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New Patent Law Ruling Could Cost You Big Bucks

The stakes have been raised on "false mark" lawsuits -- it's time to review your labels.
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Got a patent, or have you labelled your product "patent pending" before you've actually put the application in the mail? A recent court ruling on false marking could make you liable for some big bucks – and anyone (not just a competitor) can file a lawsuit.

Patents, of course, stop competitors from stealing your ideas, and if you don't mark them on your products, you're limited in the amount of damages you can recover. But if you stamp your baby wrongly in an attempt to head off competition, you may find yourself on shaky legal ground; a December court decision seriously has raised the stakes. 

On December 28, 2009, the Federal Circuit Court of Appeals held in the case of Forest Group Inc. v. Bon Tool Co. that patent owners and others may be fined up to $500 ($250 for the plaintiff and $250 for the federal government) for every product or advertisement bearing a false patent marking. (Note that the fine is per item – if you've got 1,000 items mislabelled, you could be liable for $500,000 – a big change from pre-ruling, when it was a single $500 fine per decision). What's considered false marking? Saying there's a patent pending when you haven't actually filed an application, using a patent number that doesn't cover the product, and marking a product with a number that has expired. (If you think it was such a struggle to get the patent that you'd never let it expire, keep in mind that if you miss a maintenance fee, your patent can lapse prematurely).

Who besides a competitor would bother to file a lawsuit? Anyone with access to Google (you can check a patent's lifespan and other particulars here) and a bit of free time – the new fines make it potentially more lucrative than, say, eBaying what's in the basement. Some 60 lawsuits have been filed in federal courts in the past two months – 28 of them from one Chicago-area man. Compare that 60 to just seven filed in the eight months before the ruling.

Once upon a time the courts were lenient about false marking, generally looking for – and finding – good faith on the part of the company that the patent number used actually covered the product. But in recent years the courts have made it clear that it's up to patent owners to fork out the funds required to make sure markings are correct. In 2005's Clontech Labs, Inc. v. Invitrogen Corp., the court found Invitrogen had falsely marked molecular biology products and in its ruling highlighted the public interest in free market competition. It stated: "the act of false marking... externalizes the risk of error in the determination, placing it on the public rather than the manufacturer or seller of the article, and increases the cost to the public of ascertaining whether a patentee in fact controls the intellectual property embodied in the article."

What can you do to minimize your liability?

Lawyers Gerry Kraai and Justin Poplin of intellectual property firm Lathrop & Gage suggest documenting your reasons for marking a product as you have. You can get a lawyer to do this but the notes of a supervisor or engineer will suffice – the point is to show that you have a review process in place and could help you demonstrate good faith if a suit is ever brought.

Second, avoid any conditional language – both "this product may be protected by" or "this product is protected by one or more of" (in the latter, you need to know exactly which patents it's protected by). If you're not sure if you can use a patent number, you'll need to consult a lawyer – this goes back to the court's ruling that it's up to the holder to pay for any costs associated with using a patent.

Kraai and Poplin also suggest a regular review of products, blogging that "the costs involved with implementing a policy to avoid falsely marking will be only a very small fraction of the costs associated with defending against a false marking suit."

Last updated: Mar 3, 2010

COURTNEY RUBIN

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.




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