The Rise in Qui Tam False Patent Marking Litigation

Transcription

1 The Rise in Qui Tam False Patent Marking Litigation September 13, 2010 Jason C. White 1

2 Issues Addressed False Patent Marking Background Forest Group v. Bon Tool Decision Increase in False Marking Lawsuits Pequignot v. Solo Cup Decision Hot Topics in False Marking Lawsuits 2

3 The False Marking Statute 35 U.S.C. 292 Definition of Liability (a) 2: Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article the word "patent" or any word or number importing the same is patented, for the purpose of deceiving the public Definition of the Fine (a) 4: Shall be fined not more than $500 for every such offense Qui Tam Provision (b) Any person may sue for the penalty, in which event onehalf shall go to the person suing and the other to the use of the United States 3

4 False Marking Background False Marking Statute: 35 U.S.C. 292 Amended numerous times (most recently in 1994) Little used statute Typically raised by a defendant as a counterclaim to a claim of patent infringement 4

5 Forest Group v. Bon Tool Co. Overview Background Facts Plaintiff-Patentee sued for patent infringement After an adverse claim construction ruling, the defendant counter-claimed for false marking (a companion case also construed the claims the same way) District Court then ruled that neither the accused infringer s nor the patentee s products were covered by the patent-in-suit 5

6 Forest Group v. Bon Tool Co. Overview Patentee s bad facts Patentee had been advised by two law firms that it could no longer mark its products Patentee claimed that it told its distributor to stop marking the product But the product continued to be marked There was no evidence (e.g., documents, s, or phone records) that the patentee ever contacted the distributor 6

7 Forest Group v. Bon Tool Co. Overview The District Court found false marking based on patentee s knowledge after the court s order that its patent did not cover its products The District Court s damages analysis District Court construed $500 for every such offense as $500 for each decision to mark The District Court awarded $500 because there was only one order placed after the court ruled that the patent did not cover the product 7

8 Forest Group v. Bon Tool Co. Overview The Federal Circuit s Holding Liability Holding: District Court s finding of intent to deceive as of a certain date was upheld Basis: the patentee received two legal opinions, two adverse claim construction rulings, and two court orders that its patents did not cover its products 8

9 Forest Group v. Bon Tool Co. Overview The Federal Circuit s Holding Damages Holding: reversed and held that $500 for every such offense should be construed to mean a fine of up to $500 on a per article basis The Federal Circuit remanded to the District Court for a new damages calculation 9

10 Forest Group v. Bon Tool Co. Overview Purported Policy considerations underlying the damages holding [T]he statute s plain language requires the penalty to be imposed on a per article basis. The statute prohibits false marking of any unpatented article, and it imposes a fine for every such offense. Congress affirmative change of the statute s penalty from a minimum to a maximum fine eliminated the policy consideration expressed by the court in London of not imposing disproportionate fines for the false marking of small and inexpensive articles. 10

11 Forest Group v. Bon Tool Co. Overview Purported Policy considerations underlying the damages holding If an article that is within the public domain is falsely marked, potential competitors may be dissuaded from entering the same market. False marks may also deter scientific research when an inventor sees a mark and decides to forego continued research to avoid possible infringement. False marking can also cause unnecessary investment in design around or costs incurred to analyze the validity or enforceability of a patent whose number has been marked upon a product with which a competitor would like to compete. 11

12 Why Bon Tool is Important to Patentees Bon Tool changed the prevailing damages calculation rule Since London v. Everett, 179 F. 506 (D. Mass. 1910), most courts calculated damages on a per decision basis A major rationale at the time was to avoid damages that would accumulate as fast as a... stamping machine might operate 12

13 Why Bon Tool is Important to Patentees Bon Tool opened the door to potentially large damages claims by plaintiffs The new per article basis means that a fine should be assessed for each marked article Bon Tool did not address how to calculate the fine associated with the marking of each article 13

14 Recent Rise is False Marking Lawsuits In 2007, Solo Cup was sued by qui tam plaintiff for expired type false marking Since then, over 250 companies have been sued in over 200 lawsuits for false marking Qui tam plaintiffs have not chosen any specific forum, instead there are cases pending in a wide variety of courts N.D. Ill.: over 60 companies sued E.D. Tex., N.D. Tex., S.D. Tex., and N.D. Cal.: over 15 companies sued per district Many qui tam plaintiffs are patent attorneys 14

15 District Court Opinions Since Bon Tool In Presidio Components (Chief Judge Gonzalez), the court awarded a fine of $228, The court adopted an expert witness opinion of a fine of 32% of the average sales price of the falsely marked products The fine was substantial enough to enforce public policy and deter similar violations; but not so high that it would impose a disproportional liability The specific facts of this case were especially egregious 15

16 District Court Opinions Since Bon Tool In Bon Tool (J. Atlas), the court awarded a fine of $6, There were only 38 falsely marked products, but the court assessed the fine at $ per article, which was the highest selling price in the record The court reasoned that this fine will deprive the false marker of more than it received for the falsely-marked products The court seemed to question the wisdom of the Federal Circuit s decision and questioned whether Congress indeed wanted to encourage this new cottage industry given the proposed Senate Bill 16

