False Marking: Calculating Damages Part I

The Forest Group, Inc. v. Bon Tool Co. (Fed. Cir. 2009).

The false marking statute provides for a fine of “not more than $500 for every … offense.” 35 U.S.C. 292. Past cases have severely limited the false-marking damage award by holding that the sale of thousands of falsely marked items constituted a single “offense” under the statute. The Federal Circuit has rejected those cases – holding here that a qui tam plaintiff may collect up to $500 for each falsely-marked product distributed. This decision is important because it opens the door to potentially large monetary judgments in false-marking cases. Anyone who marks their products as patented or patent pending should take this opportunity to review those markings to ensure that the product being marked falls within the scope of the listed patent and that the patent continues to be valid and enforceable.

At one time Bon Tool bought & sold construction stilts that were manufactured by Forest. However, Bon Tool eventually dropped Forest as a supplier and began importing a duplicate knock-off version from China even though Forest’s stilts were marked with its Patent No. 5,645,515. Forest sued for infringement. During litigation, the district court construed the claims in a way that made clear that neither the original Forest stilts nor the knockoff stilts infringed the patent. At that point (in 2007), Forest’s claims were dismissed on summary judgment. For the next two years, however, the parties argued Bon Tool’s counter claims – including false-marking. In 2009, the district court held that Forest was liable for false-marking because it continued to mark its products as patented even after the 2007 summary judgment decision. However, the court awarded only $500 in damages.

Parties have a reason to mark their products as patented because such marking serves as constructive notice to potential infringers—allowing a patentee to collect damages for past infringement. Under Section 287 of the Patent Act, “[i]n the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.” In theory, marking a product as patented will deter others from attempting to compete by creating a similar version of the product. In addition, manufacturers may garner some reputational benefit by indicated that their product is patented or that a patent is pending.

The false-marking statute is intended to promote competition as a counterbalance against scams and potentially overreaching claims. A successful false-marking claimant must prove two elements: first, that an unpatented article has been marked as patented; and second that the marking was done with intent to deceive the public. See Clontech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005). Here, the Federal Circuit reviewed the district court bench-trial finding of false-marking for clear error. It found no clear error. The appellate panel did, however, hold that the district court had improperly limited the damage award to $500.

Under Section 292 of the Patent Act anyone who marks an “unpatented article with the word ‘patent’ … for the purpose of deceiving the public … shall be fined not more than $500 for every such offense.” Although the false-marking statute has been part of the patent law for more than 150 years, it was amended in 1952. That amendment changed the damage calculation from “not less than one hundred dollars” to “not more than $500.” The leading case interpreting the pre-1952 statute is the one hundred year old decision of London v. Everett H. Dunbar Corp., 179 F. 506 (1st Cir. 1910). In London, the court interpreted the statute to impose “a single fine for continuous false marking”—reasoning that a minimum penalty of $100 per falsely marked article would be out of proportion and inequitable.

[I]f we construe the statute to make each distinct article the unit for imposing the penalty, the result may follow that the false marking of small or cheap articles in great quantities will result in the accumulation of an enormous sum of penalties, entirely out of proportion to the value of the articles. . .

Despite the statutory change, recent courts have followed the London precedent – including the Bon Tool district court. On appeal, the Federal Circuit rejected that precedent – holding instead that the statute requires that each falsely marked article can serve as the basis of a separate offense. The appellate court made clear that the reasoning of London no longer applies because the statute now sets a maximum per-offense award rather than a minimum.

This does not mean that a court must fine those guilty of false marking $500 per article marked. The statute provides a fine of “not more than $500 for every such offense.” By allowing a range of penalties, the statute provides district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities. In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.

Vacated. On remand, the district court must “determine the number of articles falsely marked by Forest after November 15, 2007 [and] the amount of penalty to be assessed per article.”

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46 thoughts on “False Marking: Calculating Damages Part I

  1. 46

    re:Case or Controversy Requirement of Article III

    As this is Qui Tam – one is Suing on behalf of the government – surely thus it is the government who thus must show Case or Controversy, which an offense against 292 surely is by definition – no

  2. 45

    Lionel – when, in your mind, does false marking cause harm to the public (whether competitors or otherwise)? I suspect, once you start playing out all the possibilities, that you think never.

