MAKING YOUR MARK: HOW TO MAXIMIZE A PATENT DAMAGES PERIOD AND AVOID LIABILITY BY PROPERLY MARKING PATENTED GOODS AND GIVING ACTUAL NOTICE

Transcription

1 MAKING YOUR MARK: HOW TO MAXIMIZE A PATENT DAMAGES PERIOD AND AVOID LIABILITY BY PROPERLY MARKING PATENTED GOODS AND GIVING ACTUAL NOTICE Introduction 2004 Michael A. Cicero It is commonly known that a patentee may recover monetary damages for patent infringement. What may not be commonly known, however, is that infringement damages do not automatically start to accrue on the date infringement begins. Instead, the damages period begins on the date that the infringer receives either constructive or actual notice of the infringement. Effective constructive notice means complying with the patent marking statute, 35 U.S.C. 287(a) - by marking a patented article with the patent number, preceded by the word patent or its abbreviation pat. Effective actual notice means directly notifying the infringer of the infringement, most commonly by way of either a letter or service of an infringement complaint. Since damages do not begin to accrue until the patentee gives either form of notice, it is imperative that the patentee do so as early as possible and in compliance with applicable law. At the same time, one must avoid mismarking a product, i.e., patent-marking a product that is not covered by a patent, because doing so can result in monetary liability. Section 287(a) Wording and Purposes A patentee establishing infringement is entitled to recover damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. 1 However, damages are available only from a point in time at which an alleged infringer is on notice of the patent and of the allegedly infringing activity. 2 This limitation on recovery of damages arises from Section 287(a) of the Patent Act, which provides: 287 Limitation on damages and other remedies; marking and notice (a) Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word patent or the abbreviation pat., together with the number of the patent, or when, from the character of the article, this can not be done, by fixing to it, or to the package wherein one or more of them is contained, a label containing like notice. In the event of failure to so mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for 1 35 U.S.C Cybiotronics, Ltd. v. Golden Source Elec., Inc., 130 F.Supp.2d 1152, 1159 (C.D. Cal.), appeal dismissed, 19 Fed.Appx. 861, 2001 WL (Fed. Cir. 2001). 1

2 infringement occurring after such notice. Filing of an action for infringement shall constitute such notice. 3 The word damages in Section 287(a) encompasses not only damages recoverable under Section 284 (typically lost profits and/or reasonable royalties), but also recovery of an infringer s profits for design patent infringement under 35 U.S.C Thus, Section 287(a) limits each of those forms of monetary recovery. Failure to comply with 287(a) for a period of time will not result in a total bar to recovery of damages, if the patentee eventually complies with that statute. Section 287(a) precludes recovery of damages only... for any time prior to compliance with the marking or actual notice requirements of the statute. Therefore, a delay between issuance of the patent and compliance with the marking provisions of section 287(a) will not prevent recovery of damages after the date that marking has begun. 5 The marking statute serves three related purposes: 1) helping to avoid innocent infringement, 2) encouraging patentees to give notice to the public that the article is patented, and 3) aiding the public to identify whether an article is patented. 6 Regarding the respective purposes specific to the actual notice and constructive notice provisions in 287(a): The statute permits either constructive notice, which is accomplished by marking the article with the patent number, or actual notice. The requirement of actual notice is designed to assure that the accused infringer knew of the adverse patent and the alleged infringement during the period. 7 The purpose of the constructive notice provision is to give patentees the proper incentive to mark their products and thus place the world on notice of the existence of the patent U.S.C. 287(a) (emphasis added). 4 Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1440 (Fed. Cir. 1998). 5 Am. Med. Sys., Inc. v. Med. Eng g Corp., 6 F.3d 1523, 1537 (Fed. Cir. 1993). 6 Nike, 138 F.3d at 1443 (citations omitted). 7 Gart v. Logitech, Inc., 254 F.3d 1334, 1345 (Fed. Cir. 2001) (emphasis added). 8 Am. Med. Sys, 6 F.3d at 1538 (emphasis added) (quoting Laitram Corp. v. Hewlett-Packard Co., 806 F. Supp. 1294, 1296 (E.D. La. 1992)). 2

