In order to unfairly deter competition, companies would falsely mark a product as “patent pending” or even place a patent number on the product when no patent application or patent existed. This is referred to as false patent marking. Sometimes companies would make an innocent mistake and falsely mark their products as patent protected. Click here for proper usage of patent marking.
Under the current law, false patent marking claims can only be brought by anyone who suffers a competitive injury. It used to be that anyone, even if that person was not harmed by the false marking, could bring a false patent marking claim against the company that falsely marked its products with an incorrect patent number. Additionally, recent case law has held that anyone bringing a false patent marking claim could obtain damage award up to $500 for each falsely marked product. Many people looked at these false marking claims as a fast way to make (or extort) money. As a result, a flurry of false patent marking claims arose against companies even though there may not have been any harm to anyone. Many labeled these lawsuits as frivolous, and when large companies began to be sued for billions of dollars in potential damages for not removing expired patents from their product packaging, Congress was lobbied to change the law. One of the resulting changes was to limit damages for false patent marking to those who suffer a competitive injury.
The competitive injury requirement is fairly new and was ushered into law under the America Invents Act (AIA). Most of theprior lawsuits were dismissed early on or resolved after enactment of the AIA since the “competitive injury” requirement was made retroactive and that retroactive aspect was upheld by the courts. However, Sukumar v. Nautilus, Inc. (Fed. Cir. 2015) is one of the hold outs based on its unique set of circumstances.
Sukumar planned to open up a rehabilitation center and had purchased over 100 Nautilus machines that were custom modified to his specifications for use in his rehabilitation center. He was not satisfied with the modified Nautilus machines. Hence, he planned on making his own machines per his own specifications. However, according to Sukumar, he suffered a competitive injury because Nautilus marked its machine with numerous patent numbers that didn’t cover its own machine. The dispute center around whether Sukumar suffered a competitive injury from the wrong patent number being marked on the Nautulus machines.
Nautilus wants the bar set very high for determining whether there has been a competitive injury, whereas, Sukumar wants the bar set very low.. According to Nautilus, only those who are actively selling a competing device should be capable of suffering a competitive injury and thus be able to sue for false patent marking. This standard would exclude Sukumar. Sukumar wants anyone with merely an intent to enter the same market to qualify as one capable of suffering a competitive injury. That would allow just about anyone to sue for false patent marking.
The court struck a balance in the middle since allowing anyone with just an intent to enter the market to be able to sue for false patent marking would go against the intent of the competitive injury requirement in limiting the number of people that could sue for false patent marking. Conversely, allowing only existing competitors to sue might prevent someone with a bona fide intent to compete from entering the market which the court described as the most egregious type of injury arising from false patent marking.
The balance the court struck required the entity suing for false patent marking to have actually attempted entry into the market. An attempted entry requires (1) an intent to enter the market with a reasonable possibility of success and (2) an action to enter the market. The court also included some other requirements in order to show that one has suffered an injury tied to the false patent marking. The false patent marking must have impaired one’s ability to enter the market. Plus, the one suing for false patent marking must have the ability to compete.
Does this mean that a person needs to have money, technical skills, business skills, etc.? A patent owner could argue that no injury occurred because the plaintiff just didn’t have the wherewithal to compete. Where does this end? Only future litigation will tell. However, false patent marking claims are no longer lucrative and have generally dried out. Nevertheless, false patent marking claims can lead to large payouts since the damages calculation is still set at a maximum of $500 per unit falsely marked.
For Sukumar, his real original intent was to start a rehab center with machines, not to sell machines. His plans may have changed during the course of his efforts to start the rehab center. However, the court questioned his intent to compete with Nautilus. They listed two reasons but the primary reason appears to be that Sukumar did not start to compete with Nautilus even after finding out that the Nautilus was falsely marked. In other words, before you knew that the product was falsely marked, you did not compete. However, once you find that the machine is not patent protection, you have no reason to not compete. In this case, Sukumar did not start to compete. The court assumed that he did not compete because he did not have the intent to compete. Hence, he didn’t build his competing machines.
This type of logic further narrows the number of entities that can sue for false patent marking to those with the financial wherewithal to both fund litigation and start a business at the same time. For the small time solo inventors and garage shop guys, false patent marking claims are not available to them for the most part since they need to not just fund the business startup, but fund the litigation.