17 17 Pequignot v. Solo Cup Background Facts Lawsuit was filed in December 2007 in E.D. Virginia (Judge Brinkema) First of the recent qui tam false patent marking cases Plaintiff was a Washington DC based patent attorney Only claims were for false patent marking Initial settlement demand was $9,000,000

18 Pequignot v. Solo Cup Background Facts Two different allegations of false marking Expired patents appeared on two different cup lids Packaging was marked with may be covered by language Solo became aware of expired patents before lawsuit was filed Patent numbers appeared on thousands of molds 18

19 Pequignot v. Solo Cup Background Facts Contacted attorneys for advice on dealing with them Developed a plan to remove patent numbers as molds wore out or were replaced Phase out plan was implemented for business reasons based on attorney advice 19

20 Pequignot v. Solo Cup District Court Proceedings District Court granted Solo s motion on liability Found no intent to deceive the public Phase out plan was implemented for business reasons and based on attorney advice Phase out plan was followed no slippage Not a scintilla of evidence that Solo acted with intent to deceive the public Pequignot v. Solo Cup Co., 646 F. Supp. 2d 790 (E.D. Va. 2009) 20

21 Pequignot v. Solo Cup Federal Circuit Decision Expired patents can constitute false marking When patent expires, product is unpatented Patent expiration dates can be difficult to calculate Public policy concerns arise from expired patents externalizes costs of determining patent s status Pequignot v. Solo Cup Co., No (Fed. Cir. 2010) 21

22 Pequignot v. Solo Cup Federal Circuit Decision Standard for proving intent to deceive Combination of false statement and knowledge that statement was false creates only a rebuttable presumption of intent to deceive Presumption is weaker for expired patents Bar for proving deceptive intent is particularly high given the criminal nature of statute Burden of proof for intent is preponderance of evidence 22

23 Pequignot v. Solo Cup Federal Circuit Decision Standard for proving intent to deceive (cont.) Intent to deceive must be proven, not intent to perform the act of marking Presumption can be rebutted with preponderance of evidence that accused party did not consciously desire the result that the public be deceived Evidence of no deceptive intent can include reduced business costs and disruption legal advice 23

24 Pequignot v. Solo Cup Federal Circuit Decision Solo rebutted any inference of intent to deceive regarding expired patents Solo provided credible evidence that its purpose was not to deceive the public Solo s desire was to reduce costs and business disruption Solo relied on advice of counsel 24

25 Pequignot v. Solo Cup Federal Circuit Decision Solo rebutted any inference of intent to deceive regarding may be covered by language Statement was true Statement used to address logistical and financial concerns with patent marking Statement was used at suggestion of counsel 25

26 Hot Topics Forum Shopping / Jurisdiction Multiple Lawsuits Against Same Party Settlement Conditional Language 26

27 Forum Shopping / Jurisdiction Most cases are filed in a small number of districts, each where the qui tam plaintiff (and its lawyer) are located Plaintiff s choice of forum entitled to less weight given qui tam status Defendants have successfully transferred cases to their home district See, e.g., PCG v. Brunswick (N.D. Tex.), SFT v. Glad et al. (N.D. Cal.), PCG v. Hunter Fan (N.D. Tex.), ERBE v. Canady (D.D.C.), SFT v. Adobe Sys. et al. (N.D. Cal.), and Jospehs v. Sigma-Altrech (E.D. Mich.) (citing transferor court) 27

28 Multiple Lawsuits Many companies have faced multiple suits over the same patents and/or products Standard for dismissal is a substantially similar prior suit See, e.g., Shizzle Pop v. Wham-O (C.D. Cal.), SFT v. Glad (N.D. Cal.)(dismissing Exergen), and Akbar v. P&G (E.D. Tex.) 28

29 Settlement Who has authority to settle? What scope can they agree to? Will an amended complaint be filed? Does the government need to be involved? Is a settlement binding on later plaintiffs? 29

30 Conditional Language Types: May be covered by or one or more Potential conflict between Clontech (Fed. Cir. 2005) and Arcadia (Fed. Cir. 1986) Clontech: an unpatented article if the article in question is not covered by at least one claim of each patent with which the article is marked. Arcadia: use of the one or more language found to be not deceptive in any way 30

31 31 Conditional Language Post-Clontech, one District Court followed Clontech and found that conditional language could give rise to a violation DP Wagner v. Pro Patch Sys. (S.D. Tex.) Pre and post-clontech, most courts find that conditional language and multiple patent marks will not rise to the level of intent to deceive See, e.g., Astec v. Power-One (E.D. Tex.), Pequignot v. Solo Cup (E.D. Va.), Amsted v. Buckeye (Fed. Cir.), Ansul v. Uniroyal (S.D. N.Y.), MIT v. Abacus (E.D. Tex.), and Santa Anita v. Lugash (9th Cir.)

32 32 Questions?