The Software IP Report
How Important is Compliance with the Marking Statute? The Federal Circuit Continues to Say It Is Pretty Important.
When an accused infringer admits to knowledge of potential infringement, but the commercial embodiment of the patent fails to comply with the marking statute, 35 U.S.C. § 287, what date should be used for calculating damages? The Federal Circuit says that if a product is not compliant with § 287, damages are calculated from the date of actual notice regardless of possible prior knowledge.
Theft of intellectual property is a concern any time there is a need for third-party involvement. Consider an instance where a business engages a third-party consultant to assist in sales or other business operations such as building their supply chain and manufacturing capabilities. In this instance, it is likely necessary to divulge important information about a product that may not meet the threshold of trade secrets. When the relationship with the third-party ends, the unfortunate reality exists where the third-party may become a competitor in the same space. In a recent Federal Circuit opinion, it is clear just how important small details are, such as compliance with the marking statute. Lubby Holdings LLC, et al. v. Henry Chung, Case No. 19-2286 (Fed. Cir. Sep. 1, 2021; Opinion by Judge Dyk, joined by Judge Wallach; Opinion concurring in part and dissenting in part by Judge Newman).
The case comes on appeal from the U.S. District Court for the Central District of California. Following a jury trial, the jury returned a verdict of infringement and a damages award of over $800,000 for the appellees. The Federal Circuit affirmed the verdict of infringement (Judge Newman concurring) and reversed the damages award (Judge Newman dissenting), holding that the calculation of damages could only start from the point where the appellant had actual notice of infringing activities because a commercial embodiment of the patent failed to comply with the marking statute.
This is the second time in 15 months that the Federal Circuit has addressed the marking statute and its effect on pre-suit damages. This Blog has addressed the prior case of Packet Intelligence LLC v. NetScout Systems, Inc. We find similar lessons from each of these cases, and it cannot be overstated how important it is to understand a client’s business and products.
Relevant Law
The marking statute states that damages cannot be recovered for infringement prior to notice of infringement unless the patented article has been appropriately marked. As set forth at 35 U.S.C. § 287(a):
Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word “patent” or the abbreviation “pat.”, together with the number of the patent … In the event of failure so to mark, no damages shall be recovered by the patentee for any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.
Facts of the Case
On appeal, the appellant claimed that he did not have actual notice of infringement until the date the action was commenced because the appellee did not comply with the marking and notice requirements of § 287. The Federal Circuit reviewed this issue de novo. Relying on Arctic Cat Inc. v. Bombardier Recreational Prods. Inc., the Court stated that the alleged infringer who is challenging compliance with § 287 bears the initial burden of “production.” See generally Arctic Cat Inc. v. Bombardier Recreational Prods. Inc., 876 F.3d 1350 (Fed. Cir. 2017). The present Court articulated that this burden of production only required the appellant to identify an unmarked patented article which the alleged infringer believed to practice the patent. Once this identification is made, the alleged infringer has met his/her burden of production. The Court further stated that the “burden of proving compliance with marking is and at all times remains on the patentee.” Slip Op. at 7 (citing Arctic Cat).
The Court found that the appellant met his burden of production, and that the product the appellant relied on was unmarked. It would seem that this is a relatively straight forward case of unmarked products. The twist in this case is that the appellant had previously worked with the appellee on products that would be covered by the patent at issue. When the relationship between the appellant and appellee ended, the CEO for the appellee informed the appellant that he was not to use the technology and was not to infringe on the patents. This issue was central to Judge Newman’s dissent.
However, the Court addressed this issue by relying on Amsted Indus. Inc. v. Buckeye Steel Castings Co., 24 F.3d 178 (Fed. Cir. 1994). The Court cited Amsted’s holding that it is irrelevant “whether the defendant knew of the patent or knew of his own infringement. The correct approach to determining notice under § 287 must focus on the action of the patentee, not the knowledge or understanding of the infringer.” Amsted at 187.
Lesson for Practice – Attention to Detail and Continued Client-Communications Can Prevent Costly Mistakes
This case is strong evidence of the need to educate clients and patent owners on the statutory marking requirements. It is important to remember, especially when the client is a small or medium sized enterprise, that the client may not be considering the marking requirements when designing and manufacturing a product. In many instances, the design of an unmarked product can be fixed without too much added cost. Thus, it is important to be vigilant with client-communications to ensure that the commercial embodiments of granted patents comply with the marking statute. Failure to comply can be extremely costly.