16 March 2011
The US Court of Appeals for the Federal Circuit has held that plaintiffs must plead false marking claims with particularity under Federal Rule of Civil Procedure 9(b), ending a disagreement among district courts as to the applicable pleading standard. In re BP Lubricants, Misc. No. 960 (Fed. Cir. March 15, 2011). The court granted defendant BP Lubricants’ petition for a writ of mandamus, explaining that like the False Claims Act, the false marking statute condemns fraudulent or false marking, and these claims should be treated similarly. As the court explained, “[p]ermitting a false marking complaint to proceed without meeting the particularity requirement of Rule 9(b) would sanction discovery and adjudication for claims that do little more than speculate that the defendant engaged in more than negligent action.” Indeed, the heightened pleading standard ensures that relators cannot use discovery as a “fishing expedition.”
The court went on to explain that the standard articulated in Exergen v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed Cir. 2009), applies to all claims under Rule 9(b), not just inequitable conduct cases. Under that standard, although plaintiffs may aver “knowledge” and “intent” generally, the pleadings must also “provide some objective indication to reasonably infer that the defendant was aware that the patent expired.” According to the Federal Circuit, the district court’s reliance on a general allegation that BP knew or should have known that the patent expired was “clearly incorrect.”
The Federal Circuit also rejected the relator’s arguments that a false marking inherently shows scienter. Instead, the court determined that false marking “clearly falls” into the category of false statements where “the relationship between factual falsity and state of mind is not nearly as apparent.” As such, it is necessary to “set forth facts upon which intent to deceive can be reasonably inferred.”
Furthermore, although the combination of a false statement and knowledge of falsity creates a rebuttable presumption of intent to deceive, the Federal Circuit made clear that pleading facts necessary to activate that presumption does not, standing alone, satisfy the particularity requirement. Instead, it is merely a factor in the court’s analysis.
Finally, in perhaps the most important aspect of its ruling, the court explicitly rejected the relator’s argument that allegations that BP was “a sophisticated company and has experience applying for, obtaining, and litigating patents” were sufficient under Rule 9(b). The court ruled that this “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.” Under BP Lubricants, these conclusory allegations are no longer even entitled to an assumption of truth.
In refusing to dismiss false marking complaints in the past, district courts throughout the country have relied on such “sophisticated company” allegations. Even when applying Rule 9(b), many district courts have previously ruled that similar allegations were sufficient to establish the requisite “who, what, when, where, and how” of the alleged fraud. BP Lubricants has now opened the door for false marking defendants to seek reconsideration of prior rulings, even in courts that purportedly applied the heightened pleading standards. Because the majority of courts applied Rule 9(b) prior to BP Lubricants, the Federal Circuit’s holding as to these specific allegations is likely to have a direct impact on more defendants than its general holding regarding the applicable pleading standard.
BP Lubricants is the first appellate victory for false marking defendants since Pequignot v. Solo Cup, 608 F.3d 356 (Fed. Cir. 2010). In its latest false marking decision, the Federal Circuit affirmed that qui tam plaintiffs have standing to sue for violations of 35 U.S.C. § 292, striking a blow against defendants. Since that decision, the surge of false marking complaints has continued, and qui tam plaintiffs have scoured store shelves and the Internet looking for expired patents on products or in advertising and alleging that those markings remained after expiration as a result of the defendant’s nefarious intent. But BP Lubricants is the first Federal Circuit decision to recognize the reality that this mismarking may just as often be a result of innocent mistakes or lax monitoring efforts. Although it remains to be seen how qui tam plaintiffs will amend their allegations in light of this case, this increased scrutiny of complaints may be the first step toward stemming the growing tide of false marking suits against defendants who lacked any plausible intent to deceive.
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