In November, 2010, I wrote a blog post where I talked about a client who was sued for false marking, even though they had months before the suit changed the packaging of their product. We subsequently obtained a good result with our litigation strategy, and I think others may benefit from this experience. Moreover, I think it is important for we lawyers to share strategies for the overall benefit of our respective clients. This is not done enough: we legal experts all-too-frequently provide sagely advice from the comfort of our own siloed client experiences. For the past 3 years as a blogger, I have been working to build a more public dialogue on IP strategy, and did not want to let this opportunity go by to let others know of a successful strategy in dealing with a false marking litigation. (I feel comfortable sharing my experiences with this litigation, which I think others can benefit from, because my relationship with this client is confidential. I work for them as a consultant on various IP strategy and innovation management issues, and I have been helping out with this matter to my patent litigation background.)
As related in the November blog post, the client, a US-based manufacturer of technology products, was sued by West Coast patent firm that apparently has decided that being a false marking plaintiff was a more noble (or more lucrative?!) aspect of the legal profession than writing patents for clients. (I say this because the “aggrieved” plaintiff in our false marking suit has filed many false marking cases, which makes one think the firm has more time to be a plaintiff these days, than to represent clients other than the members of the firm.) This lawsuit was brought some time after the client had changed its packaging to remove the recently expired patent, the number of which had remained on the product through an oversight.
Upon being sued, we thought it prudent to immediately file a motion to dismiss the lawsuit based upon the recent Federal Circuit case that stated that intent needs to be shown in order for a plaintiff to prevail in a false marking suit. Specifically, it was contended in the motion to dismiss that the plaintiff had not pleaded the facts now necessary to show the requisite intent to sustain the lawsuit past the filing stage. Given the fact that different courts require different levels of pleading in federal court filings requiring a showing of intent, we weren’t sure how this contention would be met by the judge. But, this is an unsettled aspect of false marking litigation, and the Federal Circuit is expected to rule on this issue in coming months, so we thought it was worth a shot.
What we thought was a really good argument, at least when looking at the equitable aspects of the case, was the fact that the plaintiff sued my client in a distant location, but which was quite far from the base of operations of my client, which meant that almost all evidence and witnesses would be located far from the place where the lawsuit was filed. Accordingly, in addition to the motion to dismiss, we filed a motion to transfer the case and argued all the facts that made it seem like it made more sense to hear the case closer to my client’s business operations. It would, of course, be more convenient (and cheaper) for us to litigate this false marking case nearer to the client’s base of operations, but the underlying goal was to make it so the false marking plaintiff would have to spend his own money litigating the case because he would have to take discovery in a distant location.
(Interestingly, false marking plaintiffs seem very ready to prosecute cases of false marking on behalf of the U.S. government when it does not cost them much money to do so. But when they have to fly to a distant location for depositions and pay local counsel, we understand that the enthusiasm for vindicating the rights of the US government tends to wane. Wonder why that is . . . ?)
We weren’t really sure how the judge would rule in the motion to transfer. Certainly, the interest of clearing his docket weighed in our favor, but given the currently unsettled law of false marking and since this was the first false marking case to come before this judge, chances seemed good. (But, it wasn’t lost on us that the judge seemed amenable to transfers in other types of cases, so this appeared to be a good strategy.) At a minimum we were hoping that the judge would sit on things for a while to allow additional cases to be decided or to allow Congress to act in some manner. I don’t think any of us expected for the judge to rule very quickly to transfer the case to the client’s home district.
The reason I am posting this degree of detail about the case is to highlight the judge’s reasoning for the transfer. As anyone who has been involved in federal court litigation knows, the plaintiff’s choice of forum is generally given great weight. Motions to transfer, while not unheard of, are not a sure winner when it comes to filing motions. However, in this case, the district court judge cited a district court case from a few months ago that said ruled that in a qui tam action the plaintiff’s choice of forum was not given the usual level of deference and, as such, found grounds to rule in favor of my client. Of course, this makes sense because in cases such as these, the plaintiff is not suing on behalf of herself, but on behalf of the entire U.S. government.
I think a strong reason for the judge’s ruling (outside of the fact that it allowed him to clear his docket of a pain in the rear-end false marking case) is that the motives of the plaintiff in this are clear: there are no burning legal issues to be resolved by this case; rather, he wishes only to extract a financial settlement out of my client, and he can do so merely because of the creative exploitation of a legal loophole in the patent statutes with which Congress has not dealt. Moreover, I am sure the judge’s clerk was fully aware that there are a whole bunch of cases filed by this plaintiff in this busy court, so I would be surprised if this fact didn’t sway the transfer decision in just a little bit.
I should note that I don’t think that all false marking cases are wrongly brought. To the contrary, I strongly believe that there should be a penalty when manufacturers mark their products wrongly with patent numbers with the intent to deceive the public because there are strong policy reasons to require truthful statements to the public such as this. Moreover, I think there should be a penalty for failing to mark a product with a patent number if their competitors did not have knowledge of the patent when determining patent litigation damages (but, I do think that the current patent marking rule is a bit too harsh, but that is an argument for another post). As I have written about previously, however, the issue of patent marking at the manufacturer level is actually somewhat complex from a business perspective. Accordingly, I don’t believe that a random member of the public should be able to legally contend that they are harmed by a product unless it can be shown that the mis-marking was done with the intent to deceive the public. In this regard, it will certainly help if the Federal Circuit or Congress clarifies the facts that need to be shown to bring a false marking case in the first place.
I am hopeful that the Federal Circuit will clear things up in the false marking arena in the near future, as these cases are needlessly clogging already over-burdened federal court dockets. Alternatively, Congress can act to fix the loophole (yeah, right!).
Lastly, while the client has not fully won this litigation, I would be remiss in not sending kudos to our litigation counsel for their strategy in this case. Thanks for getting us to this point. But, don’t take this the wrong way when I say, I hope we’re not talking much about this issue in coming months.