3 Constructive Notice: Marking the Article Generally. [C]onstructive notice may be shown by a patentee through evidence of marking, of goods produced pursuant to the patent, with the U.S. patent number somewhere on the product or, where it is not practical to mark the product, on its packaging. 9 Whether the patentee complied with the constructive-notice-through-marking provision of 287(a) is a question of fact on which the patentee bears the burden. 10 In determining compliance, the focus is not on what a particular infringer actually knew, but instead on whether the patentee s actions were sufficient to provide constructive notice to all the world. 11 Consequently, defective marking cannot be cured merely by proving that a certain infringer knew about the existence of the patent in question. Marking Plus Distribution Required. Constructive notice is not provided merely by marking the articles according to 287(a) the products must be distributed as well as marked, because marking alone without distribution provides no notice to the public Thus, the U.S. Court of Appeals for the Federal Circuit held that an infringement damages period began on the date that the patentee began shipping its marked products, as opposed to the earlier date on which marking commenced. 13 Substantially Consistent and Continuous Marking Required. The Federal Circuit cautioned: [O]nce marking has begun, it must be substantially consistent and continuous in order for the party to avail itself of the constructive notice provisions of the statute. 14 Put another way: Plaintiff must show not only that substantially all of the patented products were marked, but also that once marking was begun, the marking was substantially consistent and continuous. Thus, adequately marking a patented product only on occasion, and not as a matter of routine, is insufficient to support a finding of compliance under section 287(a) Cybiotronics, 130 F.Supp.2d at 1160; Maxwell v. J. Baker, Inc., 86 F.3d 1098, 1111 (Fed. Cir. 1996). 10 Cybiotronics, 130 F.Supp.2d at Nike, 138 F.3d at Am. Med. Sys., 6 F.3d at Id. at Id. at Cybiotronics, 130 F.Supp.2d at 1160 (citations omitted). 3

4 Express and Implied Licensees. Suppose the patentee has licensed another to manufacture a product covered by the patent. Licensees, whether express or implied, should properly mark the patented item they manufacture, or else the patentee s damage recovery may be limited: A licensee who makes or sells a patented article does so for or under the patentee, thereby limiting the patentee s damage recovery when the patented article is not marked. 16 However, courts will apply a rule of reason in license contexts to determine whether the patentee complied with 287(a): When the failure to mark is caused by someone other than the patentee, the court may consider whether the patentee made reasonable efforts to ensure compliance with the marking requirements. 17 Marking an Unpatented Component of Patented Combination. What if the product covered by the patent is a combination of components that, by themselves, are not patented? The patentee should mark a visible component: for use under U.S. X,XXX,XXX, or else require the licensee to mark the finished product: licensed under U.S. X,XXX,XXX.. 18 Product Covered by Multiple Patents. If a product is covered by more than one patent, the patentee can have the item marked with the number of each patent, accompanied by a statement that the article is covered by one or more of the patents. 19 Process Claims Infringed. If the sole claims in the patent alleged to have been infringed are directed to a process, instead of a product, then 287(a) does not apply. 20 The reason that the marking statute does not apply to method claims is that, ordinarily, where the patent claims are directed only to a method or process there is nothing to mark. 21 However, where the patent includes both product and process claims, the patentee alleges infringement of both types of claims, and there is a tangible item to mark, then the patentee must comply with 287(a) Amsted Indus., Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 185 (Fed. Cir. 1994) (quoting 287(a)). 17 Maxwell, 86 F.3d at Amsted, 24 F.3d at DAVID S. CHISUM, PATENTS 20.03[7][c][iii] (2003). 20 It is settled in the case law that the notice requirement of this statute does not apply where the patent is directed to a process or method. Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1083 (Fed. Cir. 1983) (quoting Bandag, Inc. v. Gerard Tire Co., 704 F.2d 1578, 1581 (Fed. Cir. 1983)). 21 Am. Med. Sys., 6 F.3d at Id. at ; Halliburton Svcs. v. Smith Int l, Inc., 317 F.Supp.2d 719, 725 (E.D. Tex. 2004). 4

