The threat of false marking lawsuits has garnered much attention in the IP business press in the last couple of years. Companies of all sizes have been hit with qui tam actions (that is, suits brought by an individual or company on behalf of the US government to right wrongs done to the government, not the individual) where the basis of the action is the mis-marking of a product with an incorrect or expired patent number. Like a gold rush, these lawsuits have resulted in a number of legal entrepreneurs seeking out products that are incorrectly marked–usually by identification of expired patents, which is an easy thing to find–and their bringing suit against the offending companies. Indeed, there were over 500 false marking lawsuits filed in 2010, making this cause of action seem almost like a way for un- or under-employed patent lawyers to generate income after the rash of layoffs and firm closings in the last few years.
For patent lawyers representing corporations, false marking cases may seem like a pain for clients, but something which nonetheless leads to business if a suit is brought against his client. But, in reality, the uncertainty raised by the current rash of false patent marking lawsuits are a big problem for many companies. The possibility that a company might be sued by an unknown party with uncertain liability is something that corporations, especially those with resource constraints, do not need, especially in today’s economic climate. Put simply, false patent marking lawsuits are more than a legal issue, they are an economic issue for corporations.
To put this into context, imagine the following exchange between the general counsel of a corporation and her outside patent lawyers:
GC: My CEO is worried about getting sued for false marking and has instructed me to figure out what to do. As you know, we recently found out we have more than 100 plastic molds in use in our plants that include the number of a long-expired patent. It will cost us at least $1 million to replace all of those, and it will take months and lots of disruption to our company to get the change-over done. We really don’t want to make the change if we don’t have to immediately, so I need to balance our potential financial exposure with the business cost. Also, we are working on a new product line that where this plastic part will become obsolete in 2 years, so if we spend the money and expend the effort to change the molds to avoid racking up damages in a false marking suit, we may end up wasting corporate resources elsewhere. What are we looking at if we get sued by a false marking troll?
Patent Lawyer: Well, the statute says that you could be subject to $500 per occurrence, which the plaintiffs in these suits say is per mis-marked products. You sell millions of plastic widgets a year that include the expired patent number, so your potential liability could be very high. For example, Solo–the disposable plate and cup company–was sued for over $10 trillion (with a T!) for it’s cup lids, but the court did not rule on the merits of the case due to procedural issues. But, there are fact questions to be resolved before the amount of liability is even a point of contention, so at a minimum, the exposure from litigation expense could be in the $100′s K plus any agreed on settlement. The plaintiffs in these cases are often lawyers themselves, or have lawyers on staff, and they bring many of these at the same time against different times. So, they often will have markedly lower litigation costs than the defendant on a relative basis. The playing field then ends up being fairly uneven for the corporate defendants, which is why these lawsuits seem to have become almost a cottage industry for what many of us call “false marking trolls.”
General Counsel: Hmmm, my CEO won’t be happy about that, so we’d better settle early if we get hit by one of these. What is the usual settlement?
Patent Lawyer: Settlements are usually confidential, so we really can’t know what the “right” number is. We’ll just have to cross that bridge when we get to it, I’m afraid.
General Counsel: Yes, once again, when my CEO asks me a question about legal exposure, I get to say “It depends.” And then she says “That’s why we business types hate dealing with lawyers.” Good thing we’ve got a good relationship.
Patent Lawyer: Let’s hope one of the false marking trolls doesn’t find you then.
General Counsel: But we’re back to square one–should we spend the money and deal with the business disruption needed to change all of our plastic molds to remove the expired patent number?
Patent Lawyer: It depends.
General Counsel: Yes, I know.
This hypothetical exchange is probably fairly common. As I have written about before, monitoring patent marking within a large company with lots of products is not a trivial task. Moreover, when it makes sense only to mark the patent number on a product itself at the point of manufacture, such as by having the number engraved within a plastic mold intended to last many years, removal of an expired patent number becomes an expensive, time consuming and potentially disruptive process. Continue reading →