Placement of “Patent Pending” Tag Supports Competitor’s False Marking Claim

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

The placement of “patent pending” label on the bottom of tote bags, next to the seller’s “Optari” label, could constitute false patent marking, the federal district court in Nashville has ruled.

Optari had submitted a patent application for the straps on the tote, but the patent pending mark was nowhere near the straps, the court said. Optari’s competitor, Lubber, Inc., stated a plausible false marking claim by alleging that Optari placed the patent pending mark on the bottom of the tote in an effort to lead the public into believing that the tote itself was undergoing patent review, the court determined.

The false marking statute (35 U.S.C. Sec. 292(a)) imposes liability against “[w]hoever marks upon, or affixes to, or uses in advertising in connection with any article, the words `patent applied for,’ `patent pending,’ or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public.”

Leahy-Smith America Invents Act

The above provision was unchanged by recent amendments to false marking statute, the court noted. The Leahy-Smith America Invents Act, Public Law 112-29, signed by the President September 16, 2011, eliminated a provision authorizing any person to bring a qui tam suit for statutory damages of up to $500 per violation. Now, only the United States may sue for statutory damages.

A new private suit provision (35 U.S.C. Sec. 292(b)) authorizes a private party who has suffered a competitive injury as a result of a false marking violation to bring a civil suit in a federal district court for recovery of damages adequate to compensate for the injury. The false marking amendments apply to all cases, without exception, that are pending on or commenced on or after September 16, 2011.

The court granted Lubber’s request to add the patent marking claim to its complaint asserting trademark and unfair competition claims under the Lanham Act, Tennessee Consumer Protection Act, and common law.

Constitutionality

The court rejected Optari’s argument that the false marking statute is unconstitutional.
Some courts had held the former qui tam enforcement provision unconstitutional, for example, Unique Product Solutions Ltd. v. Hygrade Valve, Inc. (ND Ohio 2011) Advertising Law Guide ¶64,196, on motion for reconsideration Advertising Law Guide ¶64,242.

However, following the Unique Product Solutions decision, several other courts had rejected constitutional challenges (citations collected in Champion Laboratories, Inc. v. Parker-Hannifin Corp. (ED Cal. 2011) Advertising Law Guide ¶64,302.

The constitutionality debate is now largely academic in light of the amendments made by the Leahy-Smith America Invents Act, according to the court.

The October 6 opinion in Lubber, Inc. v. Optari LLC will be reported at CCH Advertising Law Guide ¶64,447.

Futher details regarding CCH Advertising Law Guide appear here.

Constitutional Attack on False Patent Marking Enforcement Rejected

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

The qui tam enforcement provision of the false patent marking statute was constitutional, contrary to a pharmaceutical manufacturer's contention that it violated the Take Care Clause of the U.S. Constitution, the federal district court in Chicago has ruled.

The statute (1) made it unlawful to mark a product with, or use in advertising, a patent number in connection with products that are not patented and (2) authorized private, qui tam enforcement suits for awards of up to $500 for every violation.

Take Care Clause

The manufacturer argued that the false marking statute transferred law enforcement authority to private persons without retaining sufficient control for the Executive Branch to satisfy the provision of Article II of the U.S. Constitution that the President “shall take Care that the Laws be faithfully executed.”

The manufacturer relied on Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. (ND Ohio 2011) CCH Advertising Law Guide ¶64,196, ¶64,242, which held the false marking qui tam enforcement provision unconstitutional.

Government Control

Contrary to the ruling in Unique Product Solutions, however, the direct-control test articulated by the U.S. Supreme Court in Morrison v. Olson, 487 U.S. 654 (1988) was not the deciding factor in a civil action for qui tam enforcement of the false marking statute, the court determined.

The fact that the false marking statute is a criminal statute did not make a qui tam suit a “criminal action” requiring direct government control. The better view of the false marking statute was that it is a criminal statute with a parallel civil enforcement mechanism, the court said.

The government maintained sufficient control because the statute requires the district court clerk to apprise the Director of the Patent and Trademark Office of a qui tam false marking action, and the government may request intervention in false marking cases, the court concluded.

Pending Legislation

The battle in the courts over the constitutionality of qui tam false marking enforcement would be mooted if The America Invents Act, Senate Bill 23, is enacted. The measure was passed by the Senate on March 8.

The legislation would strike the qui tam enforcement provision of the false patent marking statute (35 U.S.C. Sec. 292(b)) and replace it with a new Sec. 292(b) providing that “[a]ny person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.”

Sec. 2(k) of S. 23 also would provide that only the United States may sue for the statutory penalty of $500 per offense authorized by Sec. 292(a) of the false marking law.

The effective date provision of Sec. 2(k) of S. 23 would make the false marking amendments applicable “to all cases, without exception, pending on or after the date of the enactment of this Act.”

The April 28 opinion in Simonian v. Allergan, Inc. will appear at CCH Advertising Law Guide ¶64,274. Further legislative developments in the area of patent marking and other topics of advertising law will be reported in the Guide.

Further information about CCH Advertising Law Guide appears here.

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.