Congress’s retroactive elimination of whistleblower actions against companies that falsely label products as patented did not violate the Constitution, the U.S. Court of Appeals for the Federal Circuit has ruled.
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 court affirmed Northern District of California Judge Charles Breyer’s December 2011 dismissal in Kenneth C. Brooks v. Dunlop Manufacturing Inc. Judge Sharon Prost wrote the opinion, joined by judges Kimberly Moore and Pauline Newman.
Whistleblowers filed hundreds of claims after the Federal Circuit in December 2009 ruled 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.
The patent reform act, which took effect on September 16, 2011, changed the false-marking statutes to allow suits by the U.S. government and parties that have “suffered a competitive injury.” The new law barred false-marking suits against products marked with expired patents.
Brooks 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 whistleblower provision.
“[C]ongress, 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 he didn’t need to address Brooks’ argument that the change violated his contractual rights because Congress had acted rationally. And he rejected Brooks’ 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 harmed.
On appeal, Brooks argued that the statutory change constituted “public deception.” However, Prost noted that competitors and the federal government still may bring such suits.
As for whether Congress had a rational legislative purpose, Prost wrote, 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,” she said.
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,” Prost wrote.
The pre-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 said. 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, a solo practitioner in Campbell, Calif., who argued his own case, said he wasn’t aware of any false-marking cases brought by the federal government. In many instances, he said, there’s no competitor to file a false marking suit because a company is the sole player in its sector.
“The entire case is consumer-be-damned,” Brooks said. He promised to file a petition for certiorari with the U.S. Supreme Court.
It’s clear that Congress had no intention of entering into contracts with qui tam relators in the pre-AIA version of the false marking statute, said Gina Bibby, a Palo Alto, Calif., associate at Foley & Lardner who argued for Dunlop.
“Congress didn’t exceed its powers when it entered into [the retroactive amendment]. All the way around, it was the right decision,” Bibby said.
The U.S. Department of Justice, which intervened in the case, had no comment, according to spokesman Charles Miller.
The Brooks opinion followed a Federal Circuit panel’s nonprecedential unanimous per curium order in May in Rogers v. Tristar Products Inc., which held that the change to the false-marking statute applied to cases filed before the patent reform took effect.
The Federal Circuit addressed the constitutional challenges to the changes to false-marking law in a much more summary fashion in Rogers, said Joshua Slavitt, a patent partner at Philadelphia’s Pepper Hamilton, who wasn’t involved in Brooks or Rogers. Whistleblower false-marking cases have now “effectively been eliminated,” he said.
The final word may follow the resolution of the Public Patent Foundation’s pending Federal Circuit appeal, Public Patent Foundation v. McNeil-PPC Inc. The foundation sued McNeil for falsely marking some of its Tylenol products as patented in June 2009, six months before the Forest Group ruling.
“There is absolutely no evidence in any legislative history of any legislative purpose, much less a legitimate one, to apply the AIA’s retroactivity to pre-Forest Group cases like this one,” the foundation argued in its brief.
On December 13, immediately following the Brooks ruling, the foundation filed a motion asking for a ruling on the briefs.
Sheri Qualters is a reporter for The National Law Journal, a Legal affiliate based in New York.
