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December 29, 2009

Stilted

William Armstrong and Joe Lin got a patent, 5,645,515, for a particular type of stilt used in construction, requiring a "resiliently lined yoke." Each formed a company for selling stilts: Armstrong created Southland Supply, while Lin sprouted Forest Group. "Southland sold stilts to Bon Tool, a tool reseller. Bon Tool later stopped purchasing from Southland and started purchasing stilts from a foreign supplier, Shanghai Honest Tool Co., Ltd. (Honest Tool), which manufactured identical replicas of Southland's stilts without a license from Forest." Forest sued Bon Ton for infringement. "Bon Tool counterclaimed alleging false marking pursuant to 35 U.S.C. § 292, a Lanham Act violation pursuant to 15 U.S.C. § 1125, and seeking a declaratory judgment that the '515 patent was invalid.

The Forest Group v. Bon Tool and Cibon Industrial and Shanghai Honest Tool (CAFC 2009-1044) precedential

The district court's claim construction "required a lining distinct from the yoke itself." From that, "the district court concluded that Forest presented no evidence that the yoke in Bon Tool's stilts had a separate lining as required by the court's claim construction and granted summary judgment of noninfringement in favor of Bon Tool. The district court then held a bench trial on Bon Tool's counterclaims."

In the bench trial that followed on Bon Tool's counterclaims, the "district court found that Forest falsely marked its S2 stilts with its '515 patent number after November 15, 2007 and assessed Forest a $500 fine for a single offense of false marking.2"

2 Mr. Lin testified that he instructed his manufacturer to remove the patent marking from this order of stilts, however, the district court did not find his testimony credible. The court noted the absence of any documents, phone records, emails or letters to support Mr. Lin's claim that he instructed the manufacturer to stop marking the S2 stilts. The court further found it incredible that Lin would not have checked the new parts to ensure that they did not contain the patent number had he instructed the manufacturer to stop marking.

The district court granted summary judgment for Forest on Bon Tool's remaining counterclaims, deciding that Forest did not violate § 43 of the Lanham Act and that the '515 patent was not invalid. Further, the district court found that the case was not exceptional and denied claims for attorney fees by both parties.

Bon Tool appealed, most interestingly "that the district court erred in its interpretation of the false marking statute, 35 U.S.C. § 292, when it determined that the statute provided for a penalty based on each decision to mark rather than on a per article basis."

I. False Marking--Knowledge

The two elements of a § 292 false marking claim are (1) marking an unpatented article and (2) intent to deceive the public. See Clontech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005). "Intent to deceive is a state of mind arising when a party acts with sufficient knowledge that what it is saying is not so and consequently that the recipient of its saying will be misled into thinking that the statement is true." ld. (citing Seven Cases of Eckman's Alterative v. United States, 239 U.S. 510, 517-18 (1916)). A party asserting false marking must show by a preponderance of the evidence that the accused party did not have a reasonable belief that the articles were properly marked. Id. at 1352-53. An assertion by a party that it did not intend to deceive, standing alone, "is worthless as proof of no intent to deceive where there is knowledge of falsehood." Id. at 1352.

The CAFC panel cut Armstong and Lin some slack on what they apparently lacked.

The district court did not clearly err in finding that Forest lacked intent to deceive prior to November 15, 2007. The district court found that Forest genuinely believed its stilts were covered by the '515 patent prior to this date. The district court noted that the patent application was written by experienced patent counsel who had an exemplar of the stilt on which Messrs. Lin and Armstrong sought the patent. The court further noted that neither Mr. Lin nor Mr. Armstrong had "strong academic backgrounds" or "in-depth appreciation of patent law" and that Mr. Lin was not a native English speaker. Forest Group, 2008 U.S. Dist. LEXIS 57134, at *15 n.5.

II. False Marking--Offense

Section 292 provides a civil penalty for false marking of goods. It states in relevant part:

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.

35 U.S.C. § 292(a) (2006).

The plain language of the statute does not support the district court's penalty of $500 for a decision to mark multiple articles. Instead, the statute's plain language requires the penalty to be imposed on a per article basis. The statute prohibits false marking of "any unpatented article," and it imposes a fine for "every such offense." Id. (emphasis added). The statute requires a fine to be imposed for every offense of marking any unpatented article. The act of false marking is the offense punished by the statute. The phrase "for the purpose of deceiving the public" creates an additional requirement of intent but does not change the relationship between the act of marking an article and the penalty. We conclude that the statute clearly requires that each article that is falsely marked with intent to deceive constitutes an offense under 35 U.S.C. § 292.

