Patent Marking Outlaws Watch Out! There's a Qui Tam Plaintiff on Your Trail!

As if there were not enough parties trolling through the patent world looking for infringers, the Federal Circuit gave a big Christmas present to parties searching for companies who have intentionally marked their products with a patent number the product is not entitled to. Under this decision, their reward could run into the millions.

A relatively obscure patent statute, 35 U.S.C. § 292, provides that, where a party marks an unpatented article with a patent number with the intent to deceive the public, “any person” may sue that party to recover a statutory penalty of $500 for “each such offence.” Known as a “qui tam” action, a successful plaintiff must split his recovery with the United States government.

This statute, dating back to the late 1800’s was rarely used, since, for the last century, it was understood that an “offense” was committed when the defendant produced a new model – not every time it sold a product.

On December 28, this all changed and this statute became a whole lot less obscure when the Federal Circuit issued its decision in Forest Group v. Bon Tool Company, which started out as a garden variety patent infringement case.

Forest Group owned the ‘515 patent, which covered an improved spring-loaded stilt of the type used in construction and sued Bon Tool for infringement; Bon Tool counterclaimed for a declaratory judgment of invalidity and for false patent marking. In August 2007, Bon Tool successfully moved for summary judgment of non-infringement and the court then held a bench trial on its false patent marking counterclaims .

The court found that since in another case brought by Forest Group, the court had made a non-infringement summary judgment ruling which made it clear that Forest’s own product was not covered by the ‘515 patent. The fact that Forest subsequently placed an order with its supplier for this same product – marked with the ‘515 patent number – showed to the court’s satisfaction that Forest had falsely marked its products with the intent to deceive the public.

Since Forest was held to violate the statute, the only really important issue was the amount of the penalty. Was it to be $500 for each “decision to mark,” as the district court determined? Or was it to be $500 for each sale of an improperly marked article, as Bon Tool requested?

The Federal Circuit examined the long history of the statute, going back to the 1870 Patent Act (which imposed a $100 penalty) through the 1952 Patent Act, which raised the penalty to $500. It looked at every possible rationale the courts have used to impose penalties under this statute over the years It looked at the public policy of the statute. And came to a decision which will empower a new category of trolls – the bounty hunter.

The Federal Circuit noted that, as early as 1910, the First Circuit had decided that “continuous” false marking under the statute would constitute only one offense on the grounds that “it can hardly have been the intent of Congress that penalties should accumulate as fast as a printing press or stamping machine might operate.” This rationale had been applied, the court noted, by a number of district courts since.

Other district courts, the Federal Circuit noted, had imposed what the court called a “creative” time based approach, imposing a penalty per week or per day.

All of these approaches, however, are contrary to the “plain language” of the statute, the Federal Circuit held, which “clearly requires a per article fine.”

This per article approach, contended the Court, was supported by good public policy. The false marking statute was intended to give the public notice of patent rights – false marking “deters innovation and stifles competition in the marketplace by deterring potential competitors from entering the market. The Court’s rationale for applying the penalty to every article was that “the more articles that are falsely marked the greater the chance that competitors will see the falsely marked articles and be deterred from competing. Applying a $500 fine for continuous marking would not, according to the Court, accomplish this public purpose.

The Court recognized the monster it may have created, noting that this decision would create a new “cottage industry” of false marking “trolls” since, under the statute, anybody can bring a false marking claim, whether they have suffered any damages or not. The Court’s only response was to note, in the face of 100 years of contrary precedent, that “this is what the clear language of the statute allows.”

The Court’s only solution for the problems this new “industry” will cause was to note that the statute does not require that the full $500 be imposed per article, but that a court might well impose a penalty of a fraction of a penalty. Cold comfort, obviously, to a target of such bounty hunter litigation who is faced with a threat of a verdict in the hundreds of millions and who will legitimately feel itself extorted into an excessive settlement.