    Regardless, I know from experience that it costs competitors money. Is that a “boon” to them?

  3. 44

    Lionel,

    My comments to you were not aimed in any way to the prima facia discussion (I think Ken got a Legal Dictionary for Christmas).

    Whether its a boon or not is not the point. Whether you can look up a long list of patents or only one three, two or one is not the point (remember, the mark IS the status – when that status changes, so must the mark). The point is the Law.

    I am not sure that you are using “strict liability” in the correct sense, but the law is meant to be obeyed to its letter. Curbing lazy behavior is exactly how I read it here. Trying to make the harm of violating the law subjectively “great” or “not great” – is a red herring. As I have mentioned, having a patent or a patent application does not give you the right to mark. It gives you the choice. If you want to take advantage of what the law offers, you must pay attention and police your marks. You have a clear duty if you CHOOSE to mark. It really is that simple.

    There are two prongs and the second prong can take care of the inadvertant instances and prevent draconian application of the law. The provision “…up to…” also prevents draconian application.

    This really is one of the more simple parts of the patent code. The very nature of it being Qui Tam speaks volumes about what it was meant for, and regardless of how you feel, the intent is clear.

  4. 43

    Noise Above the Law,

    First, I was responding to the OP’s suggestion that it be prima facie evidence of anti-competitive behavior, which I hope you agree it would not be.

    Second, the fact of the matter is that “False Marking”, ANY “false marking” in most cases has no harmful effects. Please enlighten me if you believe there are any. However, a patent holder who does not mark automatically loses years of damages for not doing so.

    If a company slaps 150 patents on a product and there are two good ones buried in there, that is arguably hiding the salami. I agree that that is bad behavior.

    However, the false marking statute was not intended to be a strict liability, “this is so important you better be absolutely sure you are correct” statute, and if you believe otherwise you are flat out wrong. It was meant to curb lazy and malicious behavior.

    Also, marking with an expired patent poses absolutely no harm to anyone at all ever whether it’s done with knowledge or not. IN FACT, IT IS A BOON TO COMPETITORS.

  5. 42

    Noise Above the Law,

    First, I was responding to the OP’s suggestion that it be prima facie evidence of anti-competitive behavior, which I hope you agree it would not be.

    Second, the fact of the matter is that “False Marking”, ANY “false marking” in most cases has no harmful effects. Please enlighten me if you believe there are any. However, a patent holder who does not mark automatically loses years of damages for not doing so.

    If a company slaps 150 patents on a product and there are two good ones buried in there, that is arguably hiding the salami. I agree that that is bad behavior.

    However, the false marking statute was not intended to be a strict liability, “this is so important you better be absolutely sure you are correct” statute, and if you believe otherwise you are flat out wrong. It was meant to curb lazy and malicious behavior.

    Also, marking with an expired patent poses absolutely no harm to anyone at all ever whether it’s done with knowledge or not. IN FACT, IT IS A BOON TO COMPETITORS.

  6. 41

    spam filter is on high alert again…

    Ken,

    Please let me know which body of law you are basing your legal theory on – have you even read 35 USC 292? If you have and you still hold the views that you do, I sure hope that you are not an attorney.

    Lionel,

    By your logic, should I only obey those laws I find easy to obey? Keep in mind that marking is not a right and that there are other methods for putting people on notice. If you choose to mark, you must obey the Law (btw, you are incorrect about the purpose of the false marking statute). Ease or difficulty of doing so is a red herring.

    Just Visiting,

    You make a very good point about marking and provisional applications – Ken’s fantasy world may not be mallable enough to stretch and accompany such little facts (even though whether a provisional application can or cannot be published is a topic for a different conversation – right Ned?)

  7. 40

    “Moreover, while one need not search for purposes of 35 USC 102, the same may not be true for the false marking statute”

    If you can interpret statutes in this fashion, I can understand why you don’t think we need new any new ones.

    Given that you’re allowed to mark “patent pending” based on a provisional application that includes no claims and that will never be published or examined, I think you stretch the false marking statute way based breaking the statute.