Policy considerations further support the per article interpretation of § 292. The marking and false marking statutes exist to give the public notice of patent rights. "Congress intended the public to rely on marking as a 'ready means of discerning the status of intellectual property embodied in an article of manufacture or design.'" Clontech Labs., 406 F.3d at 1356 (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162 (1989)). Acts of false marking deter innovation and stifle competition in the marketplace.  Donald S. Chisum, Chisum on Patents § 20.03[7][c][vii] (2009). If an article that is within the public domain is falsely marked, potential competitors may be dissuaded from entering the same market. False marks may also deter scientific research when an inventor sees a mark and decides to forego continued research to avoid possible infringement. See Bonnie Grant, Deficiencies and Proposed Recommendations to the False Marking Statute: Controlling Use of the Term 'Patent Pending', 12 J. Intell. Prop. L. 283, 283 (2004). False 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. Cf. Clontech Labs., 406 F.3d at 1356 n.6 ("In each instance where it is represented that an article is patented, a member of the public desiring to participate in the market for the marked article must incur the cost of determining whether the involved patents are valid and enforceable.").

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. See Lans v. Digital Equip. Corp., 252 F.3d 1320, 1327 (Fed. Cir. 2001) ("In sum, knowledge of the patentee's identity facilitates avoidance of infringement with design changes, negotiations for licenses, and even early resolution of rights in a declaratory judgment proceeding."). This court's per article interpretation of § 292 is consonant with the purpose behind marking and false marking.

Section 292(b) 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." 35 U.S.C. § 292(b). As noted by Forest, an amicus brief was filed in this case by an individual who created a holding company to bring qui tam actions in false marking cases. Commentators have discussed a surge of such actions in recent years, noting the possible rise of "marking trolls" who bring litigation purely for personal gain. See Donald W. Rupert, Trolling for Dollars: A New Threat to Patent Owners, 21 No. 3 Intell. Prop. & Tech. L.J. 1 (2009) (citing five false marking cases filed since 1997); A. Justin Poplin, Avoiding False Patent Marking Claims, Law360, October 9, 2009, http://www.law360.com/articles/116798 ("Sensing a new source of revenue, individuals have begun suing large corporations for false patent marking when an expired patent number appears on a product.").

Rather than discourage such activities, the false marking statute explicitly permits qui tam actions. By permitting members of the public to sue on behalf of the government, Congress allowed individuals to help control false marking. 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. Forest's per decision construction is at odds with the clear language of the statute and, moreover, would render the statute completely ineffective.

This does not mean that a court must fine those guilty of false marking $500 per article marked. The statute provides a fine of "not more than $500 for every such offense." 35 U.S.C. § 292(a) (emphasis added). By allowing a range of penalties, the statute 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.

We hold that the plain language of 35 U.S.C. § 292 requires courts to impose penalties for false marking on a per article basis.

The district court erred. The $500 fine was vacated, and the case remanded for proper determination.

Even though Bon Tool didn't infringe, the patent was not invalidated. This was not considered a frivolous lawsuit claim, and so the "district court's finding that the case was not exceptional was not clearly erroneous."

Posted by Patent Hawk at December 29, 2009 6:46 PM | False Marking

Comments

How ignorant can one opinion possibly be?

By saying the maximum Section 292 fine of $500 applies per article is the same as saying, essentially, Congress intends there to be no maximum short of bankruptcy. And since intent must have been proven to reach a judgment, bankruptcy is probably out of reach. Moore's argument that this is the only result that makes since because of the qui tam provisions is a new low for the CAFC.

Cert will be granted due to the idiocy of the opinion and the split of circuits.

But let me point out that this 292 idiocy was not of Moore's making, she's just the latest contributor. The wording of 292, like so much of the Patent Act of 1952, was concocted by imbeciles. It's almost as opaque as 103(a).

Let's face it folks, the Patent Act of 1952 was drafted by congressional staff having the cumulative intelligence of a field of lettuce and passed by a Congress of howler monkeys. Patent applicants and litigants have been paying the price ever since.

Posted by: Babel Boy at December 30, 2009 9:45 AM