So what can patent owners do in the face of this ruling? The only real solution is to be vigilant – watch closely for expiring patents and make sure that patent numbers are removed immediately. Watch for ambiguous rulings in patent cases you bring which, like this case, may result in a later determination that you “knew” that your product was not covered by a valid patent and that you “must have” intended to deceive the public.

For the new bounty hunters, looking to be the Boba Fett of the patent world – the only suggestion is “good hunting.”

Perfect Web -- When a patent is so obvious even a caveman could invalidate it

Now, I don't take very seriously the press that the patent system is "broken" and that the PTO is so overburdened that they'll let you patent a peanut butter sandwich. [Oh, wait, they did.]

But I have a hard time believing that a patent this dumb actually made it all the way to the Federal Circuit.

The plaintiff, Perfect Web, managed to get a patent on a bulk email distribution system which had four steps:

1. Match the target profile with a group of target recipients

2. Send the emails

3. Count the emails that were successfully received

4. If you don't get as many successful hits as you want, send out the emails again.

Remember, this is a patent, which would give Perfect Web the right to stop anyone else from doing this and to sue infringers for damages.

On top of everything else, the first three elements were held to be within the prior art, meaning that the patentability of this "invention" rested solely on the fourth element -- if it doesn't work the first time, try again.

Thank God for Judge Ryskamp of the Southern District of Florida, who threw this patent out on summary judgment. Perfect Web, however, appealed to the Federal Circuit.

The Federal Circuit started out its analysis by invoking the "common sense" standard from the Supreme Court's KSR decision, which makes it unnecessary to cite to particular art which would make a patent obvious if the court finds that "ordinary skill and common sense" would have led a person of ordinary skill to develop the claimed invention. The court found that what it described as the "try, try again" element would have been obvious as a matter of common sense, that performing the first three steps more than once was "one of the inferences and creative steps that a person of ordinary skill would employ" and that no expert testimony was necessary to invalidate this patent.

If you are interested in an excellent analysis of this decision in light of KSR from someone whose perspective is different than mine (but who comes to the same conclusion -- that this patent is dumb) go over to IPWatchdog.

The court also rejected Perfect Web's argument that the patent satisfied a "long felt unmet need" because it could not show that the supposed "need" was "long felt" or that the invention even met that need. Indeed, Perfect Web could not show that the invention actually reduced marketing costs, its supposed purpose.

So, I suppose the Federal Circuit comes through again. But it's a shame they had to waste their time on this one.

TS Tech revisited -- I've got a ticket to ride (out of Marshall)

As patent defendants who have been dragged into EDTex courtrooms against their will well know, the Fifth Circuit's recent decision in TS Tech has changed the landscape dramatically. Although the Eastern District judges are still pretty reluctant to let a patent case go if they think there is a good reason to keep it, even those judges know that cases that (1) have no contact whatever to East Texas and (2) clearly belong someplace else should be transferred -- and they have been.

The Federal Circuit has also taken up the cudgel of transfer and, in the recent case of In re Hoffman-La Roche, gave its views as to the weight that should be given to the convenience of the parties -- something that, in our online age, has been given less weight as of late.

In this case, Novartis, a California company, brought suit in the Eastern District of Texas against Fuzeon, a resident of North Carolina, for infringing its patent through its manufacture and sale (through Hoffman-La Roche) of an HIV inhibitor drug. Fuzeon objected, claiming that there were no witnesses within 100 miles of the Eastern District of Texas and that the key documents were all in North Carolina. Novartis argued that the witnesses were spread our all over the country and that, for some of them, Texas would be more convenient. Novartis had also been careful to move 75,000 pages of documents into its attorneys offices in Texas, so that it could claim that most of the important documents were in the jurisdiction.

Judge Folsom took pity on Novartis, holding that the case was inappropriate for transfer because the case was "decentralized" and that the president of Fuzeon could be compelled to come to Texas for trial.

