ALI-ABA Topical Courses False Patent Marking: Crafting Your Defense As the Law Evolves October 27, 2010 Telephone Seminar/Audio Webcast

Transcription

1 1 ALI-ABA Topical Courses False Patent Marking: Crafting Your Defense As the Law Evolves October 27, 2010 Telephone Seminar/Audio Webcast Select 2010 N.D. Illinois False Patent Marking Opinions and Orders By R. David Donoghue Holland & Knight LLP Chicago, Illinois

2 2 SELECT 2010 N.D. ILLINOIS FALSE PATENT MARKING OPINIONS AND ORDERS by R. David Donoghue 1 False Marking Case Dismissed With Prejudice for Failure to Plead Intent McNamara v. Natural Organics, Inc., No. 10 C 3544, Slip Op. (N.D. Ill. Sep. 1, 2010) (Shadur, Sen. J.). Judge Shadur denied defendant's motion to stay this false patent marking case pending the Federal Circuit's standing decision in Stauffer (Stauffer has since been decided). The Court also dismissed plaintiff's second amended complaint for failure to plead the requisite intent to deceive pursuant to Fed. R. Civ. P. 9(b) heightened pleading standards. Plaintiff attempted to plead intent upon information and belief using a nine-year-old statement made on defendant's behalf about its skilled legal representative in an FTC proceeding. But that quoted language referred to a lawyer who was deceased, and he had passed away even before the FTC proceeding. Because plaintiff had already been given two chances to replead, the Court dismissed the case. Any Person Has Standing to Bring False Patent Marking Claim Simonian v. Irwin Indus. Tool Co., No. 10 C 1260, Slip Op. (N.D. Ill. Aug. 27, 2010) (Lindberg, Sen. J.). Judge Lindberg denied defendant Irwin Industrial Tool's ("Irwin") motion to dismiss plaintiff Simonian's false patent marking case. First, the Court denied Irwin's standing arguments. While the Federal Circuit had not yet issued its Stauffer decision regarding standing, 1 Mr. Donoghue is a patent litigator and partner in the IP litigation group of Holland & Knight LLP. He is also the founder and author of the Chicago IP Litigation blog ( These articles are reprinted with permission from the Chicago IP Litigation blog. Mr. Donoghue can be reached at , david.donoghue@hklaw.com and on

3 3 the Court used similar reasoning. The Court analogized to the False Claims Act and held that any person had standing without proof of an injury in fact. The false marking injury is to the government and the public at large. The Court also held that Simonian sufficiently pled the requisite intent to deceive, whether notice pleading or Fed. R. Civ. P. 9(b) standards applied. Simonian pled that Irwin was a "sophisticated company" with years of patent experience and that Irwin knew or should have known the patent was expired when it was marked. Court Sua Sponte Dismissed Affirmative Defense Simonian v. Merck & Co., Inc., No. 10 C 1297, Slip Op. (N.D. Ill. Jul. 16, 2010) (Shadur, Sen. J.). Judge Shadur sua sponte struck portions of defendants' answer to plaintiff's false patent marking case. First, the Court struck denials that followed defendants' statements that they lacked information and belief. While a lack of information and belief acts as a denial, denying allegations as to which you cannot form a belief is "oxymoronic." Second, the Court struck defendants' improper affirmative defenses. Several of defendants' affirmative defenses were improper because they had already been brought into issue by denying allegations in the complaint. The Court also struck defendants' Fed. R. Civ. P. 12(b)(6) affirmative defense with leave to promptly file a "properly supported" motion to dismiss. 2

