Patent Marking Statute Under Siege
Recently, a surge of complaints have been filed alleging violation of 35 U.S.C. §292, the so- called “False Marking statute,” and innundating federal district courts. Among various other defenses, the statute has been attacked recently on constitutional grounds, and such arguments are gaining traction at the district court level. In one recent case, FLFMC LLC v. Wham-O Inc. (W.D. Pa. Aug. 3, 2010), the district court dismissed the plaintiff’s complaint based on false patent marking due to lack of jurisdiction. The district court found that FLFMC had not pled an injury-in-fact that was sufficient to meet the requirements for standing under Article III of the U.S. Constitution. In another and subsequent case, Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. (N.D. Ohio Feb. 23, 2011), Judge Polster held the False Marking statute to be unconstitutional. Thus, the False Marking statute has been challenged successfully on constitutional grounds, and is currently under review. In addition to the courts, Congress is considering amending the statute as part of the proposed Patent Reform Bill, which is currently under debate. Whether the law will be changed remains uncertain.
Previously, complaints based on false patent marking were relatively rare until the recent landmark decision by the Court of Appeals for the Federal Circuit in The Forest Group Inc. v. Bon Tool Company, 590 F.3d 1295 (Fed. Cir. 2009). As reported previously on the Ostrolenk Faber LLP website, the Court of Appeals interpreted the statute to provide for recovery of up to $500.00 for each article that is mismarked. This decision raised recovery amounts for plaintiffs and opened the litiation floodgates.
In FLFMC LLC v. Wham-O Inc., the district court concluded that there was no “concrete injury-in-fact, and the government cannot assign its ‘sovereign injury’ to a private plaintiff.” Therefore, the district court decided that the “plaintiff cannot establish an injury-in-fact sufficient to establishe Article III standing.” Since FLFMC failed to meet the constitutional requirements to establish standing, on the grounds that no actual injury was pled, the complaint was dismissed.
FLFMC is currently appealing the district court’s decision to Federal Circuit. Interested parties are supporting the district court’s decision and on March 1, 2011, the U.S. Chamber of Commerce filed an amicus brief in support of Wham-O. Further, the Cato Institute filed an amicus brief in support of Wham-O on February 24, 2011. The Justice Department has also intervened in the appeal as well.
In Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. (N.D. Ohio Feb. 23, 2011), the defendant made a direct challenge to the constitutionality of the False Marking statute and the district court agreed. Judge Polster found that the False Marking statute is unconstitutional under the “Take Care” clause of the U.S. Constitution. In particular, the Court noted:
Applying the Morrison "sufficient control" analysis to the False Marking statute, it is clear the government lacks sufficient control to enable the President to "take Care that the Laws be faithfully executed." As discussed, supra, unlike the FCA, the False Marking statute lacks any of the statutory controls necessary to pass Article II Take Care Clause muster. The False Marking statute essentially represents a wholesale delegation of criminal law enforcement power to private entities with no control exercised by the Department of Justice. See Pequignot, 608 F.3d at 1363 (False Marking statute is criminal).
Interestingly, the Court apparently considered the excessive liability possible under the most recent interpretation of the statute to be a strong factor against its constitutionality:
The danger of this uncontrolled privatization of law enforcement is exacerbated by the financial penalties in this statute. The penalty is up to $500 for each article falsely marked. Forest Group, 590 U.S. at 1302-1303. Depending upon the number of items, this could be a staggering amount of money or a trivial amount. The statutory penalty is not calibrated to the size or economic strength of the defendant, the significance of the product, or to the degree of competitive harm the false marking may have had beyond simply the gross number of articles falsely marked… It is therefore essential that the government have control over when such cases are brought, and most importantly, how they are settled. Such decisions should be made by government attorneys who have no financial stake in the outcome of the litigation or settlement, not by private parties motivated solely by the prospect of financial gain."
Under FLFMC, plaintiffs must be able to demonstrate a showing of actual injury-in-fact. Presumably, such plaintiffs do exist and can show an actual injury-in-fact based on a product that is falsely marked. For example, a competitor might be able to present evidence that the competitor did not enter a market or abandoned a project based on falsely marked products, and demonstrate that the competitor was injured. Such a plaintiff would likely satisfy the standing requirements of FLFMC. In contrast to FLFMC, however, the Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. case may be the final nail in the coffin of the False Marking statute. This decision, if upheld, precludes all recovery by plaintiffs under the False Marking statute, regardless of actual injury.
We will continue to monitor these case and will provide updates as warranted on our website, Facebook page and Newsletter.