False-Marking Suits Slow After Federal Circuit Ruling

Reprinted with permission from Westlaw News & Insight,

NEW YORK, March 22 (Reuters Legal) - A ruling by a federal appeals court last week that made it harder to cash in on expired patents appears already to have reduced a flood of opportunistic patent lawsuits to a trickle.

Under patent law, individuals can sue companies for selling products displaying patent numbers that have expired and split any penalties with the government. Under a ruling March 15 by the U.S. Court of Appeals for the Federal Circuit, plaintiffs in these so-called false-marking suits must now show there was deceit or fraud on the part of the companies.

Since March 16, the day after the ruling, only one new false-marking suit has been filed, according to an analysis of court filings on Westlaw, down from several cases a day before the ruling.

The decision was a reprimand to district courts that have allowed such cases to proliferate, said David Leichtman, an intellectual property expert and partner in the New York office of Robins, Kaplan, Miller & Ciresi L.LP. Leichtman said it is too early to say if the ruling will lead lawyers to stop filing new cases, but "it certainly should slow them down."

The Federal Circuit ruling grew out of a suit brought by a Chicago patent attorney against BP Lubricants for selling bottles of Castrol oil carrying expired patent numbers.

Such cases have abounded since 2009, when the Federal Circuit ruled that a penalty of up to $500 applies to each item sold with an expired patent number.

After the 2009 decision, lawyers and individuals began scouring stores and the Internet in search of products with expired patent numbers. The task was fairly easy because patents expire after 20 years, and the U.S. Patent office assigns numbers in chronological order. Any mark below a certain number signifies an expired patent.


The March 15 ruling by the Federal Circuit, a specialized patent appeals court, follows a move in the same direction last month by U.S. District Judge Dan Polster of the Northern District of Ohio, who found the false-marking statute to be unconstitutional because it effectively privatized U.S. law enforcement. The Ohio ruling did little, however, to slow the number of false-marking suits, especially in plaintiff-friendly venues such as the District of East Texas, according to an analysis of Westlaw data.

Typical of these kinds of cases was one filed on March 9 against Park Tool USA, a small Minnesota company that makes bicycle tools, including a plastic brush used to clean gears whose patent expired in 2008. Park Tool was sued by Patent Group LLC, a Texas-based entity that has brought dozens of patent cases.

John Krawczyk, a product manager at Park Tool, said the patent was still marked on the product only because the company is using the same molding that it used 20 years ago. "There's no intent to deceive on our part," he said.

Within 24 hours of learning about the lawsuit, Park received proposals from four different law firms offering to defend the company. "Things seem to have developed into quite the cottage industry," Krawczyk said.

Leichtman, the New York patent expert, said last week's ruling is a clear signal that the Federal Circuit wants to cut back on this type of lawsuit. He said the current law gives law-enforcement powers to patent attorneys who are seeking to make a profit without regard to who they are suing. "The United States wouldn't try to put a company out of business because they falsely marked a paper cup or a Frisbee," Leichtman said.

The cost of defending a false marking suit is typically $30,000 to $50,000 according to Steve Williams, a partner at Kennedy Clark & Williams in Dallas, whose firm has defended several such suits. Most suits result in settlements that can be worth hundreds of thousands of dollars.

Last week's ruling is: In Re BP Lubricants USA INC, U.S. Court of Appeals for the Federal Circuit, No. 960.

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