First Look at False Marking Under the AIA

14 May 2015 PharmaPatents Blog

In Sukumar v. Nautilus, Inc., the Federal Circuit took its first look at the standing requirements to bring a false marking case under the America Invents Act (AIA). The court rejected Nautilus’ arguments that only “market participants” could bring suit, but required plaintiffs to at least have taken action to enter the market in order to possibly have suffered a “competitive injury.” 

The AIA Changes to Private False Marking Suits

The AIA amended the false marking statue (35 USC § 292) to limit private actions for false marking:

(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.

According to the effective date provisions, these amendments were retroactive, and “shall apply to all cases that are pending on or commenced on or after the date of the enactment of this Act.” The Federal Circuit affirmed their retroactivity in a nonprecedential opinion issued in 2012.

The False Marking at Issue

Sukumar commenced its false marking case before the AIA was enacted, but the case still was pending when the revised statute took effect. Thus, although the district court already had found that some Nautilus machines were “falsely marked” with patents that did not cover the products, the district court granted summary judgment in Nautilus’ favor because Sukumar had not suffered a “competitive injury.”

Sukumar’s Business Plans

According to the Federal Circuit opinion, Sukumar became interested in the Nautilus machines when he was “caring for his aging father” and found the machines unsuitable for “frail seniors.” He contacted Nautilus, “ordered Nautilus machines and asked for certain modifications to cater to elderly users’ needs.” Eventually he founded Southern California Stroke Rehabilitation Associates (another plaintiff in this case) and seemed to intend to open “senior rehabilitation facilities” that would use “modified Nautilus fitness machines.”

To support his claim of competitive injury,” Sukumar alleged that he developed the intent to compete with Nautilus in the mid- to late-1990s. In response, Nautilus alleged that Sukumar at best “intended to operate senior rehabilitation centers” that “would use modified Nautilus fitness machines, which would make Sukumar a customer of Nautilus’, not a competitor.”

The Federal Circuit Opinion 

The Federal Circuit opinion was authored by Chief Judge Prost and joined by Judges Newman and Reyna. The opinion frames the issue on appeal as “whether (or to what extent) an entity that has not entered the relevant market can suffer ‘competitive injury.'”

The court applied the plain meaning of “competitive injury,” the legislative history of the amendments to § 292, and policy rationales and arrived at the following test:

We hold that a potential competitor may suffer competitive injury if it has attempted to enter the market. An attempt is made up of two components: (1) intent to enter the market with a reasonable possibility of success, and (2) an action to enter the market.

Turning to the record on appeal, the Federal Circuit found that “Sukumar’s evidence of his intent to compete with Nautilus is weak.” Moreoever, the Fedearal Circuit found that “even if Sukumar subjectively intended to enter the market for fitness machines, he took insufficient action to pursue that intent” to satisfy the test for “competitive injury.” For example, the court noted:

[T[he list of basic steps Sukumar did not take is long:
Sukumar did not develop a business plan.
Sukumar did not attempt to design a prototype.
Sukumar did not hire any employees.
Sukumar did not gain engineering knowledge.
Sukumar did not investigate developing manufacturing capacity.

Thus, the Federal Circuit affirmed the district court’s grant of summary judgment in favor of Nautilus “because Sukumar lacks standing to bring a claim for false marking under § 292.”

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