Recent developments in Texas in the false marking area
A recent decision in a false marking case in the Southern District of Texas has significant implications for the Eastern District and beyond.
The April 27 decision establishes a precedent in which damages are being calculated based on the number of units sold, rather than as a flat amount. And not only that, the maximum possible selling price of the article in question was used to calculate damages. This means that potential damages in future cases could have real financial impact.
By way of background, in December 2005, The Forest Group Inc. filed suit against Bon Tool Co. for patent infringement.
After the court held there was no infringement, it turned its attention to Bon Tool's false marking counterclaim. The court found that Forest's "S2" series stilts were falsely marked and entered a judgment in Bon Tools' favor, with total damages of $500, a relatively nominal amount.
The case was appealed to the Federal Circuit. The Federal Circuit remanded the case back to the district court and held that the fine must be recalculated so that a penalty of not more than $500 per article is imposed separately for each falsely-marked article.
Although the Texas court appeared to be somewhat critical of the Federal Circuit's approach to calculating fines, it nonetheless followed the decision and on April 27 the court entered a judgment in favor of Bon Tool for $6,840.00.
The court arrived at this amount by setting damages at $180 per S2 series stilts sold – this represents the upper bound of the product's typical selling price range of $130 to $180 per unit. Luckily for Forest, it had only sold 38 of the S2 stilts.
However, this decision is very troubling for big corporations who may have sold millions of units of an alleged falsely marked product.
This decision most likely prompted the recent increase in newly filed false marking cases, many of which are again being filed in the Eastern District of Texas. For example, a case was filed on April 30 by the Patent Group LLC against defendants including Summit Chemical Co., Orbit Irrigation Products Inc., M.E. Heuck Co., Kness Mfg. Co. Inc. and G.T. Water Products,Inc..
The Plaintiff, Patent Group LLC, is referred to as a realtor in the complaint and is a limited liability company existing under the laws of the state of Texas. Also, on May 6, Patect LLC filed suit against Nisus Corp. and Veritec Inc.
Until Congress figures things out and revises the current statute, with this latest court decision actually applying the statute, the cases will just keep coming.
In the meantime, companies should double down on their internal controls and check patent markings to limit any potential liability.
Nicole Keenan is a partner in the Chicago office of McDonnell Boehnen Hulbert & Berghoff LLP, where she specializes in patent law. Read more at www.falsemarking.net.