). So if you sell 10,000 widgets marked with an inapplicable or expired patent number, you could theoretically be liable for 10,000 x $500 = $5,000,000. However, under other federal statutes providing for qui tam actions, the penalties assessed are generally proportional to the harm that was caused. Obviously, the exact damages will depend on the specific facts, such as whether your company has ever used the threat of a patent infringement lawsuit to exclude competition. Under the current math, though, huge potential awards are encouraging entrepreneurial plaintiffs, pejoratively referred to as “bounty hunters,” or “marking trolls” (although everything depends on one’s perspective) to hunt for improperly marked products.
What if a patent has just recently expired?
There is case law that suggests that having products marked with expired patents is acceptable as long as the decision to mark was prudent at the time it was made. Although this certainly provides some ammunition against allegations of deceptive intent, leaving recently expired patent numbers simply increases your risk of being sued.
What can I do to minimize risk?
Your employees are your first line of defense against a patent false marking claim. By offering awards, bounties or other incentives to employees to identify products that may have patent marking problems, you can raise employee awareness of the issue and utilize your most knowledgeable asset to help investigate and identify any potential problems. A patent marking committee should also be formed to review newly issued patents to determine which products should be marked, and to periodically re-assess product markings to identify whether product changes may require patent marking changes.
Should I fight a patent false marking lawsuit?
No doubt, many of the patent false marking lawsuits that have been recently filed are nothing more than attempts to generate revenue and are not based on any facts that would justify an award of significant damages, such as intentional patent misuse. However, as with any other litigation, all relevant documents and materials should be quickly identified and reviewed to assess the potential exposure. It may be better to settle early with a patent false marking plaintiff that is looking for a quick settlement than to proceed to discovery where more damaging facts that support a significant penalty may be produced.
Is there any bright side to this change in patent false marking law?
One potential bright side is increased awareness of the value of your company’s patents. By clearly understanding the products that your company’s patents cover, it will be easier to determine whether competitors are infringing your patents and whether enforcing your company’s patent rights is warranted.
Is the law going to stay this way?
There is already a discussion about amending the false marking statute to limit the threat of false marking suits, and the Patent Reform Act of 2010 includes amendments to limit false marking lawsuits to those who have suffered competitive injuries. Of course, the legislative process is slow and uncertain, and for the indefinite future businesses should anticipate increased false marking litigation.
What is the first step I should take to protect myself from false marking claims?
If your products have patent numbers on them, you should check to see if each listed patent covers each product.
If you have questions, please contact Christopher Rourk at 214.953.5990 or crourk@jw.com or Mark Miller at 210.978.7751 or mmiller@jw.com.
