In re BP Lubricants USA Inc., Misc. Dkt. No 960, US Court of Appeals for the Federal Circuit, 2011 US App. LEXIS 5015, 15 March 2011
Intent must be pleaded with particularity to state a false marking claim under 35 USC §292 in the USA.
Following Forest Group, Inc. v Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009), a cottage industry for so-called ‘patent marking trolls’ has proliferated. In that case, the US Court of Appeals for the Federal Circuit interpreted the US false marking statute (35 USC §292) as providing for up to $500 in damages for each unit that has been falsely marked with a patent number. Previously, many had understood section 292 to impose the $500 damages limit on the false marking claim as a whole, rather than for each unit that is falsely marked. Further, as reported in a previous Current Intelligence, in Stauffer v Brooks Brothers, Inc., 619 F.3d 1321 (Fed. Cir. 2010), the Federal Circuit reaffirmed the broad scope of standing available to bring such lawsuits, finding that a violation of the statute is itself a sufficient harm to provide standing to a qui tam plaintiff for such an action (see Charles R. Macedo, ‘ANY’ person has standing for false marking claim in use, jiplp (2011) 6 (1): 12–4).
According to data compiled and reported by Patently-O, in 2008, and in 2009 before the 28 December 2009 decision in Forrest, there were fewer than a dozen complaints for false marking filed each year in US federal courts (http://www.falsemarking.net/cases.php, visited on 22 March 2011). After that decision, a tidal wave of false marking suits surfaced, including complaints filed on 29 and 30 December 2009, against more than a dozen entities. Since then, over 1300 entities have been sued in US federal courts based on claims of false marking.
While, according to Patently-O, the total settlement value associated with such lawsuits was just under $10 million as of 15 March 2011 (see False Marking Settlement Updates, Patently-O, 15 March 2011), the sheer number of such lawsuits has clogged the courts and brought the issue to the forefront of corporate consciences.
In BP Lubricants USA Inc., Misc. Dkt. No 960, 2011 US App. LEXIS 5015 (Fed. Cir. 15 Mar. 2011), the Federal Circuit granted the extraordinary remedy of mandamus to clarify the pleading standard with respect to such false marking actions. It is hoped that the high pleading standard set by BP Lubricants will curtail such assertions in future pleadings.
BP Lubricants USA Inc. manufactures motor oil products under the well-known brand name CASTROL®. These products are distributed in a unique bottle design for which BP received a design patent (US Design Patent No D314,509, issued on 12 February 1991).
In February 2010 Thomas A. Simonian, a patent attorney, filed a qui tam relator complaint on behalf of the USA under 35 USC §292 in the US District Court for the Northern District of Illinois. (Mr Simonian has brought many other false marking actions as a qui tam relator against a large number of companies.)
In the complaint, Simonian averred:
The complaint included detailed pleadings as to the actual alleged false marking, including pictures of the product with the allegedly false marks. To support the intent element, the complaint included the following paragraphs:
In the prayer for relief, Simonian sought, inter alia, ‘[a]n award of monetary damages, pursuant to 35 U.S.C. §292, in the form of a civil monetary fine of $500 per false marking “offense”, or an alternative amount as determined by the Court, one half of which should be paid to the United States of America’.
In June 2010, BP brought a motion to dismiss Simonian's Complaint on the following grounds:
The first ground relied upon, inter alia, the Federal Circuit's decision in Exergen Corp. v Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009), an inequitable conduct case, as support. The second ground relied upon the district court's decision in Stauffer v Brooks Brothers since, when the motion was filed, the Federal Circuit's decision rejecting that theory (discussed above) had not yet issued.
In a Minute Order dated 25 August 2010, the court denied BP's motion to dismiss for the reasons explained in Simonian v Oreck, No 10 C 1224, 2010 US Dist. LEXIS 86832 (N.D. Ill. 23 August 2010).
In Oreck, cited by the 25 August 2010 Minute Order and issued by the court two days prior, the same District Judge Gettleman, wrote an extensive decision explaining why Mr Simonian had standing to bring suit against Oreck, and why the complaint against Oreck was pleaded with sufficient particularity. On the later point, the court explained with respect to the ‘who, what, where, when and how’ as follows:
Judge Gettleman continued:
Oreck settled before an appeal of this order was taken. Thereafter, BP filed a Petition for Mandamus to the Federal Circuit, which is the subject of BP Lubricants.
On the petition, the Federal Circuit granted the extraordinary remedy of mandamus and found:
Section 292 provides in relevant part:
The Federal Circuit first addressed the ‘predicate question, one of first impression for this court: whether or not Fed. R. Civ. P. Rule 9(b)’s particularity requirement applies to false marking claims under § 292’. Fed. R. Civ. P. 9(b) provides:
The Federal Circuit explained the purpose of Rule 9(b) as follows:
In deciding that Rule 9(b) did apply to claims under §292, the Federal Circuit analogized false marking claims to claims brought under the False Claims Act, another qui tam statute: ‘[E]very regional circuit has held that a relator must meet the requirements of Rule 9(b) when bringing complaints on behalf of the government’ under the False Claims Act. Id. The BP Lubricants court concluded:
Having decided that Rule 9(b) applied to claims under §292, BP Lubricants considered the standard for determining whether Rule 9(b) was met. The court turned to the Federal Circuit precedent Exergen (the same authority relied upon by BP Lubricants at the district court level), and noted that ‘Exergen's pleading requirements apply to all claims under Rule 9(b), not just inequitable conduct cases’. With respect to the pleading requirements under Exergen, BP Lubricants explained:
In particular, the BP Lubricants court found that the district court's reliance ‘on the relator's general allegation that BP knew or should have known that the patent expired’, while nonetheless failing ‘to allege any facts inferring that BP was aware of the patent's expiration’ to be ‘clearly incorrect’. As the court explained:
Thus, the Federal Circuit concluded, ‘[b]ecause the relator's complaint here provided only generalized allegations rather than specific underlying facts from which we can reasonably infer the requisite intent, the complaint failed to meet the requirements of Rule 9(b)’.