5 Actual Notice: Direct Communication to Infringer In the absence of a continuous marking, courts interpret 287 as requiring a patent owner to actually notify an infringer of the alleged infringement. 23 The actual notice must come from the patent owner itself (or its counsel); notice to an infringer by someone closely associated with the patentee will not suffice. 24 Additionally, the Federal Circuit holds: For purposes of section 287(a), notice must be of the infringement, not merely notice of the patent s existence or ownership. Actual notice requires the affirmative communication of a specific charge of infringement by a specific accused product or device. 25 Obviously, filing an infringement complaint will suffice. 26 Later, the Federal Circuit added: It is not controlling whether the patentee threatens suit, demands cessation of infringement, or offers a license under the patent. Although there are numerous possible variations in form and content, the purpose of the actual notice requirement is met when the recipient is notified, with sufficient specificity, that the patent holder believes that the recipient of the notice may be an infringer. Thus, the actual notice requirement of 287(a) is satisfied when the recipient is informed of the identity of the patent and the activity that is believed to be an infringement, accompanied by a proposal to abate the infringement, whether by license or otherwise. 27 In Amsted Indus., Inc. v. Buckeye Steel Castings Co., Amsted s first letter to the defendant (Buckeye), which notified the Buckeye of the existence of Amsted s patent, and which warned Buckeye not to supply components that would infringe Amsted s patent, was held insufficient to constitute actual notice under 287(a). 28,29 By contrast, Amsted s second letter to Buckeye specified a Buckeye product that Amsted alleged to infringe of its patent; both parties agreed that the second letter comprised proper actual notice Oreck Holdings, L.L.C. v. Minuteman Int l, Inc., 2003 WL , at *4 (E.D. La. 2003) (citations omitted). 24 Lans v. Digital Equip. Corp., 252 F.3d 1320, (Fed. Cir. 2001). 25 Amsted, 24 F.3d at 187 (emphasis added) U.S.C. 287(a), last sentence. 27 SRI Int l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1470 (Fed. Cir. 1997) (emphasis added; citation omitted). 28 Amsted, 24 F.3d at See also Lampi Corp. v. Am. Power Prods., Inc., 2004 WL , at *4 (N.D. Ill. 2004) (Letter explaining that plaintiff was studying this patent in connection with potential infringement by defendant s product held insufficient under 287(a) for failure to set forth a specific charge of infringement and a proposal to abate the infringement.). 30 Amsted, 24 F.3d at

6 Importantly, a patentee can send a letter that complies with the actual notice requirement of 287(a), but which does not also subject the patentee to a declaratory infringement lawsuit. In Gart v. Logitech, for instance, the patentee s letter identified two claims of the patent in question, referred to specific product sold by the defendant (Logitech), and noted that Logitech may wish to have [its] patent counsel examine the... patent... to determine whether a nonexclusive license under the patent is needed. 31 The Federal Circuit viewed that letter as a mere invitation to [for Logitech] to determine for itself whether there was infringement, yet it held that letter as satisfying 287(a). 32 The Federal Circuit emphasized: [T]he requirement of a specific charge of infringement set forth in Amsted does not mean that the patentee must make an unqualified charge of infringement. 33 Actual Notice of Published Patent Applications The concept of actual notice arises not only with respect to 287(a) in the context of issued patents, it also arises in the context of provisional rights arising from published patent applications. A utility or plant patent application filed on or after November 29, 2000, will normally be published 18 months after the filing date, or the earliest claimed priority date, under the American Inventors Protection Act. 34 That Act, the relevant portion of which is codified at 35 U.S.C. 154(d), provides that patents issuing on published applications will include the right to obtain reasonable royalties from others who, with actual notice of the published application, made used, sold, offered to sell, or imported the invention as claimed in the published application before the patent was granted. 35 The right to such reasonable royalties is conditioned on the ultimately-issued patent having claims that are substantially identical those appearing in the published application. 36 What constitutes sufficient actual notice to allow acquisition of provisional-right royalties? The Federal Circuit has yet to decide that issue. One commentator states: [I]t is not known at this time whether marking will be sufficient to meet the requirements for actual notice of 35 U.S.C. 154(d). 37 Despite the lack of precedent in this area, the legislative history behind 31 Gart, 254 F.3d at 1346 (brackets and ellipsis in original). 32 Id. 33 Id.; see also SRI, 127 F.3d at 1470 ( Actual notice may be achieved without creating a case of actual controversy in terms of [the Declaratory Judgment Act]. ). 34 STEVEN C. ALBERTY, ADVISING SMALL BUSINESSES 34:15 (2004). 35 Id U.S.C. 154(d)(2). 37 S. ALBERTY supra at 34:27. 6

