Intellectual Property Alert Qui Tam Trolls

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Intellectual Property Alert
January 2010
Author:
Thomas A. Turano
[email protected]
+1.617.261.3148
K&L Gates is a global law firm with
lawyers in 33 offices located in North
America, Europe, Asia and the Middle
East, and represents numerous GLOBAL
500, FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies,
entrepreneurs, capital market
participants and public sector entities.
For more information, visit
www.klgates.com.
Patent Marking and Qui Tam in the Age of
Trolls
Patent marking, the placement of the U.S. patent number on a product covered by the
patent, was something a company typically thought about, if at all, only when the
company received a new patent covering the company’s product. But a recent case
before the Court of Appeals for the Federal Circuit (CAFC), coupled with an
apparently growing number of “marking trolls,” may change how companies view
the marking of their products with patent numbers.
The statutes governing patent marking provide both a strong incentive to mark a
product covered by a patent and a strong disincentive to mark a product falsely as
covered by a patent when it is in fact not so covered. The incentive comes from the
fact that a marked product provides notice to a would-be copier of the product that
the product is protected by a patent. Under the statute, if the patent holder does not
mark its product, damages are not available unless the patent holder shows actual
notice to the putative copier of patent infringement along with continued
infringement by the copier. Because of the benefit, this notice marking requirement
is something with which companies readily comply.
The disincentive comes in the form of a monetary penalty or fine levied against the
patent holder for each marking that a product is covered by a patent when in fact it is
not (termed a false marking). The statute specifies a maximum fine of $500 for each
offense of false marking with intent to deceive the public. The recent CAFC
decision (Forest Group, Inc. v. Bon Tool Company, 2009-1044, decided December
28, 2009) clarified what is meant in the statute by the phrase: “Shall be fined not
more than $500 for every such offense.” That is, the CAFC defined what is meant
by “for every such offense.”
The case began in December 2005 when The Forest Group (Forest) sued the Bon
Tool Company (Bon Tool) for patent infringement by one of its designs for
construction stilts. Construction stilts are stilts such as those used by plasterers in
plastering a ceiling so that the user’s height is increased but the user is free to walk
around. In a related case, Forest previously sued another company, Warner
Manufacturing Company (Warner), for infringement of the same patent. In
November 2007, the district court in the Warner case (not the same court as in the
Bon Tool case) issued a summary judgment of non-infringement because one of the
claimed elements was missing from the Warner product.
Later, in the Bon Tool case, the district court also issued a summary judgment in
favor of Bon Tool that the Bon Tool device was not covered by the patent. The
reason given by the Bon Tool court was substantially the same reason as earlier given
by the district court in Warner. Because the court in the Warner case had found noninfringement, the court in Bon Tool held that Forest had the requisite knowledge that
its device was also not covered by its own patent because the Forest device also
lacked the claimed element.
Intellectual Property Alert
(Apparently the design of the Forest product that
was put into production deviated somewhat from the
design claimed in the patent; this is not an unusual
circumstance given that products evolve with time
and patent claims in an issued patent do not.)
The district court then found that Forest falsely
marked its stilts (primarily because Forest knew the
stilts were not covered due to the outcome of the
previous Warner case and could not provide any
credible evidence that instructions were given that
additional stilts manufactured not be marked with
the patent number). The court fined Forest $500 for
a single act of false marking and Bon Tool appealed.
The CAFC in its holding in December vacated the
$500 fine and remanded the case to the district court.
The CAFC held the fine should have been imposed
on a per article basis, not a per product line basis.
Hence the district court now needs to determine how
many stilts were sold and were falsely marked and
base the fine on that number. (For example, stilts
marked prior to the 2007 decision by the Warner
court would not necessarily be falsely marked
because the courts had not yet interpreted the
claims.) The CAFC also held that $500 per article
was the maximum fine and that the court had the
ability to lower the rate for false marking of goods
that are produced in such large quantities that a
disproportionate fine would result (for example, in
the case of false marking disposable cup lids).
The false marking statute explicitly allows for a qui
tam action. In a qui tam action any individual can
sue in the place of the government and not have to
show that he or she has suffered any personal wrong.
Qui tam actions have been used in recent years
frequently in whistle-blower cases in which fraud
perpetrated on the government have been litigated
by individuals. In a successful suit qui tam
plaintiffs (called “relators”) receive a percentage of
any damages recovered or fines levied; the
government receiving the rest. The rationale for the
split is to provide an incentive for people with the
requisite knowledge of the facts (e.g., fraud) to bring
suit.
The Forest v. Bon Tool result is then a boon to any
patent-based qui tam relators because it increases the
value of the potential fine to be split with the
government. These relators in patent marking
actions have become more common and are
sometimes referred to as “marking trolls.”
Although the number of cases has been increasing,
there have been only a few of such qui tam marking
cases. These cases have principally been based on
the expiration of a patent with the continued patent
marking of the product even though the patent has
expired. This is the easiest type of case for a patent
marking relator to bring since the patent term is
public knowledge and whether the product is being
marked with an expired patent number is easy to
determine. Of course, the relator must still show
intent to deceive on the part of the marker, but as
Bon Tool showed, the act of marking additional
products in conjunction with other facts may be
enough.
However, marking products with expired patent
numbers is not the only source of risk for
companies. Hypothetically, a marking relator with
enough resources could analyze products and the
patents purported to cover them. The relator could
then decide that the patent claims did not cover the
product and bring qui tam actions for any products
marked by patent numbers believed not to be
covered by the claims. This is an unlikely
occurrence since a determination of non-coverage
by a marking troll does not assure success in court.
A more likely scenario for a qui tam relator bringing
suit occurs when a patent holder sues a potential
infringer and a Markman hearing is held in the case
to interpret the meaning of the claims. The relator
can then look at the Markman results and determine
if the claims, as interpreted by the court in the
Markman hearing, cover the product so marked by
the patent holder. If the claims as interpreted by the
court do not cover the product, the relator can
institute a qui tam action for false marking. In this
case, the relator has a court interpretation of the
claims to compare to the marked product and
thereby an increased likelihood of identifying a
false marking. Thus, a patent holder who brings
suit against an infringer potentially exposes the
company to an additional patent marking suit.
What can the patent holder do to minimize its risk
of being found liable for falsely marking its
product?
January 2010
2
Intellectual Property Alert
•
First, the patent holder should make sure its
product is, in fact, covered by the patent and that
any subsequent changes to the product do not
result in the product not being covered by the
patent.
•
Second, the covered product then should be
appropriately marked.
•
Third, the patent status should be constantly
monitored by the patent holder so that when the
patent lapses or expires, marking the product
with the expired patent number will be stopped.
•
Finally, as the product evolves with time,
additional patentable features should be
identified and possibly patent protection sought
especially if the other patents previously
covering the product are expiring.
These steps will not necessarily prevent a qui tam
relator from bringing suit, but they should reduce
the potential for loss.
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January 2010
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