Client Alert

Dont Miss The Mark: Why Deal Makers Should Not Overlook Recent False Marking Statute Decisions

July 12, 2011

James M. J. Herriott & Todd M. Schneider

Patent holders frequently mark products by stamping patented or protected by U.S. Patent No. ________ on the article in order to put potential infringers on notice that the product is patent protected. The Patent Marking Statute (35 U.S.C. § 287(a)) limits the damages a patent holder may recover to those stemming from acts of infringement which occurred after an infringer was given actual or constructive notice of infringement. Marking a patented article establishes such constructive notice.

The 2009 Federal Circuit Court case of The Forest Group, Inc. v. Bon Tool Co., which interpreted the federal False Marking Statute to impose up to $500 in penalties per mismarked article, created a bit of a firestorm among patent counsel , and raised the importance of conducting patent false marking diligence as a part of a partys standard intellectual property related diligence for a deal. With potentially huge verdicts imaginable, the Forest Group decision sparked into action numerous disgruntled competitors and so-called false-marking trollsadventurous patent counsel acting independently.

Court decisions within the past few months appear to be reducing the potential false marking risks, and with it the need for deal counsels vigilance. Indeed, bills are working their way through the U.S. House of Representatives and Senate which would amend the False Marking Statute so only the federal government could prosecute violations. However, the legal authority on this point is still in flux and M&A practitioners and deal makers should stay tuned for future developmentsand be sure to perform their IP diligence carefully and review intellectual property representations and warranties with an eye towards potential false marking exposure. The results of such diligence, while likely not rising to the level of killing a deal (in the absence of fraud or other purposeful abuse), may give one party additional leverage during negotiations.

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