False Marking Revisited – Pequignot v. Solo Cup

Introduction

In December 2009, the Court of Appeals for the Federal Circuit issued its watershed opinion in Forest Group, Inc. v. Bon Tool. In that decision, the Federal Circuit held that an "offense" under the false marking act of 35 U.S.C. §292 occurs every time an article is falsely marked. This means that if a million products are falsely marked, a million "offenses" have occurred, and each is subject to a fine. The Federal Circuit left the determination of the amount of the fine to the district court.[1]

Forest left a number of questions unanswered. First, Forest involved improper marking by the patent owner of products with patent numbers corresponding to "live" patents, i.e., patents that were still in force at the time of marking. Many, if not most, false marking cases involve allegations that products have been marked with the patent numbers corresponding to "dead," i.e., expired, patents. Second, the Forest opinion did not fully explore the particulars of what constitutes sufficient proof of intent to deceive, and what facts may be sufficient to defeat a charge of intent to deceive. That is because the court in Forest believed that the evidence of intent to deceive was compelling. There, the patent owner continued to mark even after two courts had interpreted the claims in a way such that the products in question clearly were not within their scope. All of these unanswered questions were addressed by the Federal Circuit in Pequignot v. Solo Cup, decided on June 10, 2010.

Pequignot was a false marking action brought against Solo Cup. Among its many products, Solo produces plastic cup lids that are formed using thermoforming stamping machines. These machines form the cup lids using molds that have patent numbers formed into the mold. The molds last 15-20 years, sometimes longer, and replacement of the molds is an expensive proposition, as well as an interruption to the business of Solo. At least two of the patents whose numbers were included in the molds expired before the molds were replaced. Solo discovered that it was marking its products with expired patent numbers and contacted outside patent counsel for advice. Counsel informed Solo that the best practice would be to remove the marking if possible, but to avoid any further unintentional false marking in literature or advertising. Solo developed a policy under which it changed the patent markings in the molds when it replaced old molds with new molds. It also placed language on its packaging stating that "this product may be covered by one or more U.S. or foreign pending or issued patents. For details contact www.solocup.com." This statement was placed on products that were covered by patents and on products that were not covered by patents.

Pequignot, a patent attorney sued Solo for false marking. The complaint alleged that Solo had falsely marked 21,757,893,672 products. If the maximum statutory award of $500 per offense were imposed, and the U.S. government received one half of the award under the false marking statute, the result would have been $5.4 trillion, which would be sufficient to reduce the U.S. national debt by 42%. There was no dispute that Solo had marked products with expired patents and there was likewise no dispute that Solo knew that it was doing so. Pequignot argued that the combination of the undisputed facts of false marking and knowledge of that marking were sufficient to prove both the fact of false marking and intent to deceive. Solo argued that marking with expired patents did not constitute false marking[2] and that while the fact of false marking and knowledge of that marking might create a presumption of intent to deceive, the presumption is rebuttable, and it provided sufficient evidence to rebut the presumption. The district court granted summary judgment to Solo on the grounds that Pequignot had not established intent to deceive, based on Solo’s reliance on the advice of counsel, its removal of the marking at the time it changed molds, and its marking of products with the language that products "may" be covered by one or more patents.[3]

The Federal Circuit’s Opinion in Pequignot

The Federal Circuit used the Pequignot case to clarify its opinion in Forest Group, and in the process made false marking less attractive to false marking trolls. While the opinion includes a number of important rulings, two stand out. First, the court made it clear that placing the number of an expired patent on a product constitutes marking an "unpatented" article with a patent number, in the context of the false marking statute. An article covered by a now-expired patent is "unpatented" within the meaning of the statute. Second, the court explained what is required to establish intent to deceive, and just as importantly, shed light on what may constitute a defense to a charge of intent to deceive.

The Federal Circuit set the stage for its discussion of intent to deceive by noting that the false marking statute is a criminal statute: "The bar for proving deceptive intent here is particularly high, given that the false marking statute is a criminal one . . ." Under the false marking statute, the act of falsely marking, in combination with knowledge of the false marking gives rise to a rebuttable presumption of intent to deceive, but that presumption may not be enough to carry the day. In this regard, the Federal Circuit held that the required intent is the intent to deceive the public, not the intent to falsely mark. In this context, "a good faith belief that an action is appropriate, especially when it is taken for a purpose other than deceiving the public, can negate the inference of a purpose of deceiving the public." The court then held that the fact that (1) Solo left its marking on the lids for business reasons (e.g., the desire to avoid the cost of making new molds), (2) it changed the marking when it changed the molds, (3) it relied on the advice of counsel, (4) it marked packaging with the statement that the enclosed goods "may be" covered by one or more pending or issued U.S. or foreign patents all combined to rebut the presumption of intent to deceive.

The Takeaway Message

Pequignot puts significant limits on what appeared to be Forest Group’s declaration of open season on patent owners. While the court was careful not to challenge the Forest holding about what constitutes an "offense" under the marking statute, the Pequignot court’s statements about what will suffice to rebut the presumption of intent to deceive gives patent owners a much greater freedom to operate. The Pequignot court’s opinion stands for the proposition that if the patent owner has a legitimate business reason for not removing patent numbers from products, and a reasonable plan to remove those numbers in a timely fashion, the courts are supposed to listen and apply common sense to what might otherwise seem like a strict liability statute. Pequignot is not a license to falsely mark without concern for the consequence, but it does give patent owners the ability to approach patent marking in a real-world, rational way. If the patent owner takes a reasonable approach to removing patents that do not apply to a particular product, he or she has a reasonable likelihood of being able to defeat a claim for false marking. More importantly, Pequignot will perhaps signal to false marking trolls that the § 292 windfall is not as fulsome as they once believed.