Oral Argument Today in Key False Marking Case: Stauffer v. Brooks Brothers, Inc.

03 August 2010 Publication
Authors: Jeanne M. Gills

Legal News Alert: IP Litigation

On August 3, 2010, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit (C.J. Rader, J. Lourie, and J. Moore) heard oral argument in Stauffer v. Brooks Brothers, Inc., Nos. 09-1428 et al (Stauffer). Stauffer is the latest in a line of appeals from district court decisions in false marking suits brought under 35 U.S.C. § 292. The panel mostly focused on two standing issues: (1) the requirements for an individual plaintiff, who is not a competitor of the defendant allegedly committing false marking, to have standing to sue for damages under Section 292; and (2) whether the United States may intervene during the initial phase of a Section 292 action dealing with standing on the pleadings, rather than later during the merits phase of the action. Given the several hundred false marking cases that have been filed during the past year, including those that have been stayed pending a decision in Stauffer, the Federal Circuit’s ruling could impact whether these cases survive on jurisdictional grounds or will proceed on the merits.

Background

Section 292 prohibits marking an "unpatented article" with words indicating that the article is patented "for the purpose of deceiving the public," and establishes a monetary fine of up to $500 per falsely marked article. The statute further 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."

Plaintiff Raymond Stauffer, a patent attorney, sued Brooks Brothers, Inc. and its parent company in the Southern District of New York for violation of Section 292. Mr. Stauffer alleged that he had seen and purchased Brooks Brothers adjustable bow ties marked with the numbers of patents that had expired in the 1950s; that Brooks Brothers knew or should have known that the patents were expired; and that the company produced tens of thousands of falsely marked ties and continued to produce them even after he filed his complaint. Mr. Stauffer contended that he had standing to sue because Section 292 created a qui tam cause of action whereby "any person" was allowed to bring suit on behalf of the United States. Although recognizing that Section 292 was a qui tam provision, the district court nevertheless dismissed the case pursuant to Fed. R. Civ. P. 12(b)(1) for lack of constitutional standing on the grounds that Mr. Stauffer’s complaint failed to allege "an injury in fact to the public" (including Brooks Brothers’ competitors) "or to the United States." Mr. Stauffer appealed to the Federal Circuit. The United States also appealed both from the dismissal of Mr. Stauffer’s complaint and separately from the district court’s order denying the United States leave to intervene in the standing controversy.

Oral Argument

The panel appeared to analyze the standing arguments primarily under two Supreme Court cases: Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765 (1999), which dealt with the "injury in fact" standard to provide standing to a qui tam plaintiff, and Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), which concerned a group’s standing to challenge regulations in a non-qui tam action. The panel seemed most receptive to Mr. Stauffer’s argument that the words of Section 292 — which provide that "any person" may sue for false marking damages — supported Mr. Stauffer’s standing because he was a "person" under the statute. Mr. Stauffer alternatively argued that he had standing based on his actual injury as a purchaser of allegedly falsely marked ties, but the Court seemed less interested in that issue. Mr. Stauffer further contended that sovereign injury, which provided the basis for his suit, could arise from statutes other than Section 292 such as potential violations of anti-counterfeiting statutes due to the allegedly false markings, but the judges appeared to disagree, indicating that the injury must stem from the statute providing the grounds for the action — here, Section 292. 

Although the United States appealed both the ruling on Mr. Stauffer’s standing and its own standing in the action below, the panel chose to focus on the United States’ position that it should have been permitted to intervene in the standing controversy. Chief Judge Rader commented that the Court’s recent opinion in Pequignot v. Solo Cup Co., No. 09-1547 (Fed. Cir. June 10, 2010) indicated that intent was a necessary element of a false marking injury, and therefore the United States could not suffer injury and have a sovereign interest until there was a decision on the merits regarding intent. This would preclude the United States intervening in a controversy over standing at the early pleading stage of a case. However, the government’s attorney contended that in view of past precedent such as Clontech Labs., Inc. v. Invitrogen Corp., 406 F.3d 1347 (Fed. Cir. 2005), allegations of intent in the pleadings created a rebuttable presumption of intent, which supported the United States having standing at the pleadings phase. The panel appeared dubious about this argument, with Chief Judge Rader in particular indicating that such allegations were not sufficient. 

During argument, counsel for Brooks Brothers emphasized that the district court found that Brooks Brothers "was not the marker" of its products at issue, which were manufactured by an outside vendor. He further noted that competitors also marked unpatented articles with expired patent numbers, thus suggesting that there was no injury to competition. He therefore urged the Federal Circuit to give deference to the district court’s factual findings, making any re-pleading of the action by Mr. Stauffer futile. The judges noted that Brooks Brothers’ arguments were directed more toward the merits, rather than standing, and attempted to focus the parties’ arguments on whether the language "any person" in Section 292 could include, and confer standing upon, Mr. Stauffer. Judge Moore also pointed out that the Federal Circuit could, as a matter of law, determine whether Brooks Brothers' conduct (including allegedly placing a label on the disputed ties) constituted "marking" under the statute.

Conclusion

Given the several hundred false marking cases that have been filed during the past year, the Federal Circuit’s ruling on whether standing exists for a non-competitor bringing a qui tam action could have far-reaching impact. It remains to be seen whether the Federal Circuit will address in its opinion the nature of the "injury in fact" that must be alleged and the causal relationship between that injury and the alleged false marking acts. The district court criticized Mr. Stauffer’s pleadings as being merely speculative or conclusory where he had only alleged that the false marking "‘wrongfully and illegally advertis[ed] patent monopolies that [defendants] do not possess,’ thereby causing harm to the economy of the United States"; and that defendant’s actions had the potential to discourage or deter’ potential competitors. The district court held that such conclusory statements of harm (pled only on "information and belief") were "insufficient to establish anything more than the sort of ‘conjectural or hypothetical’ harm that the Supreme Court instructs is insufficient." Further, the Federal Circuit’s decision may impact the timing of when or if the government will be able to intervene, i.e., at an initial stage where standing or jurisdiction is being challenged, or only at the merits phase establishing injury and, thus, sovereign interest. 


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: 

Mary Calkins
Washington, D.C.
202.295.4103
mcalkins@foley.com 

Jeanne M. Gills
Chicago, Illinois
312.832.4583
jmgills@foley.com