3 September 2010
The US Court of Appeals for the Federal Circuit has ruled that qui tam plaintiffs have standing to sue for false marking under 35 U.S.C. § 292. Stauffer v. Brooks Brothers, Inc., No. 2009-1428 (Fed. Cir. Aug. 31, 2010). Issuing a blow to patent marking defendants, this ruling is sure to impact the flood of cases currently pending in district courts, many of which were stayed pending resolution of Stauffer.
Raymond Stauffer—a patent lawyer himself—brought the suit after he discovered that several bow ties he purchased from Brooks Brothers were marked with two expired US Patents. The district court dismissed Stauffer’s suit for lack of standing, holding that he had not sufficiently alleged an injury to the United States and that any allegations that the alleged false marking quelled competition were too conjectural or hypothetical to constitute injury in fact.
In a broad ruling, the Federal Circuit reversed and held that Stauffer had standing to sue as a qui tam plaintiff and an assignee of the government’s claim. Relying on Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000), the court reasoned that either a sovereign or a proprietary injury to the United States was sufficient to confer standing upon the government, and therefore upon Stauffer as its assignee. No competitive injury was required. The court rejected the defendants’ reliance on Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), which denied plaintiffs standing under a citizen-suit provision. The distinction, according to the Federal Circuit, is that the citizen-suit provision allows private individuals to sue the government, while the qui tam provision allows individuals to stand in the government’s stead, as assignees of the government’s claims.
After Stauffer, a qui tam plaintiff must still allege that the United States has suffered an injury-in-fact causally connected to the defendant’s conduct that is likely to be redressed by the court. In practice, however, that standard will be easily met. The court noted that a violation of the statute inherently constitutes an injury to the United States because Congress has defined that injury by enacting the statute. Furthermore, the court explained that “Stauffer’s standing arises from his status as ‘any person’ [under § 292], and he need not allege more for jurisdictional purposes.” Under this language, any allegations sufficient to establish a violation of § 292 will also likely be sufficient to confer standing.
District courts have seen a massive surge in false marking suits since late last year when the Federal Circuit held that § 292 mandates the imposition of a fine on a per-article basis (as opposed to a per-marking-decision basis). The Forest Group, Inc. v. Bon Tool Co., No. 2009-1044 (Fed. Cir. Dec. 28, 2009). More than 350 false marking suits have been filed, many by organizations owned by enterprising patent attorneys.
Although the Stauffer decision will not stem the tide of false marking suits—as many patent owners had hoped—several options remain for defending against these actions. At the pleading stage, defendants can attack the manner in which the plaintiff has pleaded intent. Furthermore, the most likely way for a defendant to prevail on summary judgment is to show that it lacked an intent to deceive the public.
Moreover, the Federal Circuit has never addressed the constitutionality of the statute. For example, in Stauffer, amicus Ciba argued that the assignment of the government’s claim violates the “Take Care” clause, US Const. Art. II, § 3, but the court refused to reach the issue as it was not raised below. Ciba noted that the patent marking statute lacks the protections that were key to Vermont Agency’s ruling that the False Claims Act was constitutional. Specifically, the False Claims Act provides the government with the right to be notified of a case before the defendant is served, the right to intervene, the right to seek dismissal or settlement over the objection of the relator, and the right to prevent dismissal of the action by the relator. All of these procedural protections are absent from the statutory language of § 292, although the Federal Circuit in Stauffer ruled that the government was entitled to permissive intervention. Nonetheless, the Federal Circuit’s refusal to address this issue leaves an option available for future challenges to the statute in the district courts and on appeal.
While Stauffer is largely a victory for patent marking plaintiffs, dicta in the opinion may protect defendants from facing multiple suits for the same false marking violation. In holding that the government was entitled to intervene, the court noted that if Stauffer loses, the government’s claims would be precluded. Several district courts had held that a defendant could face only one suit per false marking violation, but the Federal Circuit had not addressed the issue before Stauffer.
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