False Patent Marking: a Meteoric Rise and Fall

Latin phrases ring of foreboding, especially when spoken by a lawyer or a priest. If I had walked into the offices of corporate counsel three years ago and shouted the words “QUI TAM” I would have been forcibly ejected (even though very few would have known the English translation). The full Latin phrase is qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means “he who sues in this matter for the king as well as for himself.” Qui Tam laws give private citizens a public cause of action, for a bounty.

The best-known source of Qui Tam lawsuits is the False Claims Act, known as the “Lincoln Law” at 31 U.S.C. §§ 3729–3733. The Lincoln Law was enacted back in the Civil War to fight fraud by Union Army vendors. To date, total recoveries under the False Claims Act exceed $28 billion dollars, including individual settlements against Eli Lilly for $1.4 billion and Pfizer for $2.3 billion, both cases of pharmaceutical mislabeling.

Until recently the patent laws (35 U.S.C. § 292) provided a lesser-known Qui Tam action against companies that mark their products with non-existent or expired patent numbers. Any person could bring a Qui Tam lawsuit for false patent marking intended to deceive the public. For years the bounty was a mere $500 per lawsuit, hardly worth the effort.

However, in 2009 the Federal Circuit construed the statute as allowing recovery of up to $500 per mismarked product, not per lawsuit. Forest Group Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009). The impact to commodity-product manufacturers was enormous: if ACME Widget Co. sold a thousand fifty-cent widgets their profit would amount to $250. If those widgets were marked with an expired patent number ACME’s liability exposure would amount to $500K.

The District Court floodgates flew open and over 500 patent false-marking lawsuits were filed by public interest groups and opportunistic lawyers. Michael C. Smith, False Patent Marking, (Nov. 2010). Matthew A. Pequignot, a patent attorney in the small DC-based firm of Peguinot + Myers, LLC, rose to the occasion. Mr. Pequignot learned that the Solo Cup Company was selling plastic cup lids marked with expired patent numbers, and at $500 each under Forest Group Inc. he did the math and sued for $5.1 trillion dollars. Solo admitted to marking expired patent numbers but claimed that they never “intended to deceive the public” as required by 35 U.S.C. § 292. Rather, Solo argued that it was too expensive to make new molds every time a patent expired. In August 2009 the Eastern District of Virginia agreed, granting Solo summary judgment based on “not a scintilla of evidence that Solo ever…manifested any actual deceptive intent.” Pequignot v. Solo Cup Co., 646 F. Supp. 2d 790 (E.D. Va. 2009). Pequignot appealed and the Federal Circuit upheld, weaving their logic into the lower court decision. Solo ‘s leaving the expired patent numbers on its products was a cost-saving measure, not for the “purpose of deceiving the public.” Id. at 1364. The future began looking bleaker for bounty hunters.

Since then, one District Court Judge has likened false patent marking cases to an “infestation of dandelions . . . dot[ting] the greensward of patent litigation.” Zojo Solutions, Inc. v. Stanley Works, 2010 WL 1912650 (N.D. Ill. May 12, 2010). Two courts have dismissed false patent marking lawsuits on Constitutional grounds, and one was dismissed after finding that the alleged false patent marking is a fraud that must be pled with particularity under FRCP 9(b).

In the midst of the judicial backlash, the President has just recently signed into law the Leahy-Smith America Invents Act (AIA), H.R. 1249. Effective immediately, the AIA abolishes patent Qui Tam actions. False marking lawsuit can only be initiated by the Federal Government or competitors who suffered actual damages. Harshly, the new law is retroactively applied to all pending false marking lawsuits. The hundreds of false marking plaintiffs who were awaiting their day in court are now speaking French, not Latin.

There are lingering questions. Is the retroactive effect fair? Is it Constitutional (federal government is prohibited from passing ex post facto laws under Article I, section 9 of the U.S. Constitution)?