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Beware: Improper Patent Marking Could Be Costly

Written by: Jeremy T. Walker

(Published in the New Hampshire Business Review, July 2010)

Obtaining a patent from the United States Patent and Trademark Office is but one step in obtaining maximum value from a company’s intellectual property.  Most sophisticated businesses understand that a vital piece of a comprehensive patent strategy involves properly marking products that are subject to a patent’s protection.   Another key component of any patent strategy, as highlighted by a recent federal court decision, is to ensure that products are not improperly marked so as to falsely indicate patent protection.
 
The reason for marking products with corresponding patent numbers is straightforward -- it serves notice to competitors in the marketplace and often deters potential competitors from entering the marketplace.  The notice aspect becomes particularly critical for patent owners who seek damages from competitors that have infringed an owner’s patent.  United States law allows patent owners to recover damages for patent infringement only from infringers who were put on notice of the patent and continued to infringe the patent after notice.  Once products covered by a patent are properly marked, infringers are said to have constructive notice and therefore can be liable for patent infringement damages even if they did not have actual notice of the patent. 
 
While marking products with patent numbers is good strategy, businesses must also take steps to ensure that their products are not falsely marked with patent markings.  There have been various cases where companies inadvertently continued marking products with patent numbers after the relevant patents have expired.  In other cases, businesses improperly mark their products with a “patent pending” label before they file an application for federal patent protection. 
Federal law has long made it unlawful for such improper patent marking.  35 U.S.C. 292 states that false patent marking, when done with an intent to deceive the public, is punishable by a fine of up to $500 per offense.  The same goes if a party marks the words “patent applied for” or “patent pending” when no application for patent has been made.  The law is referred to as a qui tam law because anyone can file a claim for false patent marking, and any fines recovered are split between the successful plaintiff and the federal government.
There are strong policy reasons underlying the law against false marking.  If a product within the public domain is falsely marked, potential competitors may be improperly dissuaded from entering the same market. False marks also may deter research when a research and development team sees a mark and decides to forgo ongoing research to avoid possible infringement. 
 
Despite these sound policies against false patent marking, the false marking law historically has had little bite.  That is because earlier court decisions interpreted the statutory fine as $500 for each decision to falsely mark a product.  Thus, if a company decided to falsely mark a product, and one million articles of that product were improperly marked, it would only be subject to a fine of up to $500 for that one decision.  This gave little incentive for plaintiffs to bring qui tam lawsuits against false markers.

But that changed with a December 2009 decision issued by the Federal Circuit Court of Appeals, which is the court that decides much of the law governing patents in the United States.  In Forest Group, Inc. v. Bon Tool Co., the court reversed prior precedent and held that the up-to-$500 fine in the statute applied to each article falsely marked.  So if a company decides to mark one million articles improperly, the company would be subject to a fine of up to $500 million.  It is no surprise that already in 2010 there have been a flurry of qui tam lawsuits brought for false marking. 
 
Accordingly, it is critical for businesses to review their patent marking policies and to establish programs to ensure that their products have proper patent marks.  The program should have three essential components.  The first is to diligently mark those products covered by particular patents only with the applicable patent numbers.  It is not uncommon for businesses with a large number of patents to discover that patent numbers were marked on products completely unrelated to the subject matter of the patent.   Companies must also take steps to ensure that the company is not marking products before they are entitled to do so – i.e., before patent applications are filed.  The third component is to ensure that patent markings are removed from products when the pertinent patent has expired or has been ruled invalid. 

Businesses should establish their policies in writing and include in those policies standard procedures that must be followed for proper patent marking.  That way, if something is missed and there is inadvertent false marking, businesses can refer to the written policy to establish that any false marking was accidental and not done intentionally to deceive the public.  With proper patent marking policies in place, businesses will ensure that they are positioned to recover damages for infringement and will also guard against being the target of a costly false marking lawsuit. 

Jeremy Walker is a director in the Litigation Department of the McLane Law Firm.  He can be reached at 603-628-1431 or at [email protected]. The McLane Law Firm is one of New England’s premier full-service law firms with offices in Manchester, Concord and Portsmouth, New Hampshire, as well as Woburn, Massachusetts. 

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