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.”