The Federal Circuit gave pretty short shrift to Judge Folsom's decision, however.

First, in a nod to defendants who are in a fix like Fuzeon's, the Federal Circuit indicated that it would be open to writs of mandamus on transfer issues, noting that it would be an "inadequate remedy" for a party in an inappropriate vene to have to wait for judgment to challenge it.

The court noted several factors which, it held, warranted sending the case to North Carolina: (1) the accused drug was developed and tested in North Carolina; (2) the claim "calls into question to work and reputation" of residents of that district; (3) there are four non-party witnesses who live within 100 miles of that district who could be compelled to attend both deposition and trial; (4) the North Carolina docket was less congested.

Two important points the court raised, which should put parties on notice:

• Shipping documents into the Eastern District in order to "manufacture" venue is not a good idea. The courts see right through it and it just makes them mad.
• The fact that you can subpoena the defendant's witness for trial does not give you the "absolute subpoena power" referred to in the Fifth Circuit's Volkswagen case -- to have this power, you need to have the ability to subpoena all material party and non-party witnesses for deposition and trial. This was not the case here.

So, all of you defendants looking for a "ticket to ride" out of the Eastern District, you might consider going to the ticket window in Washington DC, if they are not selling them in Marshall.

Patent plaintiffs can win the declaratory judgment forum battle far from home

Normally patent holders like to sue their victims in one of two places -- (1) their home town; or (2) beautiful downtown Marshall or Tyler, Texas. They like to pick their forum for either their own convenience or to benefit from the plaintiff friendly (or so it is thought) wilds of East Texas.

Accused infringers, obviously take the other tack -- if they know they are going to be sued anyway, they will often bring a DJ (declaratory judgment) action in their own home district before they can get sued in a place the plaintiff has picked.

This conflict can often result in quite a battle, but in a recent district court decisions from the Northern District of California, the patentholder was able to successfully move the case out of the defendant's chosen forum by proving that there was simply no jurisdiction over them in that district.

In Smugmug, Inc. v. Virtual Photo Store LLC, 2009 WL 3833969 (N.D. Cal. Nov. 16, 2009), before Judge Wilkin, the plaintiff, a resident of the Northern District, brought a declaratory relief action with respect to the patent owned by the defendant (a resident of Chicago) for digital image management.

In response to the defendant's claim that there was, in fact, no jurisdiction over it in the Northern District, Smugmug claimed that there was general jurisdiction over Virtual Photo in California based on (1) Virtual Photo's solicitation of business in California through its website; and (2) because it was the alter ego of its law firm, which allegedly had contacts in California

Smugmug also claimed that there was specific jurisdiction over Virtual Photo because of its extensive patent licensing program in California -- 20 solicitations and 5 licenses, one of which required the licensee to pay ongoing royalties. Indeed, a substantial portion of the defendant's revenue was earned from these California licensees.

The court rejected these arguments, even given the Federal Circuit's decision in Autogenomics, Inc. v. Oxford Gene Tech Ltd., 566 F.3d 1012 (Fed. Cir. 2009) that enforcement activities related to the patent could subject a patentholder to jurisdiction. The court noted that (1) cease and desist letters, by themselves, cannot subject a patentholder to specific jurisdiction; (2) the letters sent to prospective patent licensees were not even cease and desist letters but, rather, "invitations to license."

Surprisingly (at least to me) the court rejected the plaintiff's argument that the defendant's licenses with California companies and its earning of substantial revenue from these licenses on the very patent which was the subject of the lawsuit would not justify jurisdiction. As the court noted, such non-exclusive licenses constituted "commercialization" of the patents, rather than "enforcement activities," which, according to the court, were not sufficient under Autogenomics to justify jurisdiction.

So if you're a defendant who feels threatened by a patent plaintiff and you want to avoid being either home-towned on the other guy's turf or eating lunch at Porky's Smokehouse in Marshall, make sure you check out where you can actually get jurisdiction over your opponent.