An unconstitutional patent false-marking statute

by Walter Olson on March 1, 2011

Along with the Cato Institute’s Center for Constitutional Studies, I’ve filed an amicus brief (a first for me) urging the U.S. Court of Appeals for the Federal Circuit to recognize the constitutional flaws in the federal “false marking” statute, which empowers private parties to sue over inaccurate (in practice, mostly expired) patent markings on products and collect fines of a generally criminal/punitive as opposed to civil/compensatory nature. Here’s our argument in a nutshell, from the Cato website:

Recognizing an opportunity to make quick and easy money, private attorneys have been suing companies under the False Marking Statute, 35 U.S.C. § 292. This law allows any person to sue to enforce a federal criminal statute that prohibits anyone from labeling an unpatented product with a patent number or to advertise a product with a patent number that is not actually patented. The penalty for violating this law is $500 per offense, which has been interpreted to mean each and every product falsely marked. For instance, if a business is charged with falsely marking 100,000 products, it could be liable for $50,000,000. Private attorneys suing under this statute seek massive amounts in damages and then try to settle with the defendant for a fraction of that cost (still a large amount of money). Companies often settle even if the case against them has little merit because they do not want to risk such a massive amount in damages. The longtime toy manufacturer Wham-O, however, successfully defended such a lawsuit in court, provoking the plaintiffs’ lawyers to appeal to the Federal Circuit (the only appellate court below the Supreme Court that can hear patent cases). Cato, along with our senior fellow Walter Olson — who has studied these patent marking cases — filed an amicus brief supporting Wham-O on constitutional grounds. We argue that the False Marking Statute fails to give the executive branch, through the attorney general, control over the enforcement actions brought at its behest. By allowing any person to sue and then receive half of the damages, the law abrogates the executive power to enforce the law and places it in the exclusive hands of the private attorney. In the 1988 case of Morrison v. Olson, the Supreme Court upheld the independent counsel statute because it gave the Attorney General “sufficient control” over the independent counsel’s hiring, firing, and the scope of their investigation. Other courts have held that for a private person to prosecute what is called a “qui tam” action under the False Claims Act — essentially stepping into the shoes of the government — the government must maintain “sufficient control” over the litigation. The False Marking Statute does not provide sufficient control, or any control, and therefore violates Article II’s “Take Care Clause,” the font of the executive branch’s enforcement duties. Ultimately, the separation of powers, the foundation for the governmental structure created by the Framers, ensures that laws are enforced by someone accountable to the people, the Executive. The False Marking Statute divests the president of this authority, so the Federal Circuit should strike it down as violating the Constitution’s separation-of-powers structure.

My colleague Ilya Shapiro has more on the case at Cato at Liberty. Incidentally, a federal judge in Ohio just ruled in a separate case that the statute is, indeed, unconstitutional; you can read about that at Volokh Conspiracy, Point of Law, the WSJ Law Blog, and WLF Legal Pulse. Earlier on false marking suits here.

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“Constitutional attacks on patent false-marking law gain traction”
03.03.11 at 6:55 am

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1 VMS 03.01.11 at 8:11 am

There is something highly inequitable about the false marking statutes, but it seems to me that they are constitutional under Walter’s argument. What may not be constitutional is the punitive nature of the statute under the 8th Amendment when used for merely expired patent marking. (i.e. someone never reworked the molds to remove the number).

The beef, however, is probably with Congress rather than the courts. In this day in age, with the status of all patents on-line at http://www.uspto.gov , the statute has outlived its usefulness. No longer does one have to hire someone to go down to Washington or a Patent Depository Library to research whether a number stamped on a product is a patent still in force, but rather they can determine that themselves, in under a minute, should they decide to make a product from an expired patent. “False marking” with an expired patent number no longer gives a person an unfair competitive advantage.

On the other hand, for true fraud, where someone uses another’s patent number on a product, I have no problem with the punitive nature of the statute when the true owner of the patent or the actual innocent buyer of the offending product is suing, but those cases are few and far between.

2 robert 03.01.11 at 3:31 pm

It strikes me as odd/unfair that there’s no difference between a completely fabricated lie about a patent, and a company accurately giving the patent number of an expired patent that used to apply to the product or device.

I don’t see how a reference to an expired patent number in any way misrepresents the product. You would look up the patent and see when it was granted, etc. The information, in fact, would help you if you wanted to invent an improvement or modification to the device.

A company that claims a bogus patent on a product to add credibility or to discourage competition is a different case. But most of these lawsuits we hear about are for the former, expired patent, scenario. Mostly because those companies have deeper pockets.

3 Mark Biggar 03.01.11 at 4:32 pm

In any case for expired patents there should be some leeway (say a year) to let the production pipeline to drain out. Does this law make any provision of items manufactured before the patent expires, otherwise every item with a patent number on it is eligible to be sued over the instant a patent expires. If that’s the case, then the only way to avoid suit is to not put patent numbers on things at all!

4 robert 03.01.11 at 4:44 pm

In fact, Mark, that’s now the policy of a client of mine who used to put patent information in the splash screen of software applications.

5 VMS 03.02.11 at 6:58 pm

@ Mark “If that’s the case, then the only way to avoid suit is to not put patent numbers on things at all!”

Under 35 USC 287, a patentee cannot sucessfully sue for infringement unless the infringer was on notice of the patent, and marking the product is the classic form of notice and authorized by the statute.

6 ipatty-pa 03.07.11 at 5:49 pm

With rights come responsibilities. Just because a company had a patent in the past doesn’t give the company an unfettered right to continue exploiting the patent forever. I don’t understand the logic of trying to project these companies as poor innocent victims. These companies have enough resources to file and obtain a patent but don’t have resources to check once in a while (when they order new packaging, for example) to check if the patents marked therein are still valid. Continue using an expired patent is an attempt to unlawfully extending their monopoly. Someone noted that since the patent database is online, 35 USC 292 is pointless. Why should a consumer has a burden of checking whether the patent is no longer valid. If I am in a store, am I suppose to run back home to check whether the patent numbers are valid? I generally tend to buy patented product thinking that the product includes a functionality no other product in the market can have. But, this is not true if the patent has expired. In that case, other products may have the same technology. But I will end up buying the false marked product (and pay more money in the process).

Also, it is not just falsely marked number. A company may also mark a product with a patent which does not cover the features of the product. How would a member of public know if the patent claims really cover the product features.

Most of these companies are billion dollar companies and pays their executives $100s millions in bonus. Then why can’t they hire a part time employee (to the very least) to check patent markings when new packaging is ordered. If they can’t take this responsibility then they shouldn’t be obtaining patents. No one can force them to obtain patents.

So please stop being a wuss. If you really care about state of law, look into criminal statutes that send people to prison for years even for minor offenses and show your pitty there.

7 I Hate Lawyers 03.12.11 at 8:23 pm

I-Patty –
Your post is idiotic.
I don’t know ANY consumers who go shopping and look at patent numbers. That makes no logical sense whatsoever.

The only people interested in patent markings are the COMPETITORS who want to offer similar products.

You sound like a lawyer who has filed a bunch of these bogus cases. Hopefully Congress will act soon to put people (“People” used very generously here) out of business.

8 I Hate Lawyers 03.12.11 at 8:25 pm

edit: People “like you” out of business.

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