July 2011 Panitch Schwarze Belisario & Nadel LLP Intellectual Property Newsletter.
It is a violation of a federal statute (35 U.S.C. § 292 – False Marking) to mark or advertise an article as being “patented” after the patent is expired. It is also a violation of this statute to mark or advertise an article as being “patent pending” if no application for patent has been made, or if a previously filed patent application is no longer pending.
The penalty for violating this statute is a fine of not more than $500 for every such offense. Furthermore, any person may sue for the penalty, in which event one-half of the penalty goes to the person suing and the other half goes to the U.S. government.
Opportunistic law firms have launched a floodgate of lawsuits (over 500 suits in 2010 and over 200 so far this year) hoping to obtain a large award based on an interpretation that “$500 per offense” means that every article marked with an expired patent number counts as an offense, or at least settle for a smaller amount without having to do very much work. In fact, hundreds of such settlements have occurred over the past few years, with a median settlement amount of about $50,000.
Defendants have fought back against these lawsuits by making some or all of the following arguments:
(1) the act of false marking is the offense, and thus $500 is the maximum possible award,
(2) the statute is unconstitutional, and
(3) the statute expressly requires an intent to deceive the public, and thus a lawsuit should be dismissed if the Plaintiff’s pleadings do not plead fraudulent intent with particularity. (The vast majority of pleadings do not meet this standard.)
Legislation has also been proposed to revise the language of the statute to minimize its potential harsh effects.
While Defendants have had limited success in getting Courts to agree with these arguments, and new legislation stands a good chance of passing Congress this year, the best advice is to carefully police the patent markings that are placed on your products and services to make sure that they contain only valid subsisting patent numbers that cover the product or service, and proper “patent pending” markings.
b. FAILURE TO MARK
Failure to mark a patented product or service can also have negative financial consequences. A patent owner who fails to mark the patent number on a patented article, and fails to notify an infringer of alleged infringing activity, cannot seek damages for past infringement (i.e., infringement activity that occurs prior to filing a patent lawsuit against the infringer). 35 U.S.C. § 287(a). It is very common for past damages to constitute the majority of damages being sought by the patent owner.
Patent owners should conduct regular audits of their patent markings to ensure that they are not violating the false marking statute and are not forfeiting potential rights to collect past damages for patent infringement by failing to mark patented articles.
PENDING PATENT REFORM BILL
As many of you already know, Congress appears to be on the verge of passing a major patent reform bill, called “The America Invents Act.” There are dozens of controversial provisions in the bill, but the most important provision is that it would change U.S. patent laws to be a “first-to-file” system (i.e., patents would be awarded to the first person or company that submitted an application, not necessarily the first to create the invention). Another important provision would add a new post-grant review/opposition period that would occur within either nine months or one year from the date that a patent issues. A similar type of law exists for granted European patents and for allowed U.S. trademarks.
If the bill passes this year, I will report on the major highlights in my next newsletter.