John Kendrick, Summer Fellow, Washington Legal Foundation*
Look at the bottom of your mouse; there should be several patent numbers on it. Then do a 5-minute online search to see if those patents expired before you bought it. If they did, you’ve hit the jackpot! Under the False Marketing Statute (which is a section of the larger U.S. patent law) you could sue the producer of the mouse (or any other product) and potentially get a hefty financial windfall.
The statute penalizes anyone who marks a product with a patent label if it is not actually patented or the patent has expired. The potential penalty for breaking this law is $500 per individual unit. So a suit over a single mislabeled patent could result in millions of dollars in penalties if many units of the product were made. Further, as was alluded to earlier, these lawsuits are qui tam, any individual can file. Plaintiffs do not need to have suffered any injury to have legal standing according to the statute.
The number of these lawsuits has skyrocketed in recent years. This isn’t because businesses have suddenly conspired to mislead the public, but because court decisions have rendered these suits financially lucrative for trial lawyers. In 2009, a federal Circuit Court ruled that the law required penalties be imposed on a per unit basis, rather than per type of product. Another recent decision held that the statute is violated by products marked with a patent number that has since expired. Together, these recent developments in caselaw have spawned a cottage industry of false marketing litigation.
In response, several defendants have challenged the False Marketing Statute on constitutional grounds. Thus far, the most successful challenges are based on the “Take Care Clause” in Article II. This clause states that the President “shall take care that the Laws be faithfully executed.” Several defendants have argued that the False Marketing Statute “impermissibly delegates the Executive Branch’s prosecutorial authority to private citizens.” While qui tam lawsuits are not uncommon, the Executive Branch usually maintains some control over these suits. The defendants have argued that control in this particular statute is insufficient.
The question of sufficient control has been central to the court rulings in these cases, and the decisions have gone both ways. In fact, two courts in the Eastern District of Pennsylvania have reached different conclusions based on this issue.
In Hollander v Ranbaxy, decided on July 18, Judge Michael M. Baylson found that these lawsuits were civil, not criminal, and therefore a lower standard of Executive control was needed to ensure constitutional validity. He also pointed out that qui tam suits have a long history in America and in early English common law as well.
In contrast in his June 3 Rogers v. Tristar Products ruling, Judge Eduardo C. Robreno concluded that since the statute is a criminal one, a test of sufficient control is necessary. The fact that the remedies sought are through civil means doesn’t change the nature of the statute itself. He then concluded that the Executive did not have nearly enough control over these suits. The statute requires no notice to the Department of Justice, and “no means by which [they] can control the initiation, prosecution, or termination of litigation commenced on [their] behalf.” He viewed the statute as a complete delegation of criminal law enforcement capacity to private citizens, made even more troubling by potential litigants’ opportunity for financial gain.
WLF has weighed in institutionally on this issue, through other blog posts (here, here, and here) and a Legal Backgrounder. The statute is unconstitutional, and unjust. As with many burdens on business, the “little guy” is often the one harmed. Big corporations have large legal teams to ensure violations don’t happen and to vigorously defend against suits when they do. Small businesses are more likely to unintentionally mislabel a product and are less able to defend against these lawsuits. Faced with penalties of thousands of dollars, many will be driven out of business. In a time of severe economic downturn, this job-killing statute is the last thing we need. We look forward to the U.S. Court of Appeals for the Third Circuit to settle this unusual intra-district split, hopefully in a manner that upholds Judge Robreno’s cogent analysis.