Presented by the Consumer Protection and Intellectual Property Committees
Session Chair and Moderator: Henry C. Su, Howrey LLP, East Palo Alto, CA
When a person or firm falsely claims, marks, or otherwise misrepresents its goods or services as covered by patent or copyright, what are the ramifications for competition and consumer protection? This session tackles these questions in industry contexts such as Orange Book listings, standard-setting disclosures and Digital Millennium Copyright Act notices.
Spate of false marking lawsuits, but they are actually a subset of false IP claims that can perhaps be put in context. Problems usually come about when IP owners attempt to enforce their rights—counterclaims for false procurement/sham litigation. What happens if you’re not accusing someone of infringement, but you simply tell the world that you have IP rights over a particular invention/service/work, and it turns out that’s not true. So why do we have a system encouraging notice?
Paul F. McQuade, Greenberg Traurig LLP, Washington, DC: Historically, notice served a very important function where someone thinking about building an article could find out whether there was a governing right. Copyright in particular: conveys information about whether copying was free or whether you might be subject to an assertion of rights. Theory: seeing a patent number on an article might dissuade further investigation/exploration.
Q: are there benefits from marking?
McQuade: Yes—these days, you can instantly look up a patent on an article and see who owns it, when it was issued, and its claims. Informs people of the existence of the patent and allows them to find its details, including alternative designs/freedom to operate.
Su: System delineates rights and tells whole world what’s accessible.
McQuade: look at false marking’s origins. In the Wild West explosion of our industrial revolution, there were no federal depository libraries around the corner. The object was the only way to find out whether there was a patent. Without marking, people would assume no protection.
Today, the awareness level about finding patents makes access to the actual documents easier. One can get a lay reading and find a patent attorney. You’re much less dependent on the object, which is the first step to investigate.
Rebecca L. Tushnet, Georgetown Law: Marking still serves a function, though less of one (not so much of the internet, I think, but more because of the rise of nonpracticing entities (NPEs) and patents that cover parts of products).
Mozelle W. Thompson, Thompson Strategic Consulting, Washington, DC: fundamental change in how we view information. Whether you have a patent that’s real or not, you can affect the market by saying you have a patent or intimating that someone doesn’t have the IP rights that they need. By the time the market catches up to you the harm is already done.
Su: NPEs—the concept of marking is that you mark the thing associated with your IP right. Concern: NPEs can surprise the industry and pervert the system, which was to let people know.
McQuade: Background: in patent, marking is your option as a patentee to be put on the object or container (if on the object is impractical). Doesn’t apply to method claims. Marking affords constructive notice to the world of the patent’s existence and allows you to get damages. If you don’t mark, you can only get prospective damages/injunctive relief. You can put either patent # or patent pending. False marking: classic example is “patent pending” with no application on file; it can be left there for a long time. Hard to investigate.
Lately, allegations in ~160 cases are targeted at large companies that have marked their products and have failed to go into the molds and take the numbers off after the patent has expired. Plaintiffs say that’s a deterrent from entering the marketplace—the Weber grill’s patent expired many years ago, but it’s still marked as patented. Fine: up to $500 per article sold. This can be a huge amount!
Any person can be a plaintiff—a qui tam statute. You don’t have to have been injured.
Su: encourages public to police (before the deterrence occurs)—proceeds of lawsuit are then split with the government.
McQuade: Unclear legally: does the plaintiff have the authority to settle and compromise the public’s rights? There is no provision for executive branch supervision. Interesting constitutional question.
Su: Companies don’t check which patents have expired. But isn’t there an intent element?
McQuade: Yes, you must intend to deceive. But courts have crafted ways around subjective intent. Knowledge that your patent has expired/that the claims do not read on the article in which they are fixed, coupled with introduction of marked product, allows certain presumptions that can shift the burden.
Thompson: Is this the future of the litigation?
McQuade: big debate in trade press—will there be an explosion, or will this precipitate a series of compliance measures that weed out the problem? Larger clients with large patent portfolios don’t like to get all the correspondence, and sometimes they haven’t liked to be reminded about expirations. Now everyone wants the expiration letters so they can say that the molds should be changed the next time they’re taken down. So: either Congress will act, or there will be compliance programs invented. When the first wave of cases hit Chicago, that very same week, patent marking software solution was announced. Suggested: “see this website for patent claims.” It’s not exactly what the statute provides, but you could probably do a combination of numbers plus “for an update, go to this website.”
Su: Concern for competitors. Are consumers harmed at all by expired patents or false marking?
Thompson: Consumers don’t know what they’re not getting. They don’t know how the market has been corrupted. There will be an increasing focus on the end user experience and whether the market is truly transparent.
Me: Patent does have a history of interaction with consumer protection: the phrase “patent medicine” communicated special scientific benefits to consumers, and that turned out to be a problem. But the justification is really more regulatory than consumer protection or even competitive. It’s about maintaining the integrity of the registration system. Since it provides so many benefits, there needs to be some incentive not to abuse it. This may not be the right one.
Thompson: competitors are thinking hard about how they can allege consumer harm so that they can show a broader negative effect on the market.
Su: the consumer isn’t necessarily processing the patent information.
Thompson: they don’t know that someone who’s marketing under a false claim of right has caused 12 venture capital companies not to invest in competitive products. They never see that.
