Patent Law | Expert Legal Commentary

March 4, 2010

Forest Group v. Bon Tool: Upping the Incentives for False Marking Claims

The Forest Group, Inc. v. Bon Tool Co.

By Jeffrey J. Zuber of Zuber & Taillieu and Yuri Mikulka

Forest Group v. Bon Tool: Upping the Incentives for False Marking Claims

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The Federal Circuit has determined that the maximum fine for violation of the federal false marking statute should be applied on a per article basis, rather than the “per decision” basis applied by a majority of district courts in the past. In The Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009), the Federal Circuit explicitly overruled one such district court interpretation, holding that only a “per article” application of the penalty would give the false marking statute its intended teeth and encourage private enforcement of the statute. While the decision does provide strong disincentives to false marking, it also opens the door to “marking trolls” – opportunistic plaintiffs looking to make money off false marking claims.

BACKGROUND

The Forest Group (“Forest”) makes and sells spring-loaded parallelogram stilts of the type commonly used in the construction industry for tasks such as hanging drywall. Forest brought a patent infringement suit against Bon Tool in the U.S. District Court for the Southern District of Texas based on a product that was described as being an “exact replica” of Forest’s product, which Forest had marked with its patent number. Bon Tool counterclaimed, alleging false marking pursuant to 35 U.S.C. section 292, among other claims.

The District Court dismissed Forest’s claims on summary judgment for lack of infringement. Under the District Court’s claims construction, Forest’s stilts were not actually covered by its own patent, as they lacked the “resiliently lined yoke” required by Forest’s patent. Based on this construction, the District Court did find that Forest had falsely marked its stilts with the patent number and had the requisite knowledge that the patent did not cover the product.

The District Court assessed Forest a total fine of $500 for the single offense of false marking, because Bon Tool could only point to one order of marked products after Forest had “knowledge” that its stilts were not covered by the patent. “That single decision constitutes a single offense for purposes of calculating damages under section 292. The Court assesses a penalty in the amount of $500 against Forest pursuant to section 292(b).” The Forest Group, Inc. v. Bon Tool Co., not reported in F. Supp.2d, 2008 WL 2962206, *6 (S.D. Tex 2008). Pursuant to the statute, half of that penalty, $250, went to the government and the other half went to Bon Tool.

Bon Tool appealed to the Court of Appeals for the Federal Circuit, arguing that the trial court had erred in its interpretation of the false marking statute when it assessed a penalty based on each decision to mark rather than on a per article basis.

The Penalty Applies on a Per Article Basis

The elements of a Section 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). A party alleging 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 accused party’s mere assertion that it did not intend to deceive “is worthless as proof of no intent to deceive where there is knowledge of falsehood.” Id. at 1352.

Federal patent law provides a civil penalty for false marking of goods, stating: “Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word ‘patent’ or any word of 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. section 292(a).

The federal statute permits a qui tam action whereby any private citizen can sue to recover the penalty and retain half – the government gets to keep the other half. In recent years, false marking claims have gained some popularity, but usually only when brought in conjunction with other claims. The majority of district courts – like the trial court in Forest Group – construed an “offense” under the statute as one continuous act of false marking, such as one entire single production run, regardless of how many products were improperly marked during that run. As a result, there has been little financial incentive for plaintiffs to bring independent false marking claims.

That has now changed with the Forest Group decision. Applying a de novo review of the District Court’s construction of the statute, the Circuit Court held that “the statute clearly requires that each article that is falsely marked with intent to deceive constitutes an offense…” The Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1301 (Fed. Cir. 2009). The Circuit Court pointed out that the statute gives district courts the discretion to assess fines up to $500 per article, so that “(i)n 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.” 590 F.3d at 1304.

The public policy purpose of the Federal Circuit’s holding is clear: “[T]o strike a balance between encouraging enforcement of an important public policy [i.e., ensuring that acts of false marking do not stifle competition or innovation] and imposing disproportionately large penalties for small, inexpensive items produced in large quantities.” Id.

Federal Circuit specifically rejected Forest’s argument against the per-article standard because it “would encourage ‘a new cottage industry’ of false marking litigation by plaintiffs who have not suffered any direct harm.” Id. at 1303. Indeed, an amicus brief was filed by a person who claimed to have created a holding company for the sole purpose of bringing qui tam false marking actions under the new interpretation. But the Federal Circuit acknowledged that the statute explicitly allowed, and did not discourage, such actions. Id. Moreover, the Federal Circuit stated that “[p]enalizing false marking on a per decision basis would not provide sufficient financial motivation for plaintiffs – who would share in the penalty – to bring suit.” Id. at 1304.

The Federal Circuit remanded the case to the District Court for a determination of the number of articles falsely marked and recalculation of the fines.

CONCLUSION

The Forest Group case may have opened the door for opportunistic plaintiffs who will seek to bring false marking litigation for personal financial gain. These so-called “marking trolls” will be seeking out any case where they believe they can sufficiently articulate deceptive intent to pass Rule 11 muster and survive a Rule 12(b)(6) motion to dismiss. It’s also likely to result in more alleged infringers routinely asserting false marking counterclaims as part of their defense.

The Federal Circuit perhaps attempted to disincentivize the “marking trolls” by highlighting the fact that trial courts have the discretion to minimize the per article penalty by assessing penalties of a fraction of a cent per article. Unfortunately, Forest Group does not suggest any guidelines or framework for setting the amount of the penalty, which could lead to a type of forum shopping if one district court is more generous than another in setting the penalty. Moreover, the uncertainty may intimidate some defendants into unnecessary or inappropriate settlements.

Certainly the Forest Group decision should give serious pause to any company considering falsely marking its products. The penalty for false marking under Forest Group could result in a substantial fine. Any manufacturer should exercise extreme caution to ensure that its products are marked accurately. If there is any doubt, you should immediately contact a patent law practitioner to review your patent and the proposed markings.