  8. 38

    Ken Brooks

    “Now if you have false marking liability, does that not raise a prima facie case of antitrust.”

    On it’s own? No, it certainly does not (or should not). Most false marking is inadvertant. If a product is marked with a substantial amount of incorrect patents or if there is evidence that the company knew the marking was false or recklessly marked their products, then possibly.

    There is no great harm to competitors in false marking. However, there is potentially greater harm to the patent holder for not marking.

    What about a company that marks a product with 40 patents and one is expired (or expires while the product is in the market) and a second is incorrectly added. Should the compnay be penalized? That was not the purpose of the false marking statute.

    When you are a large company with both lots of patents and lots of products, matching up every patent with every product with zero errors is difficult.

  9. 37

    Noise above the law . . . a published patent application carries with it inchoate rights. It seems a logical to stretch this case to cover the areas I mentioned. Moreover, while one need not search for purposes of 35 USC 102, the same may not be true for the false marking statute.

  10. 36

    Anonymous, my old friend, I just finished re-reading some of our postings at the linked threads. Let me save you some time and simply direct D.B. to those links provided by Dennis at the top of the article so that he (she?) can be better informed.

    D.B.,

    I have had a chance to review the Arcadia case and it does appear that the Arcadia case is very much distinguishable – but probably not how you would like to think.

    The fact that patents lapsed IS dicta and does not affect the holding of the case. Much more important is the following quote:

    “Paramount is the court’s finding and conclusion that Arcadia had totally failed, after at least nine months of discovery, to produce any evidence of intent to deceive the public. Nor had it produced “any evidence suggesting that evidence of intent could be produced at the time of trial.” Under such circumstances, Arcadia having failed to establish the presence of a genuine issue of material fact, summary judgment is appropriate.”

    As I mentioned to Anonymous, I would like to direct you to the links that Dennis provided. Take your time and enjoy the background reading, then come back and post your thoughts.

  11. 35

    Funny D.B. – you’re citing the very case (Vermont Agency) that assures that there is standing. Go back and read the whole thing this time.

    You’ve got a lot of other stuff wrong as well, but I don’t have time to address it all.

  12. 33

    I think this is a well-reasoned decision. Yes, CD, there might be uncertainty on a false marker’s liability (with a ceiling of $500 per article), but that’s inherent in the statute. District judges will be able to look at the circumstances of a false marking and make reasoned findings on the degree to which they defeat the public policy of proper patent marking.

    As for the “marking trolls”, I don’t they will find many lucrative cases.

  13. 32

    Ken,

    I am not sure what body of law you are trying to invoke in your post.

    Even if the mark of patent pending carries an application number, there is no “chilling” because an application does not carry the same weight as a patent.

    Further, there are no requirements as you allude to in regards to making sure that a patent pending application has any chance whatsoever of actually becoming patented in order to place the patent pending mark.

    Further, searching – reasonable or not – is not a requirement for submitting applications and the patent pending mark is perfectly acceptable for applications for which no searching has been conducted.

  14. 31

    I think the more interesting issue that is being overlooked involves those in which a patent application is filed with claims that are clearly anticipated and for which no resonable search was conducted. Is it sufficient for an inventor who is charged with the acumen of an ordinary businessman in the business in which the patent pertains to place upon a product patent pending when the claims are clearly anticipated by material information with which an ordianry business man would be charged with knowledge. I think a colorable argument could be made that in this case a false marking claim would be present.

    In short, one should not file a patent merely to be able to chill the competition. I believe that this case would support such a cause of action.

  15. 29

    “In the absence of any predictability, I expect lots of “hold-up” lawsuits. The false marking plaintiff will demand, say, a million dollars, and the patent owner will settle for some amount since it cannot know its ultimate liability.

    Then a second plaintiff will come along…”

    You raise an interesting point, CD. There is a very large number of potential plaintiffs, so it seems to me that settling with the first one would be inadvisable, even if (especially if?) its clear that there has been a violation. If I’m right, this would suggest that there would be very few “hold-up” lawsuits.

  16. 28

    Noise Above Law:

    Quote: “I will have to check out the Arcadia decision. At first blush, it appears that the dicta is overstated, but keep in mind that marking is not a right.”