4 4 False Patent Marking Plaintiff's Choice of Forum Given No Deference Simonian v. Pella Corp., No. 10 C 1253, Slip Op. (N.D. Ill. Aug. 5, 2010) (Bucklo, J.) Judge Bucklo granted defendant Pella's 28 U.S.C. 1404(a) motion to transfer plaintiff Simonian's false patent marking case to the Southern District of Iowa. The court held that Simonian's choice of forum was not given deference, as it normally would be. First, the real plaintiff was the United States, not Simonian. Second, the situs of the material events was Iowa where Pella made its marking and packaging decisions, not Illinois where some marked products were sold. Simonian's numerous other false marking cases filed in the district did not weigh against transfer. Each of those cases involved different defendants, different accused products and different allegedly expired patents. Second False Patent Marking Plaintiff Lacks Standing Simonian v. The Quigley Corp., No. 10 C 1259, Slip Op. (N.D. Ill. Jul. 19, 2010) (Lindberg, Sen. J.). Judge Lindberg granted defendant The Quigley Corp.'s ("Quigley's") motion to dismiss plaintiff Simonian's false patent marking case for lack of standing. Simonian's case was the second filed against Quigley regarding the identical allegedly false patent marking of its COLD- EEZE branded products. Noting a lack of controlling case law, the Court analogized to the False Claims Act and held, citing a 1941 New York state case, that a second false marking plaintiff lacks standing to bring suit. 3

5 5 Marking With Expired Patent Sufficient for Pleading Intent Simonian v. Edgecraft Corp., No. 10 C 1263, Slip Op. (N.D. Ill. Sep. 20, 2010) (Grady, Sen. J.). Judge Grady granted defendant Edgecraft's Fed. R. Civ. P. 12(b)(6) motion to dismiss plaintiff Simonian's false patent marking claims. The Federal Circuit's recent decisions rejected two of Edgecraft's three arguments. In Stauffer, the Federal Circuit held that any individual had standing to sue for false marking without regard to injury in fact. And in Solo Cup, the Federal Circuit held that marking with an expired patent could constitute false patent marking. The Court, however, held that Fed. R. Civ. P. 9(b) heightened pleading standards applied to the intent to deceive requirement. Simonian's "bare allegations" - and otherwise only "mere labels and conclusions" - at best suggested a "possibility of misconduct," not intent. While Rule 9(b) does allow intent to be pled generally, the allegations must create a reasonable inference that defendant acted with the necessary intent. Marking With Expired Patent Sufficient for Pleading Intent Simonian v. Bunn-O-Matic Corp., No. 10 C 1203, Slip Op. (N.D. Ill. Aug. 23, 2010) (Zagel, J.). Judge Zagel stayed plaintiff Simonian's false patent marking case pending the Federal Circuit's standing decision in Stauffer - which has since issued, holding that any person has standing without regard to injury in fact. The Court also indicated that, once the stay was lifted, it would deny defendant's Fed. R. Civ. P. 12(b)(6) motion to dismiss Simonian's complaint for failure to adequately plead intent to deceive pursuant to Fed. R. Civ. P. 9(b). Simonian pled that defendant knowingly marked its coffeemakers with expired patents. That was sufficient to meet the rebuttable presumption of intent as set out in Solo Cup. It did not matter that Simonian's 4

6 6 claims were generic as evidenced by the use of nearly identical allegations in more than forty false patent marking cases Simonian had filed in the Northern District of Illinois. False Claims Act Does Not Bar Multiple False Marking Suits Simonian v. Hunter Fan Co., No. 10 C 1212, Slip Op. (N.D. Ill. Jul. 8, 2010) (St. Eve, J.). Judge St. Eve denied defendant Hunter Fan's motion to dismiss plaintiff's false patent marking case. Hunter Fan argued that the Court lacked subject matter jurisdiction because approximately four hours before this suit was filed, another plaintiff filed a separate suit in the Northern District of Texas accusing Hunter Fan of the same alleged false patent marking. The False Claim Act did have a first-to-file provision, 31 U.S.C. Â 3730(b)(5), but the provision expressly limited its application to False Claims Act cases. Because false patent marking is part of the Patent Act, not the False Claims Act, the first-to-file limitation was not applicable. In reply, Hunter Fan argued that 35 U.S.C. Â 292 allowed for only a single claim, and that the reasoning of the False Claim Act's first-to-file rule should have been applied to the false patent marking statute. Hunter Fan, however, waived these arguments by failing to make them in its opening brief. Court Sua Sponte Dismissed Affirmative Defense Simonian v. Merck & Co., Inc., No. 10 C 1297, Slip Op. (N.D. Ill. Jul. 16, 2010) (Shadur, Sen. J.). Judge Shadur sua sponte struck portions of defendants' answer to plaintiff's false patent marking case. First, the Court struck denials that followed defendants' statements that they 5

