H.R. 4954: To amend title 35, United States Code, to provide recourse under the patent law for persons who suffer competitive injury as a result of false markings

H.R. 4954

To amend title 35, United States Code, to provide recourse under the patent law for persons who suffer competitive injury as a result of false markings

Date
April 14, 2010 (111th Congress, 2nd Session)

Staff Contact
Sarah Makin

Floor Situation

H.R. 4954 is expected to be considered on the floor of the House on Wednesday, April 14, 2010, under a motion to suspend the rules, requiring a two-thirds vote for passage.  The legislation was introduced by Rep. Darrell Issa (R-CA) on March 25, 2010.

Bill Summary

H.R. 4954 amends federal patent law to allow civil suits to collect one-half of the $500 penalty for false marking.  The bill limits the right to file a civil action in a U.S. district court to persons who have suffered a competitive injury as a result of a violation of the prohibition against false marking, thereby repealing the right of any person to sue for the penalty.  The bill allows a civil action to recover damages adequate to compensate for the injury (removing the previous limit).

Background

According to the House Committee on the Judiciary Republican staff:

Section 287 of the Patent Act encourages patent holders to ‘mark' products that incorporate their patents.  The classic example is a product that bears the word "patent" followed by the patent number assigned by the US Patent and Trademark Office.  Patent owners who fail to mark their products must assume a higher burden of proof in infringement actions before damages are recovered.  

This is fair because it's consistent with the basic trade-off in American patent law: inventors get a time-limited monopoly as a reward for their creativity, but their inventions can't be secret - the public should know of their existence and have the opportunity to study them.   

Section 292 of the Patent Act addresses a separate but related issue: false marking.  This means that a company can't misappropriate a true inventor's patent number when selling a product.  It also means that a company can't fabricate a patent number and mark its products accordingly. Companies that deliberately apply false marks to their products want to deceive the public and discourage competition. 

Section 292 penalizes this behavior through the creation of a "qui tam" action.  That is, "any person" who has knowledge of this misconduct may sue for a $500 penalty that is split with the government. 

The false marking statute traces its origin to the 1870 Patent Act, which provided a $100 fine.  For nearly 140 years, federal courts usually held that "continuous" false marking only constituted one offense under the Act.  Some courts invoked a creative time-based approach by imposing penalties on a per-week or per-day basis. 

However, the Federal Circuit ruled in December 2009 that the plain language of the statute "requires a per article fine."  In other words, if a company has distributed a million chainsaws that bear a false patent number, anyone could bring suit against the company and request $500 million - or $500 for each violation under the Federal Circuit's logic. 

In our complex economy with sophisticated distribution chains, it's very conceivable that manufacturers will incorporate patents they've developed or licensed into their products and ship them around the country.  By marking these products, the manufacturers are complying with the law. 

But what happens if a patent expires?  There's no conspiracy to deceive the public or would-be competitors. Yet a manufacturer caught in this trap is potentially liable for millions or billions in damages to trial lawyers, even though no real injury has occurred. 

The fallout from the Federal Circuit ruling has been dramatic. False marking suits have been filed in at least 23 states, with more on the way.  Representative Issa introduced H.R. 4954 to prevent recovery in those suits that are baseless and have only been filed in response to the new Federal Circuit standard set forth in Forest Group. Inc. v. Bon Tool Co., No. 2009-1044 (Fed. Cir. Dec. 28, 2009).

Cost

CBO did not score H.R. 4954.