Qui Tam Actions in Senate Sights

Manager's Amendment of S. 515 Would Eliminate Most Suits

    By Kevin E. Noonan --

Over the past few weeks, close to perhaps one hundred actions, characterized as "qui tam" (or whistleblower) lawsuits have been filed against several large companies (including 3M, Monster Cable Products, S.C. Johnson & Co., Proctor & Gamble Co., and Novartis Pharmaceuticals, Inc.).  These actions are based on alleged violation of 35 U.S.C. § 292(b), the "false marking" portion of the patent statute that makes it a violation to intentionally mark an item in commerce with a patent number that has expired or does not protect the goods:

(a)  Whoever, without the consent of the patentee, marks upon, or affixes to, or uses in advertising in connection with anything made, used, offered for sale, or sold by such person within the United States, or imported by the person into the United States, the name or any imitation of the name of the patentee, the patent number, or the words "patent," "patentee," or the like, with the intent of counterfeiting or imitating the mark of the patentee, or of deceiving the public and inducing them to believe that the thing was made, offered for sale, sold, or imported into the United States by or with the consent of the patentee; or Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article the word "patent" or any word or number importing the same is patented, for the purpose of deceiving the public; or Whoever marks upon, or affixes to, or uses in advertising in connection with any article the words "patent applied for," "patent pending," or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public - Shall be fined not more than $500 for every such offense.

(b)  Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.

These suits have arisen at this time in part because of the Forest Group, Inc. v. Bon Tool Co. case, where the Federal Circuit determined that calculation of the statutory penalty for false marking (up to $500 per "offense") would be left to the sound discretion of the trial court; this overturned the District Court's calculus that each "offense" was the decision to false mark, and created the possibility of a windfall for plaintiffs.  For mass-produced and –sold consumer items, a fine of $500 for sale of each improperly-marked item would be catastrophic.  The Federal Circuit is set to hear oral arguments on April 6 on a similar case, Pequignot v. Solo Cup, that will address the question of intent to false mark that raises liability under the statute.

While there has been much to criticize in the attempts in this and prior Congresses to pass patent "reform" legislation, one provision of the Senate bill, S. 515, contained in the recently-released Manager's Amendment seems to provide a quick remedy for this rash of qui tam lawsuits.  The specific language is contained in Section 2, subsection (k):

(k) FALSE MARKING.—

(1) IN GENERAL.—Subsection (b) of section 292 of title 35, United States Code, is amended to read as follows: ''(b) A person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.''

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to all cases, without exception, pending on or after the date of the enactment of this Act.

Perhaps the most important feature of the proposed legislation is its retroactivity:  section (k)(2) would, if passed, support a motion to dismiss for almost all of the defendants in all of the qui tam lawsuits now pending.  On the other hand, the proposed legislation converts a public right to a private one, and raises the possibility that a false-marking patentee could be subject to multiple lawsuits by several of its competitors.  And the proposed change eliminates the government's right to half of the fine imposed for false marking.

Passage of this or any other portion of S. 515, is uncertain at best, particularly in view of the broadside from the House directed at Senator Leahy and his Senate brethren who have agreed on the latest "compromise" (see "House Leadership Says It Lacked 'Adequate Input' on Senate Patent Reform Bill").  However, it is good to see representative government working at its best:  a problem arose for important constituents, and their representatives promptly responded.  Would that this performance was the norm, and more generally the case for all Congress's constituents.  But for the companies under the threat of qui tam litigation, this amendment could not have come at a better time.

Hat tip to Alan Krantz of McDonnell, Boehnen, Hulbert & Berghoff LLP for contributing to this post.

Comments

[EG]

Kevin,

This provision on qui tam actions for false marking may be going a bit overboard. But the fact is, these qui tam actions are being used (and abused) like a state lottery ticket. It's the new "ambulance chase." If a competitor has a beef about a false marking that's hurting it, that's one thing. But to allow someone to sue for false makring when they aren't injured by it, and espeically when competitors don't feel injured or threatened by the "alleged" false marking, is truly a "windfall" that makes all these so-called "patent troll" suits pale by comparison.

[staff]

"qui tam"

It's nice that they can get something right, but the rest of the bill only makes matters worse -certainly so for small entities.

Patent reform is a fraud on America. It is patently un-American.
Please see http://truereform.piausa.org/ for a different/opposing view on patent reform.

[6]

NAL's shrill voice defending the status quo in 3, 2, 1...