7 154(d) suggests that actual notice under that section and under 287(a) are closely analogous: The requirement of actual notice is critical. The mere fact that the published application is included in a commercial database where it might be found is insufficient. The published applicant must give actual notice of the published application to the accused infringer and explain what acts are regarded as giving rise to provisional rights. 38 Thus, another commentator recommends: [T]he patent applicant should, in most cases, send cease-and-desist letters, including a copy of the published patent application and (if necessary) an English translation of it, to all persons against whom it hopes to assert this remedy. 39 The Prohibition Against Mismarking: 35 U.S.C. 292 Section 292 of the Patent Act prohibits three types of false markings: (1) counterfeit marking (i.e. use of a patent mark without the patent owner s permission; (2) false patent marking (i.e. the use of a patent mark on an unpatented article; and (3) false patent pending marking (i.e. use of patent applied for or patent pending when no patent application covering the article is in fact pending). 40 Any person may charge another with a mismarking violation, 41 meaning that the asserting party need not show injury from the false marking. 42 The penalty for mismarking is $500 for every such offense. 43 Although [d]etermining what is a single offense is no easy matter, 44 recent cases regard continuous markings over a given time period as a single offense. 45 One-half of any recovered penalty goes to the party who asserted the mismarking claim; the other half goes to the United States Statements on Introduced Bills and Joint Resolution, Senate S. 1948, Section-by-Section Analysis, Congressional Record, November 17, 1999 (quoted in Signore, Phillipe, The New Provisional Rights Provision, 82 J. PAT. & TRADEMARK OFF. SOC Y 742, 748 (Oct. 2000)) JAY DRATLER, JR., INTELLECTUAL PROPERTY LAW: COMMERCIAL CREATIVE AND INDUSTRIAL PROPERTY 2.05[1] (2004) D. CHISUM supra 20.03[7][c][vii] U.S.C. 292(b) D. CHISUM supra U.S.C. 292(a) D. CHISUM supra at n Süd-Chemie, Inc. v. Multisorb Tech., Inc., 2004 WL , at *4-*5 (W.D. Ky. 2004) (following Sadler-Cisar, Inc. v. Commercial Sales Network, Inc., 786 F. Supp (N.D. Ohio 1991)) U.S.C. 292(b). 7

8 A party charging another with false marking must prove: (1) a marking importing that an object is patented (2) falsely affixed to (3) an unpatented article (4) with intent to deceive the public. 47 Reasonable inferences may properly be drawn from established facts in order to prove an intent to deceive. 48 For instance, an intent to deceive the public may be inferred from a failure to correct a marking after learning that no patent covered the mismarked item. 49 Significantly, a finding of mismarking may carry serious consequences beyond the penalty specified in 292. For instance, mismarking can form the basis of a claim under 43(a) of the Lanham Act, for making false statements about one s own product. 50 A party liable under that law is vulnerable to an award of actual damages caused by the misrepresentation (i.e., the mismarking). 51 Additionally, a patent mismarking claim has been asserted as a basis for an antitrust violation. 52 Conclusion All patentees selling products covered by their patents should begin distributing patented products, and goods produced from patented processes, marked in accordance with 287(a), as early as possible in order to maximize the length of any damages period that may ensue from another s infringement. Patentees licensing such items should similarly take all reasonable measures to ensure that the licensee marks the finished items in accordance with 287(a). Failing adequate marking, the damages period will begin only when the patentee gives an infringer actual notice of infringement, either by way of a complaint filed in court or an affirmative charge of infringement in a letter. The patentee should ensure that any such letter satisfies the case law interpreting 287(a), and should take care to avoid triggering a declaratory judgment action. If, at an earlier time, a patent application has been published, the applicant should give actual notice of the application to the potential infringer in order to preserve the option of seeking provisional-right royalties as additional damages. Finally, care should be taken to avoid mismarking, since that can lead not only to a monetary penalty for each offense, but also to potential liability under other laws, such as the Lanham Act. Following these guidelines will help the patentee maximize the value of a patent infringement lawsuit, while minimizing marking-related risks. 47 Clontech Labs., Inc. v. Invitrogen Corp., 263 F.Supp.2d 780, 791 (D. Del. 2003). 48 M-3 & Assoc., Inc. v. Cargo Sys., Inc., 2004 WL , at *7 (N.D. Ind. 2004). 49 Süd-Chemie, 2004 WL , at *4. 50 M. Eagles Tool Whse., Inc. v. Fisher Tooling Co., Inc., 68 F.Supp.2d 494, (D.N.J. 1999); Moore N. Am., Inc. v. Poser Bus. Forms, Inc., 2000 WL , at *6 (D. Del. 2000). 51 See generally 15 U.S.C. 1117(a). 52 Clontech, 263 F.Supp.2d at The plaintiff in Clontech was unsuccessful in elevating mismarking to an antitrust violation because it failed to prove that the defendant s mismarking influenced competitors to leave the market. Id. at