    In order to fully understand Arcadia (which is a very short opinion), I suggest you read the District Court opinion, factual findings, etc. from the Arcadia case. In short, though, the case is very much distinguishable from Solo.

  17. 27

    “A patent owner (and its shareholders and insurers) cannot know its potential liability.”

    police your markings and apply them appropriately = potential liability of $0.

    really, this is not an issue.

  18. 26

    The worst part of the decision is that it provides no guidance whatsoever on how to determine the amount of the fine. None of the interested parties-the patent owner, the false marking plaintiff, and the court-can even guess what the ultimate penalty will eventually be.

    A patent owner (and its shareholders and insurers) cannot know its potential liability. Will it be the max ($500 per article) or some amount much smaller?

    A false marking plaintiff cannot know if it worth the expense to bring a suit.

    A district court judge will be exercising his discretion in the dark. I’m a fan of district court discretion-a lot of our federal judges are pretty sensible and have direct knowledge about the parties and the cases, but there is almost always some guidance as to how to exercise this discretion.

    An appellate court’s job is to provide a legal framework that will allow trial courts to do their job. This opinion fails that critical function.

    In the absence of any predictability, I expect lots of “hold-up” lawsuits. The false marking plaintiff will demand, say, a million dollars, and the patent owner will settle for some amount since it cannot know its ultimate liability.

    Then a second plaintiff will come along…

  19. 25

    There is no “attempted deception” statute.

    Isn’t the current statute exactly that? Failure to deceive may affect damages, but the statute does not require actual deception, but rather an intent to deceive.

  20. 24

    “It is improper to just make up law, even patent law.”

    So how would you suggest the court apply the phrase in 35 USC 292: “shall be fined NOT MORE THAN $500 for every such offense”? Perhaps with a spinning wheel, like on Wheel of Fortune? If the plain language of the statute and its history suggest that a range of penalties is permitted, then the court is obliged to determine the penalty that best achieves the objectives of the statute, which, it seems to me, would include the avoidance of absurd results such as a $500 penalty for falsely marking a single paper cup.

    I’m also quite interested to learn which political party is advantaged by the Forest Group decision. Do tell.

  21. 23

    The Federal Circuit agrees with Paul that false marking claims are subject to the five year statute of limitations period of 28 U.S.C. § 2462. Arcadia Machine & Tool, Inc. v. Sturm, Ruger & Co., 786 F.2d 1124, 1125, 229 USPQ 124 (Fed. Cir. 1986) (“The district court properly held any action based on the 1973 label, used only until 1978, to be time barred by the applicable statute of limitations, 28 U.S.C. § 2462, which imposes a 5-year limit on any action for the enforcement of ‘any civil fine.’”). See also Annotated Patent Digest § 34:98.50 Five Year Statute of Limitations for False Marking Claims.

  22. 22

    Paul F. Morgan.

    I believe the reason it does not apply to infringement suits is because the section only applies to fines and penalties prescribed by statute for acts which violate acts of congress.

    And patent infringement is not prohibited by law. An individual can infringe to his heart’s content. It’s up to the patent holder to enforce his rights.

  23. 21

    “By allowing a range of penalties, the statute provides district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities.”

    Sounds like judge made law. The court could have wrote with the same effect, “By allowing a range of penalties, the statute provides district courts the discretion to do whatever the judge thinks is politically advantageous to the party that appointed him to power.”

    It is improper to just make up law, even patent law.

  24. 20

    This is limited, but indeed seemingly applicable, Statute of Limitations:
    “Sec. 2462. Time for commencing proceedings
    Except as otherwise provided by Act of Congress, an action, suit or
    proceeding for the enforcement of any civil fine, penalty, or
    forfeiture, pecuniary or otherwise, shall not be entertained unless
    commenced within five years from the date when the claim first accrued
    if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.
    (June 25, 1948, ch. 646, 62 Stat. 974.)”

  25. 19

    Thanks for your detailed posting, D.B.

    Re: your post that a Statute of Limitations, 28 USC § 2462, applies to this false patent marking statute unless the action is commenced with 5 years the claim first accrued.
    Is there controlling case law on that? Why is it that NO Statute of Limitations is applied for bringing belated patent infringement suits? [only the partial statutory limitation on the time period for recovering BACK-damages]?

