Patents

False Marking – the Issue of Damages

Section 292 of Title 35 of the United States Code relates to false marking of unpatented articles/goods as “patented” or “patent pending.”  Specifically, the 35 USC 292 states:

“Whomever marks upon, or affixes to, or uses in advertising in connection with any unpatented article the word “patent” or any word number importing the same is patented, for purpose of deceiving the public…shall be fined not more that $500 for every such offense.”

The recent Federal Circuit ruling in the case of Forest Group Inc. v Bon Tool Co. No. 2009-1044 (Fed. Cir. Dec. 28, 2009) has called in to question the issue of damages in false marking cases.  In December 2005, Forest sued Bon Tool for infringement of their patent directed to construction stilts.  Bon Tool counterclaimed alleging false marking pursuant to 35 USC § 292, among other claims.  The District Court found that Forest falsely marked its construction stilts with their patent number, because the stilts in question did not include requisite elements of the claims.  The District Court assessed Forest a $500 fine for the single offense of false marking.  Bon Tool appealed to the Court of Appeals for the Federal Circuit, arguing that the District Court erred in its interpretation of the false marking statute, when it determined that the statute provided for a penalty based on each decision to falsely mark rather than on a per article basis.  The Court of Appeals concluded that the statute clearly requires that each article that is falsely marked with intent to deceive constitutes an offense under the stature, and vacated the $500 fine imposed by the District Court.  The case was remanded to the District court for a determination of the number of articles falsely marked and recalculation of the fines.

On April 27, 2010, the District Court on remand determined that the false-marking fine should at least recapture all of the revenue generated from the sale of Forest’s falsely marked products.  In this instance, Forest had sold falsely marked construction stilts “at prices between $103.00 and $180.00.”  The court then set the false-marking fine at the highest price-point of $180 per article.  Because only 38 pairs of falsely marked construction stilts were sold, the total fine was relatively small — less than $7,000.

The Federal Circuit decision made it clear that district courts would have discretion in setting the rate of the penalty.  However, other than stating that a district court should “strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities,” the Federal Circuit in the Forest Group opinion did not provide any practical frame work to guide district courts in setting the amount of the penalty.   While it appears as though the District Court on remand in the Forest Group decision provided for an unreasonably high rate for the penalty – all of the revenue generated and setting the highest price-point of sale as the revenue determining factor – one should keep in mind that the court was well aware that only 38 pairs of the falsely marked items were before the court.   In fact, the District Court on remand failed to rule in favor of Bon Tool’s request to re-open discovery on the issue of the quantity of falsely marked construction stilts sold by Forest Group.  Only time will tell, if the District Court’s ruling on damages has strong precedential value.

Based on the Federal Circuit’s decision that the district courts shall have discretion in setting the rate, one court may determine that a penalty of one cent per article on one million falsely marked products is proper, while a second court, on the same facts, could find that one dollar is the proper rate, thereby imposing a penalty 100 times larger than the first court.

Forest Group does not change the substantive aspects of proving a false marking violation, specifically deceptive intent.  But it likely changes the financial incentives for bringing false marking claims such that plaintiffs and accused infringers will assert these claims more often in litigation.

Jim Edwards

About Jim Edwards

A licensed patent attorney with the Moore & Van Allen intellectual property group, Jim Edwards concentrates his practice on patent preparation and prosecution in the electronic and computer technology arts. The sophisticated services he provides his clients includes obtaining patent protection in the U.S. and foreign patent offices, infringement and invalidity investigations, conducting due diligence investigations related to corporate transactions and re-examination proceedings in the U.S. patent office, among others.

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