False Marking Claims: The Newest Coverage B Controversy?
If your company has recently seen an uptick in coverage claims involving allegations that an insured’s advertising falsely claimed that its products were protected by patents, it’s no accident.
An article in the April 5, 2010 issue of The National Law Journal details the recent surge in suits against such familiar corporations as Brunswick, Clorox, Ace Hardware, Timex, Hallmark and Kimberly Clark in the wake of a December 2009 federal appellate ruling that vastly expanded the damages that plaintiffs could recover for “false marking” suits under the Federal Patent Act.
Section 292 of the Act provides:
Whoever, without the consent of the patentee, marks upon, or affixes to, or uses in advertising in connection with anything made, used, offered for sale, or sold by such person within the United States, or imported by the person into the United States, the name or any imitation of the name of the patentee, the patent number, or the words "patent," "patentee," or the like, with the intent of counterfeiting or imitating the mark of the patentee, or of deceiving the public and inducing them to believe that the thing was made, offered for sale, sold, or imported into the United States by or with the consent of the patentee; or Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article the word "patent" or any word or number importing the same is patented, for the purpose of deceiving the public; or Whoever marks upon, or affixes to, or uses in advertising in connection with any article the words "patent applied for," "patent pending," or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public - Shall be fined not more than $500 for every such offense.
A whistleblower who brings such a claim is entitled to split the proceeds from the case with the United States government. Such claims were relatively uncommon, however, since recoveries were seemingly capped at $500. However, in The Forest Group v Bon Tool Co., 2009-1044 (Fed. Cir. December 28, 2009), the U.S. Court of Appeals for the Federal Circuit ruled that the $500 penalty must be imposed on a “per article” basis as the plain meaning of the statute did not support the District Court’s penalty of $500 for a decision to mark multiple articles.
Since this ruling, dozens of suits have been filed claiming that defendants falsely claimed that their products were protected by patents that had either expired or were inapplicable. This surge in litigation has prompted proposals in Congress roll back Section 292 remedies. The Chair of the U.S. Senate Judiciary Committee, Patrick Leahy, has introduced an amendment to the Patent Reform Act of 2009 that would limit recoveries to individuals who have “suffered a competitive injury.” Additionally, two new cases are pending in the Federal Circuit Court of Appeal that raise the issue of whether remedies are limited to those actually harmed by a defendant’s false marking and whether and under what circumstances an intent to deceive should be found.
Such claims may prove problematic for liability insurers. Since the claims are not for patent infringement, the Coverage B defenses that liability insurers have typically raised in opposition to patent infringement claims have a different focus. Moreover, such claims typically arise as part of a defendant’s advertising. On the other hand, such claims may be excluded from coverage since, in order to prevail in a Section 292 false marking claim, a plaintiff must show the marking of an unpatented article with an intent to deceive the public. Clontech Labs, Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005).