  26. 16

    “Anyone who marks their products as patented or patent pending should take this opportunity to review those markings to ensure that the product being marked falls within the scope of the listed patent and that the patent continues to be valid and enforceable.”

    – please review p. 6 of the slip opinion, 09-1044. I appreciate your work-generative sentiments but I am not sure this would be sound legal advice for “anyone”.

  27. 15

    D.B.,

    I will have to check out the Arcadia decision. At first blush, it appears that the dicta is overstated, but keep in mind that marking is not a right.

  28. 14

    “What deception to the public would there be anyway? How is the public deceived?”

    D.B. – please see previous discussion threads – but genreally, the marking IS the status.

    As to the constitutional place – remember – “inherent” means not explicit.

    As to “but the product was not sold” the courts have addressed this.

  29. 13

    Dennis,

    Bug Tracker is correct. I improperly closed my HTML Tags, which I will fix now. Hopefully it fixes the rest of your page.

  30. 9

    Noise above Law:

    Sorry. I hit post too soon.

    Further, I never said patents run forever. But nowhere in statute or in case law, that I could find, does it say that products covered by expired patents can no longer be marked.

    What deception to the public would there be anyway? How is the public deceived? Under your theory, wouldn’t the public be equally deceived if the markings were made during the life of the patent, but the product was not sold until the after the expiration? Deception is partly in the eye of the recipient of the information. There is no “attempted deception” statute. If I manufactured replicas of Edison’s lightbulb and marked it with it’s patent number, am I really deceiving the public into believing that the product is still covered by the patent?

    Also,anyone who sees the marking and wants to copy the product would look up the patent anyway for several reasons. 1) What does the patent cover, the part I want to copy or some other part altogether. 2) Aww, it’s patented, well when does it expire so that I can copy it?

    I hope to God that the Fed Cir applies a minimum of common sense in the Solo Cup case. It would be a shame and a waste of the Supreme Court’s time for the Supreme Court to undermine its credibility once again with yet another smackdown in an over-reaching decision by the Fed Cir.

  31. 8

    Noise above Law:
    “as there IS a requirement to stop marking articles when the underlying patent has expired inherent in the very fact that patents are for a limited time – per the constitution.”

    Exactly where in the Constitution is this requirement to stop marking after the expiration?

    And with respect to the deceptive marking, how do you interpret the Fed Cir in Arcadia. “that whatever errors appeared in the labels were inadvertent, the result of oversight, or caused by patent expirations.

  32. 7

    D.B.

    While it is nice to see case law quotes on the blog, you are incorrect regarding the UN of unpatented. Patents do not run forever and markings must be changed when
    1) patent pending no longer applies
    2) patented no longer applies.

    Further, the deceiving the public prong is much more nuanced. Knowingly marking past the appropriate time has been ruled as enough to show deceptive intent.

    Lastly, your (see above) regarding constitutionality is (circularly) incorrect, as there IS a requirement to stop marking articles when the underlying patent has expired inherent in the very fact that patents are for a limited time – per the constitution.

  33. 6

    Solo Cup is distinguishable because it involves an expired patent. The Fed Cir should easily affirm Solo Cup.

    I. Plaintiff-Appelant lacks standing.
    1) Statute of Limitations: 28 USC § 2462 Regarding the ‘767 patent, no one has standing to commence a claim unless the action is commenced with 5 years the claim first accrued.
    2)Case or Controversy Requirement of Article III – Qui tam plaintiffs must satisfy the “irreducible constitutional minimum” of standing. See Vermont Agency, 529 U.S. at 771 (quoting Lujan, 504 U.S. at 560). That requirement, which stems from the “case or controversy” requirement of Article III imposes on any party invoking federal jurisdiction a burden to establish: (1) that it has suffered an injury in fact, (2) that is causally connected to the defendant, and (3) that is likely to be redressed by the court. Lujan, 504 U.S. at 560. The first requirement—an injury in fact—is the “hard floor of Article III jurisdiction that cannot be removed by statute.” Summers v. Earth Island Inst., — U.S. –, 129 S.Ct. 1142, 1152 (2009). Despite the District Court’s “sovereign interest” in seeing its laws observed, “an “abstract” harm such as “injury to the interest in seeing that the law is obeyed . . . deprives the case of the concrete specificity” necessary for standing” FEC v. Akins, 524 U.S. 11, 24 (1998).