The Federal Circuit then considered (and rejected as ‘unpersuasive’) the specific positions articulated by the relator Simonian as to why his Complaint nonetheless met the obligations of Rule 9(b).
First, the BP Lubricants court ‘disagree[d]’ with the relator's contention that ‘asserting in the complaint that BP is a “sophisticated company and has experience applying for, obtaining, and litigating patents” is enough under Rule 9(b)’. The Federal Circuit explained, ‘[t]hat bare assertion provides no more of a basis to reasonably distinguish a viable complaint than merely asserting the defendant should have known the patent expired. Conclusory allegations such as this are not entitled to an assumption of truth at any stage in litigation. Ashcroft, 129 S. Ct. at 1952’.
Next, the BP Lubricants court rejected the contention that ‘a false marking inherently shows scienter’ as ‘also unpersuasive’. In particular, the court distinguished this type of factual falsity from a false statement like ‘I am not married’ when the speaker is married, since in the case of false marking, the ‘relationship between factual falsity and state of mind is not nearly as apparent’. As the Federal Circuit concludes, ‘[t]his situation [the assertion of false marking] clearly falls into the latter category, requiring more than a mere statement’.
Third, in response to the realtor's contention ‘that unlike the inequitable conduct claim featured in Exergen, false marking is “anonymous” and is not an individualized fraud’, the court explained that ‘[o]verlooked by the relator is that the naming of specific individuals is not the only way to set forth facts upon which intent to deceive can be reasonably inferred. In an amicus brief, the United States points out that a relator can, for example, allege that the defendant sued a third party for infringement of the patent after the patent expired or made multiple revisions of the marking after expiration. None of these or similar assertions are present in the complaint here’.
Finally, the BP Lubricants court addressed the relator's attempt to invoke the rebuttable presumption of scienter, based on the decision in Pequignot v Solo Cup Co., 608 F.3d 1356, 1362–3 (Fed. Cir. 2010), which held that ‘the combination of a false statement and knowledge that the statement was false creates a rebuttable presumption of intent to deceive the public, rather than irrebuttably proving such intent’. In particular, the BP Lubricants court pointed to the fact that ‘“[t]he bar for proving deceptive intent [in false marking cases] is particularly high”, requiring that relator show “a purpose of deceit, rather than simply knowledge that a statement is false”’. Thus, the Federal Circuit explained, ‘[t]hat relator pled the facts necessary to activate the Pequignot presumption is simply a factor in determining whether Rule 9(b) is satisfied; it does not, standing alone, satisfy Rule 9(b)’s particularity requirement’.
Concluding that the pleadings were insufficient under §292, BP Lubricants considered ‘whether the circumstances of this case warrant this court's issuance of a writ of mandamus’ and noted that the question raised was one of first impression for the Federal Circuit and the subject of contradictory decisions in the district courts, thus ‘[c]onsiderations presented in this case, however, warrant the extraordinary remedy of mandamus’.
The court thus granted mandamus in part to direct the district court to dismiss the complaint for failure to state a claim, with leave to amend in accordance with the pleading requirements set forth in the decision.
In my earlier Current Intelligence regarding Stauffer, it was predicted that, ‘[t]he remand in Stauffer, however, provides hope that under heightened pleading standards for claims of fraud under Rule 9(b), such as evidenced in Exergen Corp. v Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009), the failure of qui tam plaintiffs to plead intent with sufficient particularity in the first instance should prevent the prosecution of many of these cases’. In BP Lubricants, the Federal Circuit confirmed that the heightened pleading requirements would indeed apply.
On a separate note, while not a subject of the Petition for Mandamus in BP Lubricants, BP has also filed a Notice of Constitutional Challenge to the qui tam provisions of 35 USC §292(b), which may be the subject of a future Current Intelligence either in further proceedings, assuming the relator can marshal sufficient facts to plead a claim, or in another case likely to raise this issue. Compare Unique Prod. Solutions, Ltd. v Hy-Grade Valve Inc., No 5:10-CV-01912, 2011 US Dist. LEXIS 25328 (N.D. Ohio 14 Mar 2011) with Pub. Patent Found., Inc. v GlaxoSmithKline Consumer Healthcare, L.P., No 09 Civ. 5881, 2011 US Dist. LEXIS 30676, at *8–11 (SDNY, 22 Mar 2011).
*Charles R. Macedo. Amster, Rothstein & Ebenstein LLP, New York, NY. Charles Macedo is author of The Corporate Insider's Guide to US Patent Practice, published by Oxford University Press in 2009. Mr. Macedo may be reached at [email protected]
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