U.S. Federal Circuit Affirms Dismissal of False Patent Marking Claim for Lack of Competitive Injury

Until not too long ago, § 292 of the U.S. Patent Act read as follows:

(a) . . . Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word “patent” or any word or number importing that the same is patented for the purpose of deceiving the public; or

Whoever marks upon, or affixes to, or uses in advertising in connection with any article, the words “patent applied for,” “patent pending,” or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public--

Shall be fined not more than $500 for every such offense.

(b) Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.

The provision was rarely used until the Federal Circuit, in a trilogy of cases decided in 2009-10, held that (1) the statute “requires the penalty to be imposed on a per article basis,” in other words, that “each article that is falsely marked with intent to deceive constitutes an offense under 35 U.S.C. § 292,” Forest Group v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009); (2) marking with an expired patent number could violate the statute, Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010); and anyone had standing to assert a false marking claim, Stauffer v. Brooks Bros., 619 F.3d 1321 (Fed. Cir. 2010).  In the wake of these cases, plaintiffs filed several hundred false marking claims over the course of a few months, but the trend came to an abrupt halt when Congress passed the America Invents Act in September 2011.  Section 16(b) of the AIA (1) amends § 292(a) to permit only the United States to file suit for the statutory fine; (2) amends § 292(b) to permit other persons to sue only if they have “suffered a competitive injury as a result of a violation of this section,” and to recover only “damages adequate to compensate for the injury”; and (3) adds a new provision, § 292(c), which states “The marking of a product, in a manner described in subsection (a), with matter relating to a patent that covered that product but has expired is not a violation of this section.”  These changes went into effective on September 16, 2011, and apply retroactively.  See AIA §§ 16(a)(2), 16(b)(4).  The Federal Circuit has held that the retroactivity provision is constitutional.  See Brooks v. Dunlop Mfg. Inc., 702 F.3d 624 (Fed. Cir. 2012).

This morning the Federal Circuit addressed the competitive injury requirement of amended § 292 in Sukumar v. Nautilus, Inc. (available here).  The plaintiff filed the action in 2010 and the district court in 2012 found that (p.3):

eight of the twenty-four patents marked on the 2006 Nitro Plus Biceps Curl, the 2007 Nitro V-Triceps Extension, the 2008 F2 Lat Pulldown, the 2008 Studio Pec Fly, the 2009 One Triceps Press, and the 2009 XPLoad Compound Row did not cover the machines. In addition, eight of the sixteen patents marked on the 2006 Nautilus Commercial Series E916 Elliptical, 2006 Nautilus Commercial Series EV 916 Elliptical, and 2006 StairMaster StepMill 7000PT were found to not cover the machines.

In 2013, however, the district court granted summary judgment for the defendant on the ground that evidence did not create a genuine issue of material fact on the issue of competitive injury.  In this morning's opinion, authored by Chief Judge Prost and joined by Judges Newman and Reyna, the Federal Circuit addresses the requirements for showing competitive injury under § 292.

First, the court holds that actual competition between the plaintiff and defendant is not always required.  Instead, based on its review of (1) the plain meaning of the term, (2) the legislative history, (3) the analogous “antitrust injury” doctrine, and (4) public policy, the court concludes that “a potential competitor may suffer competitive injury if it has attempted to enter the market. An attempt is made up of two components: (1) intent to enter the market with a reasonable possibility of success, and (2) an action to enter the market” (p.6).  (In a footnote at the end of the preceding sentence, the court also notes that in order to recover the plaintiff must show causation.)  Second, however, the court holds that

it is equally clear that the amended statute does not confer standing upon any entity that claims a subjective intent to compete. Rather, § 292 limits standing to entities that have “suffered a competitive injury as a result of a violation of [section 292(a)].” A potential competitor can only suffer a competitive injury if it engages in competition. Dreaming of an idea but never attempting to put it into practice is insufficient. Otherwise, market entry is too speculative and, thus, competition cannot be harmed by the false marking. Likewise, sometimes a falsely marked product is also properly marked with other patents. In that case, a potential competitor must show that the falsely marked patents deterred market entry, but that—for some reason—the properly marked patents did not deter market entry. Therefore, an injury is only a “competitive injury” if it results from competition, and a potential competitor is engaged in competition if it has attempted to enter the market, which includes intent to enter the market and action to enter the market. And, for the sake of completeness, an entity has standing under § 292(b) if it can demonstrate competitive injury that was caused by the alleged false marking (pp. 9-10).

Applying this test, and viewing the evidence in the light most favorable to the plaintiff, the court affirms the grant of summary judgment in favor of the defendant, stating that “even if [plaintiff] subjectively intended to enter the market for fitness machines, he took insufficient action to pursue that intent” (p.13).

For discussion of false marking laws in other countries, see Masako Kikuchi, The Thread of False Marketing , 5 J. Intell. Prop. L. & Prac. 803 (2010); Johnathon E. Liddicoat & Dianne Nicol, Re-evaluating False Patent Marking in Australia, 22 Journal of Law, Information and Science 128 (2013) (available here).   See also my book, pages 185, 309 n.94, 354 n.90, 370.