The Rise of False Marking Litigation


There is a new litigation trend brewing on the horizon: false marking. Much like the increase in litigation in early 2000 from patent trolls, this is now a new source that’s driving increases in litigation. Because of a recent court decision, it is extremely profitable to sue companies who have falsely marked products as patented. The following chart shows the massive increase in cases in the first three months of 2010 already.

False Marks Litigation Trend 1998 — 2010

For operating companies, this has serious implications for product projection strategies, maintenance decisions, and product management.

Background

U.S. Patent Law explicitly permits marking products to indicate they are in some way protected by a patent. There are a number of reasons a company might decide to expend the effort of marking a product to indicate a patented technology, process, or material was used in producing it. It might be determined, for example, that as a marketing tactic, the mark provides a competitive advantage by causing the perception that the product is superior.

Another obvious reason to mark a product is that it puts your competitors on notice that they are barred from copying anything unique about your product without your written permission. A careful reading of the statute (35 U.S.C. Section 271), however, reveals something that might not be quite so obvious initially.

The statute also explicitly prevents a patent holder from being awarded compensatory damages if the product is not marked and someone infringes on the patent. The functional effect is that your product should be marked for business reasons that go beyond a simple marketing tactic. In the event you discover that someone is infringing on your IP, you are limited to collecting for damages only after the competitor was put on notice. Those facts by themselves seem relatively simple to understand–but they are complicated by another section of the law known as False Marking. USC 35 Section 292 makes it unlawful to mark a product as being protected by a patent if it is not.

The law has also recently been interpreted in such a way as to make it a very expensive violation. At one time the law was interpreted on a per product basis; it was a single violation to distribute any number of the same product with a false mark. The law limits the fine to $500.00 per violation, which is not a significant incentive to a large company and, consequently, they tended to ignore the legally required due diligence. On December 28, 2009, however, a U.S. appellate court for the Federal Circuit held that fines should be imposed on a per article basis, a much greater incentive to pay attention to product markings.

This new ruling has produced the steep rise in false marking litigation as shown in the previous diagram.

The Impact to Operating Companies

The upshot is that there is a very real business need to mark your products–but it’s critical to monitor and manage your IP very closely in the process to ensure you don’t fall victim to a False Marking lawsuit. That can be a very tall order, though, because you need to translate between what is patented and what technologies your product contains. That means you need to have an understanding of which products are associated with which patents in your portfolio.

There are three areas that can impact an operating company:

  • Product protection strategies: You need to clearly identify what products are your biggest sources of revenue and align patents to protect them. 25% of product owners also own patents, resulting in significant patent infringement. Marking can be an effective tool of preventing duplication, but you need to think about your entire IP strategy (products, trademarks, patents, etc), especially around enforcement and infringement detection.
  • Patent maintenance decisions: As patent maintenance comes due, companies are making decisions about whether to renew patents. There is a large financial incentive to not renew patents to avoid maintenance fees, but it comes at a potential cost because of the lost patent protection. Incorporating patent-to-product association into the maintenance process becomes imperative, especially given the new threat of a false marking lawsuit.
  • Product management: A number of important questions require answers as you develop your product management strategy:
    • As new products are developed or repackaged, what IP is protecting them?
    • How do you put your IP into a product-related taxonomy?
    • How are you designing packaging to compete with other’s IP and products?
    • Do team members (developers, product managers, legal researchers, etc.) have the IP and product data they need when they need it?

Today, there is really only one practical way to address these critical areas: Innography.

Innography enables the understanding of trademarked product and patent associations. Rather than trying to catalog all your products with their patent marks, you can quickly search your trademarks (which represent your product pool) and with a single click, determine what patents are in play. This helps with protection strategies, maintenance decisions, and general product management, and can be helpful to understand marking issues before a competitor threatens a false marking lawsuit.

While the Senate is reviewing legislation around false markings, it appears that it will only limit lawsuits to be brought by competitors, instead of including individuals as well. No matter how it shapes up in 2010, it is clear that a new trend of lawsuits has appeared and it has deep implications for product management strategies.

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