Drop That Whistle

Sheri Qualters

Corporate Counsel

03-01-2013

After all the talk about whistle-blowers last year, there will be at least one area this year in which there are likely to be fewer whistles blowing. Congress retroactively eliminated whistle-blower actions against companies that falsely label products as patented, and in December the U.S. Court of Appeals for the Federal Circuit ruled that its action did not violate the Constitution.

A unanimous three-judge panel said on December 13 that the America Invents Act's (AIA) retroactive removal of the qui tam option did not violate the due process or intellectual property clauses. The decision affirmed the ruling of Judge Charles Breyer of the Northern District of California, who in December 2011 dismissed the complaint of Kenneth Brooks against Dunlop Manufacturing Inc. Judge Sharon Prost wrote the opinion, joined by judges Kimberly Moore and Pauline Newman Before that ruling, whistle-blowers had filed hundreds of claims after the Federal Circuit ruled in December 2009 in Forest Group Inc. v. Bon Tool Co. that the false marking penalty of up to $500 must be applied on a per-item basis. But the AIA changed all that. The patent reform act, which took effect in September 2011, allowed suits by the U.S. government and parties that have "suffered a competitive injury" based on the false marking statutes. At the same time, t The new law also specifically barred such suits against products marked with expired patents.

The Brooks case began when a solo practitioner in Campbell, California, who argued his own case, sued Dunlop in September 2010 for marking a guitar string winder with an expired and invalidated patent number. Breyer stayed the case while the Federal Circuit considered a separate challenge to the constitutionality of the false marking statute's whistle-blower provision.

"Congress, by eliminating the qui tam provision in [the false marking statute], rationally furthered a legitimate legislative purpose by comprehensively reducing the costs and inefficiencies associated with the 'cottage industry' of false marking litigation that developed after the Federal Circuit's decision in Forest Group Inc. ," he wrote.

Breyer said that he didn't need to address Brooks's argument that the change violated his contractual rights because Congress had acted rationally. And he rejected Brooks's constitutional takings argument; even if the statutory change constituted a taking, he wrote, it's valid because Congress offered an adequate process for compensating anyone that was harmed.

On appeal, Brooks argued that the statutory change constituted "public deception." However, the appeals court noted that competitors and the federal government still may bring such suits. As for whether Congress had a rational legislative purpose, Prost wrote, the Federal Circuit noted that the legislative history "suggests that Congress was particularly concerned with the perceived abuses and inefficiencies" of false marking claims filed before the patent reform act became law.

"In our view, this alone constitutes a rational legislative purpose," Judge Sharon Prost wrote for the panel. She noted that there had been "a live question about the constitutionality of the then-existing qui tam provision" when Congress enacted the patent reforms. "Indeed, it was rational for Congress to pass legislation eliminating a potential constitutional issue and sparing the courts, private parties, and the United States the litigation burdens and risks associated with such issues," she said.

Before the AIA , version of false marking "was not an offer to enter into a unilateral contract with Congress," she continued. "The far more natural interpretation of this text, which is not framed in contractual language, is that it simply authorized a qui tam action and specified how any penalty would be divided."

Retroactive elimination of the qui tam provision did not violate the constitution's intellectual property clause, she added: Retroactive changes "do not implicate the scope of the patent power, but rather, Congress's judgment in effectuating and maintaining a patent system." On that ground, Congress's actions were "a rational exercise" of its powers.

Brooks promised to file a petition for certiorari with the U.S. Supreme Court. a solo practitioner in Campbell, Calif., who argued his own case, He isn't aware, he says, of any false marking cases brought by the federal government. In many instances, he adds, there's no competitor to file a false marking suit because a company is the sole player in its sector.

"The entire case," he says, "is consumer-be-damned."

A version of this story appeared in The National Law Journal, a sibling publication of Corporate Counsel.