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False Patent Markings Could Cost You

False Patent Markings Could Cost You


(December 17, 2010)

The New Frontier in Intellectual Property Litigation

The next time you order your Venti tripleshot hazelnut soy milk latte, you may notice a patent number on the cup or lid. Patent markings inform the public that the marked item is protected by a U.S. patent. But these markings are increasingly challenged, as 250 recently filed lawsuits attest.

The key question: Is the product properly or falsely marked?

U.S. law creates powerful incentives to patent owners to mark patent-protected products by marking or labeling them with the word “patent” and the applicable patent number. The public is thus given notice that U.S. patents cover the product and allows the patent owner to collect for damages for past infringement; conversely, failure to mark may deprive the patent owner of that opportunity. Patent marking thus protects patent rights in advance, ideally avoiding the significant costs and risks of enforcement by litigation.

However, U.S. patent laws prohibit intentional false marking of patent numbers on unpatented products. If a party marks an “unpatented” article with a patent number, and the marking was “for the purpose of deceiving the public,” a fine of “not more than $500 for every such off ense” can be assessed. The patent law also permits “[a]ny person” to “sue for the penalty,” although half of any recovery must be given to the U.S. government. How to calculate this penalty and what constitutes an “offense” is dangerously unclear, as recent case law suggests.

In the case of Forest Group Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009) the District Court construed the law as providing for a fine of not more than $500 for each decision to falsely mark articles. The Federal Court affi rmed that false marking had occurred, but explained that the fine must be calculated per falsely marked article. The Forest Group was thus fined $180 per article, for a total of $6,840. The Forest Group case opened the door to more lucrative false marking claims.

On June 10, 2010, the Federal Circuit handed down a decision in the “coff ee cap” case Pequignot v. Solo Cup, —F.3d— (Fed. Cir. June 10, 2010). Mr. Pequignot, a patent attorney, alleged that Solo Cup falsely marked at least 21,757,893,672 articles, and sought an award of $500 per article. Solo Cup, whose business is making disposable cups and other products, marked its patents on covered products by incorporating the patent numbers into the molds used to make those products. As early as 1988, Solo Cup sought the advice of its legal counsel to determine whether it had an obligation to remove the patent numbers from product molds immediately on expiration of a patent. Due to the cost and burden that undertaking would require, Solo Cup decided that only when mold cavities were in need of replacement would expired patent markings be removed. As Solo Cup’s patents expired, patent numbers thus continued to appear on Solo Cup’s products until the old molds were replaced in the ordinary course of business.

In 2004, Solo Cup implemented an additional marking policy by adding a phrase to its external product packaging, “This product may be covered by one or more U.S. or foreign pending or issued patents. For details, contact www.solocup.com.” Following its counsel’s advice, Solo Cup intentionally chose the phrase “may be covered” because some of the packages contained unpatented articles.

False patent marking, combined with knowledge of the falsity, creates a rebuttable presumption of intent to deceive. To rebut the presumption, the defendant must provide “credible evidence that a purpose other than deceiving the public motivated the mismarking.” Solo Cup successfully rebutted Mr. Pequignot’s false marking allegation because it relied in good faith on the advice of counsel and adopted the “as needed” mold replacement policy to reduce costs and business disruption.

Solo successfully defended, but false marking claims remain attractive to potential complainants, and the “proper penalty” remains unsettled. To minimize the risk of false marking claims in the wake of Pequignot v. Solo Cup, it may be appropriate to review the status of marking in the current patent portfolio; review company policies on marking; consider the benefits of marking (including notice of the patent); document the rationale for company decisions on patent marking; and conduct an annual review of product markings.

 

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Authors
Phil McCann
T (336) 378-5302
F (336) 433-7437
Natalma M. McKnew
T (864) 751-7608
F (864) 751-7800
Associated Attorneys
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