    II. An offense under §292 would occur if a person marks upon … any unpatented article … for the purpose of deceiving the public. In this case, the articles are not “unpatented” and Solo did not mark the articles with the “purpose of deceiving the public.”

    First, regarding any unpatented article. According to the Fed.Cir. in Clonetech, “Thus, in order to determine if an article is “unpatented” for purposes of section 292, it must be first determined whether the claims of a patent cover the article in question. To make that determination, the claim in question must be interpreted to ascertain its correct scope, and then it must be ascertained if the claim reads on the article in question.” In this case, no argument is made that the article is not covered by the claims of the patent. Additionally, the court in Tompkins v. Butterfield, 25 F. 556(D. Mass. 1885) held “The purpose of this statute is very plain and evident. Its purpose is to prevent the public from being deceived by persons marking upon an article, upon which no patent has ever been granted by the United States, words which purport that a patent has been granted…” Thus, an article is patented if a patent covering it has EVER been granted.

    Second, regarding “the purpose of deceiving the public. Pequignot argues that Clonetech is the only Fed. Cir. decision regarding intent. This is incorrect. First the facts of the case regarding Clonetech involve whether the patentee knew if the article was covered by the claims or not. The facts in this case are quite different. In 1996, in a case that more closely parallels the present case, the Federal Circuit has already addressed markings with respect to expired patents. “With respect to the 1978 label, as well as the other two, it was found, on the basis of affidavit evidence from the father and son management of Ruger and others, which wholly satisfies Fed.R.Civ.P. 56(e), that whatever errors appeared in the labels were inadvertent, the result of oversight, or caused by patent expirations.” ARCADIA MACHINE & TOOL INC., v. STURM, RUGER & COMPANY, INC., 786 F.2d 1124, (Fed. Cir. 1986)

    III. Constitutionality
    The statute is likely constitutional. First of all, there is a statute of limitations that limits the amount of damages the plaintiff and the government could be awarded. Second, there is no burden placed on actual patentees because there is no requirement to stop marking articles when the underlying patent has expired. (See above.)

  34. 5

    Just visiting:

    You would think that the FC had decided this issue before, but no. I actually had a trial on this very issue about 10 years ago (we won, the jury decided there was no intent to deceive the public), but the judge decided pre-trial that there was a “violation” every time they changed the molds on the product.

    When you research this, the only really important case on this issue is actually the 1910 First Circuit case the FC cites which, as you notes, comes down the opposite way.

    I think this decision is dumb and against public policy, but, what can you do, other than get Congress to change it — and good luck with that, obviously.

  35. 4

    What bears watching is how the district court (and other district courts) choose to rely on Moore’s remark that “In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty”. If they latch on to this, they could still dilute this part of the statute to meaninglessness (beyond the difficulty in proving intent to deceive). If we ignore development costs, a drug product itself costs only pennies to produce, so even if millions of falsely marked packages of that drug have been sold, the district court may decide that the penalty should be 1/1000 of a cent per item. On millions of items, that still leaves the plaintiff to collect something, but not enough to make it worth the lawyer’s time to bring the case in the first place.

  36. 3

    This is not unlike the gun issue. We don’t need more gun laws and we don’t need more patent laws. If we just enforce the laws that are on the books, patents would not be so problematic. Now if you have false marking liability, does that not raise a prima facie case of antitrust.

  37. 2

    Is there FC precedent on this issue? I had thought that the FC had already decided this issue opposite to the way the panel held here.

  38. 1

    The Solo Cup case is still distinguishable, right? In Solo Cup, you had expired patents that actually covered the marked article. Here, you have patents that do not actually cover the marked article.

    Nonetheless, there is some harsh dicta in here about the purposes and reach of the false marking statute. I would not want to draw Moore on my panel, if I were Solo Cup.

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