On June 10, 2010, in Pequignot v. Solo Cup Co., No. 2009-1547, slip op. (Fed. Cir. June 10, 2010), the Court of Appeals for the Federal Circuit relied heavily upon Solo Cup’s receipt of advice from outside counsel in affirming the district court’s summary judgment that Solo Cup was not liable for false marking of unpatented articles based on lack of “requisite intent” to deceive. The Court’s holding applied both to Solo Cup’s marking of products with patents it knew had expired and to its marking of products with “may be covered” language where it knew the products were unpatented. Specifically, the Court held that:
While this decision provides additional guidance for companies on how to avoid false marking liability, including what evidence may be sufficient to rebut the presumption of an intent to deceive, it does leave open questions to be resolved by future decisions or legislative action.
In 2007, Mr. Matthew Pequignot, as a qui tam relator, sued Solo Cup Co. (Solo) for falsely marking more than 21 billion cup lids with expired patents and more than three million other plastic items with the phrase “may be covered by one or more U.S. or foreign pending or issued patents.” In particular, Solo had marked its plastic drink cup lids with U.S. Patent No. Re. 28,797 (which expired in 1988) and U.S. Pat. No. 4,589,569 (which expired in 2003). To mark its products, Solo added the patent numbers to the molds used by thermoforming mold machines to make the lids. These molds can last 15 – 20 years and are expensive and burdensome to replace.
In June 2000, Solo became aware that it was marking its products with an expired patent number and sought legal counsel. Solo’s outside counsel initially advised that there was no need to remove the expired patent number from the product, but suggested that the “[b]est case scenario, is to remove the number if possible.” Upon advising its counsel of the expense and burden associated with replacing the molds, Solo adopted a policy that it would remove expired patent numbers from the molds as they were replaced due to wear or damage. Solo’s outside counsel agreed this was permissible under the false marking statute, 35 U.S.C. § 292.
In 2004, Solo started marking some of its packaging with a notice that “This product may be covered by one or more U.S. or foreign pending or issued patents. For details, contact www.solocup.com.” Solo’s outside counsel had advised Solo to mark its packaging in this manner to provide additional notice to potential infringers pursuant to the patent marking statute.
In his suit, Mr. Pequignot alleged that Solo had falsely marked products with the expired ’797 and ’569 patents and additionally had falsely marked unpatented products with “may be covered” language. As damages, Mr. Pequignot sought an award of $500 per article, the maximum award authorized by the statute, for more than 21 billion articles alleged as falsely marked.
Solo moved to dismiss the case, arguing that marking products with expired patent numbers or noting that a product “may be covered” by a patent could not legally constitute false marking. The District Court disagreed, reasoning that products covered by an expired patent were “unpatented” within the meaning of the statute and that Mr. Pequignot also had stated a claim with respect to those unpatented products marked as “may be covered.” Nonetheless, Solo prevailed on summary judgment because the District Court found no intent to deceive the public.
Federal Circuit Decision
On appeal, the Federal Circuit affirmed the District Court’s determination that Solo was not liable for false marking due to lack of evidence of an intent to deceive the public. The Court however, did agree with the District Court’s findings that both marking products with expired patents and marking unpatented products with “may be covered” language did give rise to false marking liability. In reaching this determination, the Court also rejected Solo’s attempt to argue that congressional rejection of a proposed amendment that would have changed “unpatented” to “not at the time secured by a patent” indicated that Congress did not intend for the statute to create liability with respect to marking products with a now-expired patent. Rather, the Federal Circuit essentially adopted the District Court’s reasoning that such products were in the public domain and, therefore, unpatented.
The Federal Circuit further held that (1) an intent to deceive the public can be presumed once the plaintiff in a false marking suit proves that the party marking a product knowingly included a false statement regarding patent coverage, but (2) that this presumption can be rebutted if the party that marked the product can prove by a preponderance of the evidence that it did not, in fact, intend to deceive the public by marking its products falsely.
In this case, the Federal Circuit held that Solo had successfully rebutted the presumption and proven that it did not intend to deceive the public. In particular, with respect to those products marked with the expired patents, the evidence demonstrated that Solo had acted in “good faith reliance on the advice of counsel and out of desire to minimize costs and business disruption.” Likewise, the Federal Circuit found that Solo had rebutted the presumption of intent with respect to the products with the “may be covered” language noting: “As Solo points out, the ‘may be covered’ language stated exactly the true situation; the contents of some of the packaging were covered by the patents, and the contents of some of the packaging were not covered.” Further, the Court noted that this “language was added at the suggestion of outside counsel for marking purposes, to provide notice to potential infringers of Solo’s actual valid patents.” Because Mr. Pequignot offered no contrary evidence, this “evidence rebuts the presumption of deceptive purpose, as Solo’s actions indicate its good faith.”
Finally, the Court vacated as moot the district court’s finding as to what constituted an “offense” for purposes of assessing the statutory fine in view of its affirmance of the no liability holding. See also Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1290 (Fed. Cir. 2009).
The Federal Circuit’s decision in Solo Cup does answer several important questions regarding what activities may create false marking liability, namely marking with an expired patent number or marking an unpatented article with an inapplicable patent number or “may be covered” language. Further, a party may be able to escape liability if it can prove by a preponderance of the evidence that it did not intend to deceive the public. In particular, a party be able to rely upon the advice of counsel and business justifications as good faith evidence of its lack of deceptive intent. Other open issues regarding false marking liability, namely whether relator plaintiffs such as Mr. Pequignot have Article III standing to sue and can prove injury may be decided by the Federal Circuit in the pending Stauffer v. Brooks Bros. case.
Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:
George C. Best
Palo Alto, California
Jeanne M. Gills