Apple and Others Sued for $60 Billion+ for False Patent Marking

Over the last year or so a new cottage industry has risen in the patent field; namely a new type of patent troll that seeks to sue companies that are continuing to sell products containing an expired patent number. These so-called false marking cases arise from 35 USC § 292, and were given new life thanks to a Federal Circuit decision from December of 2009 — The Forest Group Inc. v. Bon Tool Co. — which quite correctly and quite literally interpreted § 292. As a result, large companies are getting sued every week, and recently Americans for Fair Patent Use sued Apple, Sprint, Verizon and Samsung in the United States District Court for the Eastern District of Texas alleging that the companies are selling products that have expired patent numbers on them, making them the latest high profile targets of this new false marking patent troll.  See AFPU v. Appel complaint. One source estimates that if successful the lawsuit could cost Apple alone a total of $60 billion. See Apple Faces $60 Billion Plus Patent Lawsuit (last paragraph specifically, which modestly calculates damages based on iPhone and iPad sales).

There are two elements of a § 292 false marking claim.  The plaintiff must prove that the (1) marking an unpatented article and (2) intent to deceive the public.  Intent to deceive is a state of mind arising when a party acts with sufficient knowledge that what it is saying is not so and consequently that the recipient of its saying will be misled into thinking that the statement is true.  A party asserting false marking must show by a preponderance of the evidence that the accused party did not have a reasonable belief that the articles were properly marked.  An assertion by a party that it did not intend to deceive, standing alone, is worthless as proof of no intent to deceive where there is knowledge of falsehood.

At the time the Federal Circuit set us out on this bold new course they were cautioned by the defendant that “interpreting the fine of § 292 to apply on a per article basis would encourage ‘a new cottage industry’ of false marking litigation by plaintiffs who have not suffered any direct harm”  How true a prophecy.  The Federal Circuit, however, explained:

This, however, is what the clear language of the statute allows. Section 292(b) provides that “[a]ny 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.” 35 U.S.C. § 292(b). As noted by Forest, an amicus brief was filed in this case by an individual who created a holding company to bring qui tam actions in false marking cases. Commentators have discussed a surge of such actions in recent years, noting the possible rise of “marking trolls” who bring litigation purely for personal gain.

So now Apple, Spring, Verizon and Samsung are the latest high profile targets and could be facing a penalty of $500 per product sold that was sold with an expired patent number.  Personally, I find it very unlikely that this patent troll will prevail.  Intent is a very hard thing to prove when it is really required in a strict sense.  While it may be easy to prove that products were sold that contained expired patent numbers it will be far more difficult to prove that there was any malice involved.  As an attorney who broke me in once told me — never attribute malice to what can be explained by incompetence.  You see, as it turns out most people are not malicious or intend to engage in fraud.  Incompetence and/or general stupidity is far more likely than malicious behavior, and the is set up to recognize that truth.

Many might be wondering how it is possible that Americans for Fair Patent Use can even maintain an action against the defendants.  Well, 35 USC 292 is an rare statute.  Those who are not injured are allowed to bring an action like this and recover.  The statute specifically says: “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.” So it is a form of what is called a qui tam action, and Americans for Fair Patent Use stand to rake in upwards of $30 billion if successful just on their claims against Apple.

What is a qui tam action?  Nolo offers this definition:

a lawsuit brought by a private citizen but brought for “the government as well as the plaintiff.” This type of action is generally based on significant legal violations which involve fraudulent or criminal acts, and not technical violations or errors. If successful, the plaintiff ll be entitled to a percentage of the recovery of the penalty as a reward for exposing the wrongdoing and recovering funds for the government.

In Forest, the Federal Circuit explained qui tam and the rational for interpreting the $500 maximum penalty as a per item sold penalty rather than a single fine:

Rather than discourage such activities, the false marking statute explicitly permits qui tam actions. By permitting members of the public to sue on behalf of the government, Congress allowed individuals to help control false marking. The fact that the statute provides for qui tam actions further supports the per article construction. Penalizing false marking on a per decision basis would not provide sufficient financial motivation for plaintiffs—who would share in the penalty—to bring suit. It seems unlikely that any qui tam plaintiffs would incur the enormous expense of patent litigation in order to split a $500 fine with the government. Forest’s per decision construction is at odds with the clear language of the statute and, moreover, would render the statute completely ineffective.

This does not mean that a court must fine those guilty of false marking $500 per article marked. The statute provides a fine of “not more than $500 for every such offense.” 35 U.S.C. § 292(a) (emphasis added). By allowing a range of penalties, the statute provides district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities. In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.

I will be surprised if this lawsuit is successful, but still when you are getting sued for these amounts the case needs to be taken very seriously.