Lawyers expect a recent ruling by the U.S. Court of Appeals for the Federal Circuit to stanch the outpouring of whistleblower lawsuits accusing companies of falsely labeling their products as covered by patents. The suits sprang from a December 2009 Federal Circuit ruling calling for up to $500 in fines for each offending product sold, not up to $500 in total.
By late April, plaintiffs lawyers had filed more than 175 false marking lawsuits in district courts around the country in response to the earlier Federal Circuit ruling. Defense lawyers call the cases "nuisance suits" and the filers "bounty hunters."
On June 10, in Pequignot v. Solo Cup Co., the Federal Circuit affirmed an Eastern District of Virginia summary judgment ruling that Solo Cup isn't liable for its false labeling of products as patented, also known as false marking.
Solo Cup marked billions of plastic cold and hot drink cup lids with expired patent numbers. It also marked some with a phrase indicating that one or more U.S. or foreign pending or issued patents might cover the product.
The Federal Circuit upheld the lower court's finding that the plaintiff "cannot show that Solo Cup Company...had the requisite intent to falsely mark its products."
Solo relied on the advice of lawyers for its policy to replace the manufacturing molds that stamped the patent numbers on the products when they wore out or became damaged.
Solo "has raised more than blind assertions of good faith," wrote Judge Alan Lourie for a unanimous panel that also included Chief Judge Randall Rader and Judge Arthur Gajarsa.
"Instead, Solo has cited the specific advice of its counsel, along with evidence as to its true intent, to reduce costs and business disruption. Moreover, the policy Solo adopted conforms with its stated purpose," Lourie. "Rather than continuing to manufacture mold cavities with the expired patent markings, Solo took the good faith step of replacing worn out molds with unmarked molds."
Matthew Pequignot's lawyer, Carl Kravitz, who chairs the litigation practice at Washington-based Zuckerman Spaeder, did not return a call for comment.
Pequignot also did not respond to a call to his Washington-based intellectual property boutique Pequignot + Myers.
Solo Cup's lawyer, William West of Washington-based Howrey, referred questions to the company. In a written statement, the company said, "Solo has always maintained that Pequignot's claims were without merit. We are very pleased that two courts have now decided in Solo's favor."
"The Solo Cup decision will reinject a sense of reason into the process," predicted Kelsey Nix, an intellectual property and litigation partner at New York-based Willkie Farr & Gallagher.
"The important takeaway for many defendants is that the Federal Circuit has clarified that simply the combination of a false patent marking...with knowledge by a patent holder of false marking is not sufficient to create a presumption of intent to deceive," Nix said. "Standing by itself, [that] won't be sufficient to prove intent."
Nix said patent owners must still be "prudent and vigilant about their patent marking." "I don't think they can rely on simple inadvertence being enough to escape liability for false marking," he said. "I think that it's going to be a closer question in some cases as to whether simply being inattentive to your patent marking, whether that's going to be sufficient to demonstrate intent to deceive."
The December Federal Circuit decision that started the tsunami, The Forest Group Inc. v. Bon Tool Co., ruled that the federal false marking statute called for a per-article fine of up to $500 for false marking. Before Forest Group, many district courts typically issued a total $500 fine for a false marking incident, no matter how many products were mismarked.
The issue of who should have standing to bring false marking cases is still pending at the Federal Circuit -- and in Congress.
A pending Federal Circuit false marking appeal, Stauffer v. Brooks Brothers Inc., takes up a ruling from the the Southern District of New York that the plaintiff lacked standing to sue Brooks Brothers because he failed to specify an actual injury to a competitor, the market for the product or the U.S. economy.
The district court dismissed the case by Raymond Stauffer, a pro se litigant and patent attorney in Roseland, N.J. Stauffer sued Brooks Brothers for making adjustable bow ties that are marked with expired patent numbers.
The amended version of the pending Patent Reform Act of 2009, introduced by Sen. Patrick Leahy's, D-Vt., and a House bill filed by Rep. Darrell Issa, R-Calif., on March 25, would end whistleblower false marking lawsuits.
Both bills would only allow parties who have suffered a competitive injury to file cases.