The take home message: If your company sells a product that bears a patent number, you need to read this post in its entirety.
Much has been written in recent months about false marking lawsuits, most of these in the form of “urgent legal alerts” by law firms that calmly deconstruct the appellate court rulings (this one is illustrative). At the end of the day, these articles likely do not look very “urgent” to business people like yourself because most business people do not engage themselves with patent law generally, let alone something as arcane as false marking. So, even though the subject excites us a patent experts, we really cannot expect you to get excited about something that does not seem to affect your ability to conduct business today.
However, if your business is a likely target of a false marking lawsuit it will cost you big bucks almost immediately. These surprise costs could very well derail your ability to turn a profit in the near future, and could even put some struggling companies out of business. But what if I told you that getting sued for false marking is a highly predictable event? You might even be able to avoid finding yourself caught in the net of an “entrepreneurial” lawyer who is jumping on the opportunity to bag himself a bag of cash due to what most rational actors would find to be an unintended consequence of the government’s desire to make sure that businesses do not mislead the public or their competitors by incorrectly saying that a product is patented when it really isn’t. In other words, after reading this article, you need no longer feel helpless against false marking plaintiffs!
Note that this article is not about what to do if you are sued for false marking or why you should be concerned–this article will let you as a business person know whether your company is likely to find itself the subject of a false marking lawsuit in the near future. The “urgent legal alerts” referred to above handle the gory details of false marking, and need not need to be reviewed here. But, in short, you need to recognize that federal law proscribes marking of a product with the wrong patent number. The wronged party is the government, but the law allows a member of the public to bring a false marking lawsuit on behalf of the government. The person bringing the lawsuit shares 50/50 in any recovery with the government. Damages can be awarded at up to $500 per occurrence. These lawsuits are attractive for patent lawyers seeking a new source of revenue because companies making large numbers of products can easily rack up significant potential damage awards. Even though the false marking statute has been on the books for many years, not many cases have been brought in the past. As a result, there is no clear legal authority for how courts to should rule on these cases, a fact which should make business people stand up and take notice. (A more detailed explanation of false marking is found in this recent article in Inside Counsel Magazine.
How about this as a clear “what does all of this false marking stuff mean to me as a business person?” statement: If your company sells a product that sits on a store shelf or is installed in a location where a patent number is visible, and the patent number is less than 5,000,000, the chances are pretty high that you will be sued for false marking within the next year. It really is that simple: this list of recent false marking cases file shows that most of the patents forming the basis of the underlying claim are around 5,000,000 or less. (Kudos to Justin Gray for publishing a list of filed false marking cases.)
Why is it so easy to tell if you are a likely defendant in one of these lawsuits? Any patent with a number less than 5,000,000 expired no later than 2009 (with specific exceptions that almost certainly do not apply to your company) and, as a result, any product marked with “U.S. Patent No. 4,999,999″ or below is unquestionably “mis-marked.” (Whether it is “mis-marked” in violation of the law is a more nuanced question, as discussed in the article referenced above.) If your product bears a patent number that is up to about 5,200,000, you should also start to sweat: these patents are either expired in the last few months or so or will be soon. Given the rash of false marking lawsuits in the last few months, if any publicly accessible product made by your company bears a number of 5,000,000 or less, your organization has the proverbial target on its back, and you should expect to be subject to a lawsuit until all products are removed from the marketplace.
But, you are not off the hook if your product is marked with a number higher than 5,000,000 or so. If your company has not paid the required maintenance fees for the patent listed on your product, mis-marking also exists. Whether a patent is expired as a result of non-payment of fees can easily be determined by reviewing the U.S. Patent Office records, and if you have let your patent lapse but the packaging has not been updated to remove the patent number, you should accept that right now there are people patrolling store shelves and other locations with their smartphones tuned to the US Patent Office records, with the goal being to find marking scofflaws like your company.
If a “false marking troll” puts his sights on your company, you will find yourself subjected to a lawsuit in a federal court, likely in a location that is horribly inconvenient for you. Unlike most other patent-related issues, you will most likely not be provided with any advance notice of being hauled into court. Instead, you will find yourself embroiled in a full-blown federal court case where you will effectively be hemorrhaging money to litigation attorneys. And, false marking lawsuit plaintiffs have no real motivation to settle a case prior to your spending money: the plaintiff is typically a lawyer himself whose representation is effectively free, not several $100′s per hour like you will likely be paying. In other words, trust that the person bringing suit against you is not motivated by anything other than money.
By way of illustration, I am currently advising a client who was sued for false marking by a lawyer. Although the lawsuit is only about 3 months old, my client is already out significant money in legal fees to outside counsel, and this number is much lower than it would otherwise be without my helping them manage the situation. But, even though my client is a corporation and the plaintiff is a solo practitioner, the process is skewed in favor of the “little guy” in this case because all it costs is time for the plaintiff. He also has several other lawsuits going on at the same time, which means that the work he does for one case can be used in multiple cases. We are hopeful that the district court judge will issue a ruling that will level the playing field so as to make it more difficult for the plaintiff to maintain the lawsuit against my client, especially in view of his multiple co-pending lawsuits, but my client still needed to spend considerable cash in order to provide the judge with a legal basis to rule against the plaintiff. Moreover, the newness of this rash of false marking suits means that the rules are very unsettled at this time, a fact which provides the opportunity for all the lawsuits to be brought in the first place! In other words, the judge could decide to let the judicial process play out given the unsettled nature of the case law. If this happens, my client will be severely damaged because although it is a corporation, they are just emerging from trying economic circumstances in the consumer goods market. They just don’t have the means to sustain litigation for an extended period, nor can they afford the large settlement the plaintiff will likely demand to make the case go away, of which he only gets one half.
My client is rightfully angry about what is happening–especially since they discovered the patent marking error and fixed it prior to getting sued. Unfortunately, the plaintiff has the upper hand at this stage of the litigation, and my client can do nothing other than respond to the legal obligations that result from being named as a defendant in a lawsuit. As we say in the South, “the damage done been did” to my client. Until Congress amends the false marking statute or an appellate court issues a ruling to restrict its use as a revenue generation mechanism for entrepreneurial lawyers, businesses must be cognizant of the risks of non-compliance. Hopefully, your company will not find itself subjected to this costly process in the near future.
photo credit: Amazing Kreskin website