Aftershocks of the America Invents Act

The America Invents Act approved in September directly affects independent inventors and patent filers of all stripes. We examine how the new law alters the playing field – and what you need to know to avoid new pitfalls and take advantage of new opportunities.

By Robert M. Bryan and John M. Conley

Everyone is familiar with patent marking – stamping a United States patent number on a product. The marking gives notice that the product is protected by a patent and anyone who copies it can be subject for a claim of willful patent infringement, which can greatly increase the damages.

But many may not know that until recently there was serious money to be made in “false marking” lawsuits. The America Invents Act has put severe limits on this. And businesses can rest a bit easier.

False marking was – and still is – defined as marking a product with the number of an expired, invalid or inapplicable patent “for the purpose of deceiving the public.” The deceptive purpose requirement has never been clearly defined, and it rarely proved much of a barrier to claimants under the former statue.

Under the old law, false marking was subject to a penalty of $500 “for every such offense.” Because that was sometimes interpreted to mean for every offending item, penalties could add up quickly. The federal government was supposed to enforce the law and collect the penalty, but it rarely did. However, another provision allowed “any person” to sue for the penalty and split it 50-50 with the government in what was called a “qui tam” action.

In theory, anyone who noticed products marked with an expired or otherwise invalid patent could bring a multi-million dollar lawsuit. The courts were inconsistent in dealing with these suits. A few cases — including one brought by a Washington patent lawyer who seemed to be making a second career out of qui tam suits against the maker of a coffee cup lid — were allowed to proceed. Others were thrown out, usually on the basis that the false marking statute was unconstitutional. Given the uncertainty in the courts, businesses could not assume that they could safely ignore this risk.

Things got even more complicated when the false marking was done by a licensee of the patent owner. The courts applied a multi-factor “rule of reason” approach to determine whether the patentee made reasonable efforts to ensure that its licensee complied with the marking requirements.

The new patent law has eliminated much of the risk, effective immediately. There is still a penalty for false marking, but only the United States government can sue to collect it – the era of vigilantes looking for companies to sue should be over.

However, there is a new provision that allows “a person who has suffered a direct competitive injury as a result” of a false marking violation to sue “for recovery of damages adequate to compensate for the injury.”

The courts ultimately will have to interpret this language, but it presumably means that a competitor in the same industry would have to prove that the false marking caused it to suffer some measurable damages.  It will probably be hard to make such a showing. Even if, for example, the competitor could prove customers were misled by the false marking, it would still have to prove that its sales were reduced by some specific amount. This is a major change over the old rule that anyone could recover an automatic penalty without proving actual damages.

In addition, marking a product with the number of an expired patent (as opposed to an inapplicable or invalid one) is no longer illegal. A patent owner still has to take care to stop marking products if the patent has been declared invalid, as well as to mark its products with the right patent – and to make sure that its licensees do so as well. But there is no longer any risk that simply failing to retire the numbers of expired patents will lead to penalties.

The changes made by the new legislation bring the false marking provision into line with what undoubtedly was its original intent. Truly deceptive false marking – making a demonstrably false claim about patent coverage – is still illegal and subject to government enforcement and penalties. The rare competitor that can prove it was actually damaged by such a practice will also be able to recover.

But the “gotcha” aspect of the law has been eliminated, and trolling for expired patent numbers will no longer be an attractive business model.

Robert M. Bryan and John H. Conley are attorneys with Robinson Bradshaw & Hinson, P.A., in Charlotte, N.C. Bryan practices in the intellectual property area and has extensive experience in other areas, including acquisitions, joint ventures and licenses involving patents, trademarks, know-how, software and other intellectual property matters. Conley practices in the area of intellectual property and civil litigation. He also is a William Rand Kenan, Jr. Professor of Law at the University of North Carolina at Chapel Hill. Visit www.rbh.com.

 

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