False patent marking occurs when a company marks a product as “patent pending” or lists a patent number when no valid patent or application actually exists for the product. This practice is sometimes used to unfairly deter competition. Occasionally, companies make innocent mistakes, inadvertently marking products as patent-protected. (For proper patent marking practices, see this guide).
Historical Context: Abuse of False Patent Marking Claims
Previously, anyone could bring a false marking claim, even if they hadn’t suffered any harm. Lawsuits seeking damages of up to $500 per falsely marked product became common, with many viewing them as fast ways to make (or extort) money. Some lawsuits targeted large companies with billions in potential damages for simply not removing expired patents from packaging. These actions were labeled as frivolous, leading Congress to reform the law, restricting false marking claims to those who suffer “competitive injury.”
Introduction of the Competitive Injury Requirement
The competitive injury requirement was introduced under the America Invents Act (AIA) to limit who could bring false patent marking claims. This requirement applies retroactively, and as a result, most existing false marking lawsuits were dismissed. However, the case of Sukumar v. Nautilus, Inc. (Fed. Cir. 2015) is one of the few cases to proceed under this new standard due to its unique circumstances.
The Sukumar v. Nautilus Case
Sukumar purchased over 100 Nautilus machines for a planned rehabilitation center. Dissatisfied, he considered creating his own machines. He alleged that Nautilus falsely marked its machines with patent numbers that didn’t apply, causing him a competitive injury.
The key question was whether Sukumar suffered a competitive injury due to Nautilus’s false patent marking. Nautilus argued that only active competitors should have standing to claim competitive injury, while Sukumar argued that anyone with an intent to enter the market should qualify.
Balancing Standards: What Constitutes Competitive Injury?
The court struck a balance, ruling that merely intending to enter the market isn’t sufficient to claim competitive injury. Conversely, only allowing established competitors to sue could deter potential entrants, which could be the most harmful effect of false patent marking.
To qualify, the claimant must show:
- An intent to enter the market with a reasonable chance of success.
- An action taken to enter the market.
Additionally, the false marking must impair the claimant’s market entry, and the claimant must have the capability to compete.
Practical Implications of Competitive Injury
Does this mean a claimant needs sufficient funds, technical skills, or business acumen to compete? Some argue that if the claimant lacks the resources to compete, they haven’t suffered a genuine injury. Future litigation will clarify the limits of this standard, but generally, false marking claims are no longer as profitable and have diminished significantly.
Outcome for Sukumar
In Sukumar v. Nautilus, the court questioned whether Sukumar intended to compete with Nautilus. His initial goal was to open a rehab center, not to sell machines. Although he later considered producing machines, he never acted on this after learning of the false marking. The court inferred that, had he truly intended to compete, he would have pursued manufacturing after discovering the lack of patent protection.
Impact on Future False Patent Marking Claims
This decision narrows the field of who can bring false marking claims, generally limiting them to parties with the financial resources to litigate and launch a business simultaneously. For solo inventors and small business owners, the financial burden of both litigation and business startup makes these claims largely inaccessible. False patent marking claims, once seen as a lucrative option, are now constrained by the competitive injury requirement, potentially reducing frivolous lawsuits.
Need Guidance on Patent Marking or False Marking Claims? Let’s Talk!
If you’re navigating the complexities of patent marking or concerned about potential liability, reach out for a consultation. Whether you’re a business owner, inventor, or entrepreneur, I can help you protect your innovation and avoid costly mistakes. Contact me today at 949-433-0900 to discuss your unique situation and make informed decisions for your intellectual property.