7 7 lacked information and belief. While a lack of information and belief acts as a denial, denying allegations as to which you cannot form a belief is "oxymoronic." Second, the Court struck defendants' improper affirmative defenses. Several of defendants' affirmative defenses were improper because they had already been brought into issue by denying allegations in the complaint. The Court also struck defendants' Fed. R. Civ. P. 12(b)(6) affirmative defense with leave to promptly file a "properly supported" motion to dismiss. False Patent Marking Standing Motion Decided Without Briefing Simonian v. Merck & Co., No. 10 C 1297, Slip Op. (N.D. Ill. June 1, 2010) (Shadur, Sen. J.). In response to defendant Merck's motion to dismiss plaintiff's false patent marking action, the Court sent a copy of its prior decision in Zojo Solutions, Inc. v. The Stanley Works, No. 10 C 1174, Slip Op. (N.D. Ill. May 12, 2010) (Shadur, Sen. J.). In that case, the Court held that marking with expired patents was actionable and that an individual citizen could bring a false marking action pursuant to 35 U.S.C. Â 292. The Court ordered the parties to appear on the notice date to discuss the course of the litigation. False Patent Marking Cases are Like an "Infestation of Dandelions" Zojo Solutions, Inc. v. The Stanley Works, No. 10 C 1175, Slip Op. (N.D. Ill. May 12, 2010) (Shadur, Sen. J.). Judge Shadur denied defendants' motion to dismiss this false patent marking case before plaintiff responded. First, the Court held that marking with expired patents was actionable 6

8 8 pursuant to 35 U.S.C. Â 292(a), citing Forest Group, Inc. v. Bon Tool Corp., 590 3d 1295 (Fed. Cir. 2009). Also citing Forest Group, the Court held that private citizens had standing. The Court reasoned that if there was not standing, the Federal Circuit would have been obligated to address it before deciding the substantive issues. Finally, the Court characterized false patent marking cases as an "infestation of dandelions" which "dot the greensward of patent litigation." 7

9 9 N.D. ILLINOIS: FALSE PATENT MARKING HOTBED by R. David Donoghue 2 The Northern District of Illinois has become a jurisdiction of choice for 35 USC Section 292 false patent marking suits, along with the Eastern District of Texas. Of the more than 500 false marking suits filed this year, more than half were filed in either the Northern District of Illinois or the Eastern District of Texas. Granted a single plaintiff filed about sixty percent of the Northern District of Illinois cases, but several other plaintiffs have chosen the Chicago federal courts to file complaints that arguably could have been filed in almost any district court. As I have watched the cases pile up, I have spent a fair amount of time trying to determine why the plaintiffs are choosing Chicago. While the numbers could be skewed by one plaintiff, Simonian, that has filed the majority of the cases, several other plaintiffs are availing themselves of the Chicago courts, so that does not answer the question. Rather, the Chicago filings are a byproduct of the new Local Patent Rules, for two reasons: 1) assuming that the Local Patent Rules apply to these cases (and I believe they will) the Local Patent Rules will place most of the upfront responsibilities on the defendant-patentholder; and 2) the proposed case schedule that would have cases tried in two years gives plaintiffs a moderate case length moderating their potential fees and costs while maintaining a relatively high defense cost for the defendants, including the potential threat of the longer pre-rules schedule for most Northern District of Illinois patent cases prior to enacting the Rules. Before I analyze the reasons further, some background will be valuable as false marking is a very new phenomena in patent law and remains unknown to many. 1 Mr. Donoghue is a patent litigator and partner in the IP litigation group of Holland & Knight LLP. He is also the founder and author of the Chicago IP Litigation blog ( This article is adapted with permission from the Chicago IP Litigation blog. Mr. Donoghue can be reached at , david.donoghue@hklaw.com and on

