Forest Group, Inc. v. Bon Tool Co. (Fed. Cir. Dec. 28, 2009)
In a decision released today, the Federal Circuit held that penalties associated with violation of 35 U.S.C. § 292, which relates to false marking, should be imposed on a per article basis.
Plaintiff had sued defendants for infringing plaintiff's patent relating to an improved spring-loaded parallelogram stilt commonly used in construction. Defendants counterclaimed alleging false marking, a Lanham Act violation, and seeking declaratory judgment that the patent was invalid. In February 2007, the district court construed the patent claims. In August 2007, the district court granted summary judgment of noninfringement in favor of defendants. After holding a bench trial on defendants' counterclaims, the district court determined that plaintiff had falsely marked its "S2 stilts" with the number of the patent-in-suit after November 15, 2007 and assessed plaintiff a $500 file for a single offense of false marking. Defendants appealed on numerous issues, including the district court's interpretation of 35 U.S.C. § 292.
Section 292 provides a civil penalty for false marking of goods. It states: "Whoever marks upon, of 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 issue here was the appropriate mechanism for penalizing violations of the statute.
The Federal Circuit held that "the statute's plain language requires the penalty to be imposed on a per article basis." Plaintiff argued that "the false marking statute should be interpreted to impose a single fine for continuous false marking", citing to a 1st Circuit decision from 1910. The Federal Circuit distinguished that decision, explaining that the decision related to a different statute and further stating that a single $500 fine for each decision to falsely mark "would render the statute completely ineffective."
The Federal Circuit recognized that recent district court decisions have interpreted the false marking statute in different ways, including use of a single fine for continuous false marking, a time-based approach (i.e. a penalty for each day, week, or month that false marking occurred), or a per-article penalty. However, the Federal Circuit held that "Section 292 clearly requires a per article fine … [and this interpretation] is consonant with the purpose behind marking and false marking."
The Court also cited to policy considerations in support of its statutory interpretation, stating "[a]cts of false marking deter innovation and stifle competition in the marketplace … [i]f an article that is within the public domain is falsely marked, potential competitors may be dissuaded from entering the same market … [and] [f]alse marking can also cause unnecessary investment in design around or costs incurred to analyze the validity or enforceability of a patent whose number has been marked upon a product with which a competitor would like to compete."
While plaintiff argued that this interpretation would encourage "a new cottage industry" of false marking litigation by plaintiffs who have not suffered any direct harm, the Federal Circuit explained that the false marking statute "provides that '[a]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States' .. [and thereby] explicitly permits qui tam actions." Further, the statue provides for a fine of "not more than $500 for every such offense" and the Federal Circuit stated "[b]y allowing a range of penalties, the statue provides district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing 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."
As the district court used a different interpretation of the false marking statute and did not determine the number of articles falsely marked by plaintiff or the amount of penalty to be assessed per article, the Federal Circuit vacated the $500 fine imposed by the district court and remanded the case.
Gray on Claims has recently added a new feature to track these newly filed false marking cases, as well as those filed prior to the Forest Group decision. Up-to-date false marking case information can be found here. Additional coverage of false marking cases on this blog can be found here.