Su: Also the Orange Book listings, the place where the FDA lists all approved drugs plus corresponding patents on drugs/methods. It’s a way for generics to enter the market and check any patent rights, and thus accuracy is very important. Recent Federal Circuit decision on Novo Nordisk makes it harder for generics to get bad information out of the Orange Book, despite congressional amendment to allow some challenges. Majority said the new law only covered patents that didn’t cover the drug or didn’t cover any method of use, so inaccurate information about a patent that covered some but not all methods could not be corrected. Novo Nordisk broadened the method of use described to potentially cover other uses, even though everyone agreed that the patent didn’t cover all those methods. Result: generic application denied. Another instance of a false assertion of an IP right impacting generic competitors and downstream consumers.
McQuade: Orange Book is particularly important where you want accuracy. He’d like sanctions in that setting a lot more than in garden-variety expired patent situations.
Me: Consider also private claims as part of the system: YouTube’s content ID (Hitler reacts videos!) which are not DMCA claims but bar the content from getting up/take it down without DMCA counternotification rights, Google’s policy on using a competitor’s TM in ad text, where Google will bar that at a competitor’s request. These are private systems that react to the assertion of IP rights rather than the assertion of infringement—or at least blur the lines between those two.
Thompson: Australian Competition Comm’n sued Google over AdWords on consumer protection grounds.
Alternatives to responding to false patent claims: antitrust law, false advertising.
Me: Possibility of a tortious interference action for false assertions of IP rights that are damaging your business, though those cases are hard to win—even threats tourism, as discussed at last week’s TM roundtable.
Su: companies are looking for faster ways to react.
Thompson: if your problem is one of false information being spread about IP rights, patent remedies are only the starting point: need legal alternatives and nonlegal alternatives for changing the market. Litigation is a market-shaping tool.
Regulatory agencies are only beginning to renew examination of what constitutes fairness and unfairness—ripe for examination. Information marketplace shows that traditional notions of market corruption and harm don’t always work as expected. Consumer’s harm might not be readily apparent to the consumer.
Su: FTC is taking some interest in Section 5 unfairness.
Me: don’t rule out private actions. Many states allow business plaintiffs. Argue it separately from the federal issues or don’t bother. I’ve seen too many wasted pages on TM claims that are just one line from each side and one line from the judge: “the state TM claims are the same as federal claims.” True of TM infringement; not true of consumer protection claims!
McQuade: Most in-house counsel look at this as the next wave, after patent marking. Anticipating claims and getting compliance programs in place. A few clients have actually decided that they rarely approve offensive patent use, so they don’t mind foregoing damages from marking—they have decided to sell them naked. If a big competitor comes along, they’ll provide actual notice and go from that point forward. Not sure this is the best solution, because marking provides leverage in a lawsuit.
American jurisprudence is a quilt in response to specific shocks that have happened. There is a real readiness by American businesses to find something more expeditious and less burdensome than litigation.
Su: Compliance programs—how do you counsel a client more broadly in managing its communication about IP?
McQuade: the larger company, the more sophisticated they are. Generally, we promote training and in-house awareness. But usually it’s really a response to outside stimuli.
Thompson: depends on industry. More people understand importance of IP rights as asset. More enlightened companies recognize need to make more strategic uses, and at least do an audit and make conscious decisions about what to assert, when, and in what forum so that they don’t end up getting blowback or surprises.
Su: Standard-setting?
Thompson: Rambus was about the importance of clarity. It was helpful in that if Rambus had it to do over again it would probably have acted differently. There were lots of claims there besides competition: common-law fraud and other claims. That should illustrate for companies involved in patent pooling and standard-setting that they need to be more diligent in policing their participation and their compatriots.
Su: what other harms do false IP claims do?
Me: Speech! Just like it harms the market for diverse products, harms the market for diverse speech.
Thompson: Exhaustion of rights is important to consumers—they want to do what they want with something they’ve bought. Barriers to that are harmful.
McQuade: one way it comes up internationally: in China, a spate of locals who copy items and file a utility patent, which is unexamined and has a 10-year term, and then go to the OEM and tell it to pay up.
Thompson: there are whole companies imitating American companies in China, with websites that look right and everything.
Su: Is false marking a tempest in a teapot?
McQuade: A bit, but it’s a very old teapot that needs to be repaired. False marking has lived beyond its years. District judges still have some discretion per article, and should exercise it as a practical matter.
Thompson: Shines a light on a larger issues about what constitutes innovation and how US companies can protect themselves.
Me: it’s a response to pervasive overclaiming, but the target seems somewhat misguided.
Q: Is it possible that the Federal Circuit will take care of the issue with a constitutional standing requirement, or imply a requirement of competitive injury?
McQuade: wouldn’t bet on it. Look at the progression of the cases: the statute was the tail of a lot of dogs; dicta built up about how the public was injured and how there needs to be a remedy. Would need an en banc reassessment of the entire picture and make some fundamental precedential changes.
Su: Standing is an issue in a pending case.
Thompson: Courts in this area especially are much more favorably declined to decide a case on the facts than to fix a problem in the system, even though they are aware of the problem. Not sure we’re at a tipping pointwhere that would change.
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