Costco Faces False Patent Marking Claims

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a qui tam complaint filed on behalf of the United States, a plaintiff stated false patent marking claims by alleging that Costco marked its premium Kirkland Signature brand diapers with two expired United States patent numbers, knowing that the patents had expired, with intent to deceive the public, the federal district court in Chicago has ruled.

The false patent marking statute (35 U.S.C. §292) provides that “[w]hoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word `patent’ . . . for the purpose of deceiving the public” will be fined up to $500 for each offense.”

Knowledge

Costco allegedly marked its Kirkland diaper products with the expired patents that did not cover the items within the packaging. One patent allegedly had expired in October 2007 and the other in September 2009. The complaint also contained facts that could support a reasonable inference that Costco had knowledge that its Kirkland diapers were no longer covered by the patents at issue at the time of marking, the court found.

Costco allegedly had experienced in-house counsel, retained outside intellectual property legal counsel, an internal compliance officer, and a long history of patent litigation. Costco had publicly affirmed its commitment to investing in protecting its intellectual property of its Kirkland brand products.

Fraud Pleading

The claims identified the entity responsible for the alleged fraud, the conduct through which the fraud was accomplished (false patent marking), the item falsely marked, and a temporal and geographical frame of reference for the conduct at issue, according to the court.

The allegations of fraud were pleaded with the particularity required to pass muster under Rule 9(b) of the Federal Rules of Civil Procedure, the court determined.

The November 22 opinion in Englehardt v. Costco Wholesale Corp. will be reported in CCH Advertising Law Guide.