U.S. District Court Declares False Marking Statute Unconstitutional

Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. (N.D. Ohio Feb. 23, 2011)

U.S. District Court Judge Dan Polster ruled that the qui tam provision of the patent false marking statute (Title 35 U.S.C. § 292) unconstitutional under the Take Care Clause of Article II. The Court concluded, in pertinent part:

Applying the Morrison “sufficient control” analysis to the False Marking statute, it is clear the government lacks sufficient control to enable the President to “take Care that the Laws be faithfully executed.” As discussed, supra, unlike the FCA, the False Marking statute lacks any of the statutory controls necessary to pass Article II Take Care Clause muster. The False Marking statute essentially represents a wholesale delegation of criminal law enforcement power to private entities with no control exercised by the Department of Justice. See Pequignot, 608 F.3d at 1363 (False Marking statute is criminal). It is unlike any statute in the Federal Code with which this Court is familiar. Any private entity that believes someone is using an expired or invalid patent can file a criminal lawsuit in the name of the United States, without getting approval from or even notifying the Department of Justice. The case can be litigated without any control or oversight by the Department of Justice. The government has no statutory right to intervene nor does it have a right to limit the participation of the relator. The government does not have the right to stay discovery which may interfere with the government’s criminal or civil investigations. The government may not dismiss the action. Finally, the relator may settle the case and bind the government without any involvement or approval by the Department of Justice.

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The danger of this uncontrolled privatization of law enforcement is exacerbated by the financial penalties in this statute. The penalty is up to $500 for each article falsely marked. Forest Group, 590 U.S. at 1302-1303. Depending upon the number of items, this could be a staggering amount of money or a trivial amount. The statutory penalty is not calibrated to the size or economic strength of the defendant, the significance of the product, or to the degree of competitive harm the false marking may have had beyond simply the gross number of articles falsely marked. See Id. at 1303 (“[t]he more articles that are falsely marked the greater the chance the competitors will see the falsely marked article and be deterred from competing”). It is therefore essential that the government have control over when such cases are brought, and most importantly, how they are settled. Such decisions should be made by government attorneys who have no financial stake in the outcome of the litigation or settlement, not by private parties motivated solely by the prospect of financial gain.

For the reasons discussed, supra, the qui tam provision of the False Marking Statute, 35 U.S.C. §292(b) is unconstitutional under the Take Care Clause of the United States Constitution, U.S. Const. Art. II, §3.The Court expressed concern with the reported increase in false marking claims following the decision of the Court of Appeals for the Federal Circuit in The Forest Group, Inc. v. Bon Tool Company, 590 F.3d 1295, 1301-1303 (Fed. Cir. 2009). The District Court in a footnote noted:

The Court notes that while the qui tam provision of the False Marking Statute was enacted in 1952, a recent decision by the United States Court of Appeals for the Federal Circuit making qui tam actions more financially lucrative for relators has caused a dramatic increase in the number of actions filed. See Julian B. Slevin Co. v. Bartgis Bros. Co., 142 F.Supp. 688, 690 (D. Md. 1956) (“In 1952 the new patent law was adopted, including the false marking section, 35 U.S.C.A. 292, which now provides ...). Specifically, in Forest Group, Inc. v. Bon Tool Company, 590 F.3d 1295, 1301-1303 (Fed. Cir. 2009), the Court of Appeals for the Federal Circuit held that violators of the False Marking Statute face a $500 fine for each article improperly marked rather than simply a $500 fine for a decision to improperly mark multiple articles. The Federal Circuit noted that its interpretation of the statute allows for “‘a new cottage industry’ of false marking litigation by plaintiffs who have not suffered any direct harm” but that “[r]ather than discourage such activities, the false marking statute explicitly permits” qui tam actions for this purpose. Id. at 303. As an illustration of the impact of the Forest Group decision, this Court’s search of the Northern District of Ohio docket indicates that Plaintiff alone filed 31 False Marking qui tam actions in 2010.

It is notable that the District Court raised the constitutional question sua sponte during a hearing on limited discovery on the question of personal jurisdiction. The U.S. Department of Justice was invited to intervene in light of the constitutional question, but did not do so.