10 10 Modern False Marking Cases The first of the modern false marking cases, excluding the occasional false marking claim in a broader patent dispute between competitors, was Pequignot v. Solo Cup Co., No 1:07cv897- LMB/TCB (E.D. Va. July 2, 2009). In that case, Solo was accused of falsely marking coffee cup lids sold to Starbucks. The Eastern District of Virginia's Judge Brinkema granted Solo Cup summary judgment finding that there was no intent to deceive the public in Solo's alleged false marking based upon the advice of Solo's counsel that it would be reasonable to replace molds identifying expired patents with molds showing no marking gradually. Additionally, the Court held that a patent marking offense, punishable by a fine up to $500, was the decision to improperly mark, not each improperly marked product. That decision significantly reduced the damages potential for false marking cases, and is currently on appeal at the Federal Circuit. Then in the last week of December 2009, the Federal Circuit decided Forest Group, Inc. v. Bon Tool Co. In that case, the district court followed reasoning similar to the Solo case fining defendant $500 for a single decision to false mark. But the Federal Circuit reversed, holding that the fine was to be assessed per falsely marked product. That drastically changed the damages calculus for false marking claims, and led to the deluge of patent false marking cases beginning this January. In the first quarter of this year, at least to date, more than 80 false marking cases have been filed. The Federal Circuit will soon hear oral argument in Pequignot v. Solo Cup, to rule upon the bounds of the intent required by 35 USC Section 292. The only potential relief for patent holders is a section of the current patent reform bill in the U.S. Senate that would require 2

11 11 that the false patent marking plaintiff have been harmed by the alleged false marking check out a discussion of the provision at the Patent Docs. The Local Patent Rules are Driving False Marking Cases With that background, the question remains why are so many false patent marking cases being filed in the Northern District? As I proposed above, the reasons stem from the Northern District's new Local Patent Rules. First, many people see false marking cases as commercial litigation in patent litigation's clothing. That is not completely the case, however. In fact, the parties must determine whether the marked product reads upon the patent claims, unless the only issue is an expired patent. That means that the court and the parties must conduct a full infringement analysis with all of the required claim charts, technical analysis, expert discovery, Markman hearings and perhaps even summary judgment motions. That means that the Local Patent Rules will likely govern these cases, bringing with them the required Initial Disclosures and production obligations, and claim charts. That is significant because the false marking plaintiff does not have all of the obligations of either a typical patent plaintiff or defendant, while the false marking defendant has most of its obligations. The plaintiff will not have to produce his reduction to practice documents, prosecution histories, etc. along with Initial Disclosures, although the defendant likely will have to at least produce the prosecution histories. And the defendant will also have the obligations of a typical defendant producing documents sufficient to show how each accused product or process works. So, the defendant has initial discovery burdens that are not shared by the plaintiff, and the plaintiff is guaranteed early document production. Additionally, the defendant will likely be obligated to produce initial infringement contentions, after which the plaintiff would have to 3

12 12 respond with noninfringement contentions. So, the plaintiff not only escapes initial production requirements, but also gets to file its initial claim charts last. These are significant costs for the defendant which may benefit the plaintiff, at little up front cost. Additionally, knowing that these costs are coming early in the case may drive the defendant's willingness to settle up. Of course, it could always backfire on the plaintiff and drive the defendant's settlement down in line with the amounts spent upon early discovery. Second, the Local Rules contemplate a two year time-to-trial, as opposed to the prior patent litigation average in Chicago that was likely in excess of three years. So, the plaintiff still has a moderately long time to trial, driving up the defendant's likely litigation fees and expenses, but not so long that the plaintiff feels like it will never see its potential award. 4