Sunday, January 03, 2010

False marking statute gets shot in the arm

The Forest Group, Inc. v. Bon Tool Co., -- F.3d – (Fed. Cir. 2009)

Background reading: Elizabeth Winston, who’s been arguing for revitalizing the false marking statute.

District court decision discussed here. The trial court found that Forest had falsely marked its stilts with intent to deceive the public, fining Forest $500 for a single decision that affected multiple stilts. In a significant ruling, the court of appeals reversed on the calculation of damages.

Before getting there, the court found no clear error in the district court’s ruling that Forest lacked the requisite knowledge of false marking before Nov. 2007, at which point it had a huge amount of information that its stilts were falsely marked: Forest had been sued for a finding of noninfringement by another company that manufactured similar stilts; it had received an opinion of counsel in 2005 advising that a stilt configured as its stilts were didn’t literally infringe the patent (the natural inference being that a stilt configured as its stilts were also didn’t implement the patent); it had two separate adverse Markman results and two summary judgment rulings to the same effect; and it had retained experienced patent counsel who advised it to modify its stilts so that they’d be made according to the patent.

Still, the original lawyer and principal didn’t have a detailed appreciation of patent law, and the principal was not a native English speaker; this was enough to avoid clear error. The court of appeals was apparently concerned that this case shouldn’t establish some sort of boundary for false marking: “No doubt the quantum of proof regarding Forest’s knowledge in this case is quite high. We do not suggest that multiple claim constructions or summary judgments are required before the requisite knowledge for false marking can be found. Even if we would have found such knowledge at an earlier date, we cannot conclude that the district court’s fact finding on this issue was clearly erroneous.”

Now the meat: Bon Tool argued that 35 USC §292 shouldn’t be interpreted to impose only $500 per decision to mark an article falsely. The language: “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 that the same is patented, for the purpose of deceiving the public . . . Shall be fined not more than $ 500 for every such offense.”

The court held that the plain language does not support the per-decision penalty, but a per-article penalty. “The statute prohibits false marking of ‘any unpatented article,’ and it imposes a fine for ‘every such offense.’” It is the act of false marking that is punished, not the decision; “for the purpose of deceiving the public” is an intent requirement but doesn’t change the relationship between the marking and the penalty. Every article falsely marked with intent to deceive is an offense.

A century ago, the First Circuit held that a different false marking statute, in the Patent Act of 1870, imposed a single fine for continuous false marking. But that penalty was “not less than one hundred dollars.” The First Circuit reasoned that patented articles vary so much in kind and value, the false marking of small and cheap articles in great quantities would result in an accumulation of an enormous sum, out of proportion to the value of the articles, while a lesser fine would apply to falsely marking big, expensive machines. In 1952, Congress changed the $100 minimum to a $500 maximum, because courts had been interpreting $100 as a maximum. “Both the statutory language and the underlying policy rationale supporting the [First Circuit’s] interpretation changed.” The change to a maximum eliminated the policy consideration about cheap versus expensive articles. Though district courts have often followed this precedent, they haven’t taken the statutory change or its justification into account. Given the other side of the policy concern—a single $500 fine for extended false marking would eviscerate the statute—a number of courts adopted a time-based approach, imposing a penalty for each period of false marking. But that doesn’t find any support in the statutory language.

Further policy considerations support a per article interpretation. The marking and false marking statutes are aimed at providing public notice of patent rights. Congress wanted the public to rely on marking as a ready means of determining IP status. False marking deters innovation and stifles competition. “False marks may also deter scientific research when an inventor sees a mark and decides to forego continued research to avoid possible infringement.” Or they can cause unnecessary designing around or costs analyzing the validity or enforceability of a patent whose number is marked on an article with which a competitor would like to compete. “These injuries occur each time an article is falsely marked. The more articles that are falsely marked the greater the chance that competitors will see the falsely marked article and be deterred from competing. By contrast, a per-decision rule “would render the statute completely ineffective.” Each act could span years and “countless articles,” which would be insufficient to deter “in nearly all cases.” Given that Congress was so interested in preventing false marking that it enacted a qui tam statute to get third parties to enforce the law, that’s wrong.

Forest argued that a per-article penalty would encourage a “new cottage industry” of false marking litigation. But the statute clearly contemplates that “[a]ny person” may sue for the penalty. There is a possibility that “marking trolls” will arise. But the statute explicitly permits such actions. “The fact that the statute provides for qui tam actions further supports the per article construction. Penalizing false marking on a per decision basis would not provide sufficient financial motivation for plaintiffs—who would share in the penalty—to bring suit. It seems unlikely that any qui tam plaintiffs would incur the enormous expense of patent litigation in order to split a $500 fine with the government.”

That doesn’t mean that the fine must be $500 per article. It can be less, to avoid disproportionately large penalties for “small, inexpensive items produced in large quantities. In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.”

Remand for determination of the proper number and resulting penalty.

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