Monday, August 11, 2008

false marking, not false advertising

Forest Group, Inc. v. Bon Tool Co., 2008 WL 2962206 (S.D. Tex.)

Forest sued Bon Tool for patent infringement. Bon Tool counterclaimed for false marking under 35 U.S.C. § 292 and false advertising under the Lanham Act, along with invalidity. Bon Tool won summary judgment on noninfringement.

The patent at issue, No. 5,645,515, covers a stilt used in construction to allow people working on suspending ceiling structures to walk around more freely. In this and a separate patent case against another party, the courts ruled after Markman hearings that the patent was not infringed by products that lacked a resiliently lined yoke. However, Forest’s actual product also lacked a resiliently lined yoke until after the courts ruled on the patent. Beginning in February 2008, Forest’s product now has a resilient lining.

Marking an unpatented article with “patent” or a patent number for the purpose of deceiving the public violates the patent law. The intent requirement is that a party must act with sufficient knowledge that it is not telling the truth and that the recipient will be misled. Intent to deceive can be established by objective evidence; false marking plus proof of knowledge of falsity is enough to create an inference of deceptive intent. A plaintiff must show that the false marking defendant did not have a reasonable belief that the articles were properly marked.

§ 292 means that a patent holder can’t mark its product with a patent number when the product doesn’t conform to the patent claims. The court cautioned, however, that this obligation “contrasts and sometimes conflicts with” the obligation to mark a product consistently and continuously to provide constructive notice of the patent; notice is necessary to entitle a patentee to damages. So, if a patent holder stops marking its product, even only temporarily while a lawsuit is pending or after an interlocutory adverse Markman ruling, it will lose the ability to recover damages from infringers, even if it ultimately succeeds in establishing that the asserted patent covers the product. Thus, the “tension” between § 292 and the notice provision puts the patentee in a “precarious” position.

(The court cited a 1966 6th Circuit case for the proposition that suspension of marking after an adverse interlocutory ruling destroys the ability to recover damages from infringers; it seems wrong and unlikely to be current law for precisely the reasons the court identifies. The solution is not to read the false marking statute incredibly narrowly, but to hold that stopping marking a product that a court has told you shouldn’t be marked doesn’t keep you from the benefits of constructive notice, at least if marking resumes when the adverse decision is reversed. Not to mention that actual notice will still be another route to getting damages, so the peril is not necessarily as great as all that. But then, patent law may have nuances I’m missing.)

Anyway, §292 needs strict construction, especially when the false marking allegedly occurred during pending litigation. A single district court adverse claim construction shouldn’t suffice to establish false marking.

In this case, however, the court found “unusual circumstances”; Forest was liable when it could no longer reasonably believe that the articles it was making were covered by the ‘515 patent. Forest’s principals genuinely believed that the stilts were covered by the patent, which was written by experienced patent counsel who possessed an exemplar of the stilt.

But after November 2007, Forest engaged in false marking. At that point, Forest had been sued for a finding of noninfringement by another company; it had received an opinion of counsel in 2005 advising that a stilt without a resiliently-lined yoke didn’t literally infringe the patent; it had two separate adverse Markman results and two summary judgment rulings; and it had retained experienced patent counsel who advised it to modify its stilts. At that point, Forest had no reasonable belief that its stilts were properly marked. Forest’s principal is not a native English speaker or experienced in fields that require interpreting patent language; it was not until November 2007 that he realized the serious implications of the 2005 legal opinion—that his own product wasn’t covered by the patent. Moreover, the decisions’ lack of finality counsels against an intent finding, but that factor was overcome by the existence of four rulings from two separate district courts on a straightforward patent. The court was also influenced by the fact that, at trial, none of Forest’s witnesses could explain how the lining of their stilt was “resilient” in any way.

The court didn’t credit Forest’s testimony that it directed its manufacturer to stop marking the old stilts with the patent number. There was no documentary evidence of such an order, and the court thought an international businessman should have immediately and carefully checked the new batches for compliance. The fact that, a week before trial, the stilts were still arriving marked with the number suggests that Forest did not try to stop such marking. In fact, its failure to notice the continued presence of the markings was strong circumstantial evidence of intent to deceive.

All this, for what? False marking is penalized at $500 per offense, one-half to the claimant and one-half to the US. Cases are divided on how to count “offenses.” The court rejected a per-stilt calculation. The issue is whether there was a single, continuous act or change in the time and circumstances of the false marking sufficient to separate the offenses. Separate orders placed by the patentee for falsely marked articles, for example, might show separate offenses. The court rejected a time-based approach (e.g., one offense each week) as unsupported by precedent or statutory language. Here, Forest made only one separate, distinct decision to mark its stilts after it knew they weren’t covered. $500 in damages.

Bon Tool also alleged that Forest’s advertising that the stilts were covered by the ‘515 patent constituted false advertising. In the patent context, the elements of a false advertising claim must be made out by clear and convincing evidence. Falsity was undisputed and, because the statement was false rather than misleading, the court assumed consumer deception.

What about my good friend materiality? Bon Tool had no evidence that the false claim of patent protection was likely to influence purchasing decisions by consumers. Likewise, Bon Tool couldn’t establish that it had suffered injury; even with falsity by a competitor, there’s no presumption of causation and harm in the absence of a comparative falsehood.

Both parties’ fee requests were denied.

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