When one party is found to have infringed the patent rights of another, the often-difficult task of calculating economic damages begins. As one step in this process, the time period during which damages have accrued must be determined. When damages begin to accrue is considered primarily in light of when the infringing party was made aware, or put on notice, of the patent owner's rights.[1] See generally 35 U.S.C. § 287(a). Notice can be actual, as in a cease and desist letter or the filing of a lawsuit, or constructive, often achieved by "marking" a patented article.
Marking is the practice of affixing the patent number or numbers to a particular product, usually proceeded by "pat." or "patent," that embodies the patented invention or inventions. By marking an article, the patentee indicates that the particular product is covered by one or more claims of the listed patent or patents. The Leahy-Smith America Invents Act ("AIA") introduced the option for manufactures to "virtually mark" their products by affixing an Internet web address onto a product and listing the relevant patents on the associated webpage. Because only physical products must be marked, the marking requirement only applies to entities that produce a good or place a product into the marketplace, thereby exempting, somewhat controversially, non-practicing entities from this requirement. Method patents are similarly exempt from the marking requirement because there is no article to mark.
A company should not, however, blindly mark its entire product catalog with every patent it owns or licenses. This is because an entity that falsely marks a particular product "for the purpose of deceiving the public" may be subject to civil penalties.[2] 35 U.S.C. § 292(a). Thus, there are serious consequences for both failing to mark and for falsely (and perhaps merely incorrectly) marking a particular article.
In district court litigation, the patent owner bears the burden of pleading and proving its compliance with the marking statute. Courts have rationalized this approach because the patent owner is in the best position to know which of its products are covered by which patents and whether or not those products have been properly marked. When a patent has been licensed, the duty to comply with the marking statute must also run to the licensee. In these instances, courts generally consider a patent owner's reasonable efforts to ensure the licensee's compliance with the marking requirement sufficient to satisfy the patent owner's duty under the marking statute.
In a recent case, Arctic Cat Inc. v. Bombardier Recreational Products Inc., No. 2017-1475 (Fed. Cir. Dec. 7, 2017), the Federal Circuit tackled the different burdens litigants face under the marking statute. In this case, Arctic Cat licensed a number of patents to Honda relating to personal watercraft ("PWC") steering systems. Notably, the license agreement between Arctic Cat and Honda explicitly stated that Honda had "no obligation or requirement to mark" its products covered by the licensed patents, and Arctic Cat made no effort to ensure Honda marked its PWCs with the relevant patent numbers.
Arctic Cat sued Bombardier for infringement of two patents, both of which Artic Cat had licensed to Honda. Bombardier alleged that because Arctic Cat exited the PWC market before the patents-in-suit issued and Honda, Arctic Cat's sole licensee, failed to mark its relevant PWCs, Arctic Cat failed to satisfy the marking requirement. Thus, Bombardier argued that any damages awarded should be limited to the period of time after which Bombardier received actual notice of the infringement. The jury found both patents infringed (and not invalid), and awarded Arctic Cat a reasonable royalty extending back to October 2008, before Bombardier received actual notice of the infringement.
Given its clear failure to satisfy the marking requirement, Arctic Cat took the interesting approach of arguing that Honda didn't actually sell any products covered by the patents, thus obviating its duty to mark. In the district court, Bombardier identified fourteen unmarked Honda PWCs it claimed were covered by the patents. The court, however, found that Bombardier failed to prove that the unmarked Honda PWCs were actually covered by the patents. Specifically, the court held that Bombardier's failure to conduct a claim-by-claim analysis of the unmarked Honda PWCs doomed its argument that Honda had sold unmarked products covered by the patents.
On appeal, the parties disputed which side bears the burden of proof on issues related to marking, and noted an apparent split between different district courts. Some courts, for example, the Northern District of California, had required that an alleged infringer identify unmarked products it believes are covered by the relevant patent or patents. See, e.g., Fortinent, Inc. v. Sophos, Inc., No. 13-CV-05831-EMC, 2015 WL 5971585, at *4–5 (N.D. Cal. Oct. 14, 2015). These courts reasoned that without some guidance from the alleged infringer, a patentee would be unfairly required to comb through its entire product catalog to prove compliance with the marking statute. Other courts had required that the patent owner prove none of its unmarked products are covered by the relevant patents. See, e.g., Adrea, LLC v. Barnes & Noble, Inc., No. 13-CV-4137 JSR, 2015 WL 4610465, at *1–2 (S.D.N.Y. July 24, 2015). These courts reasoned that the patentee should be in a better position to know whether its goods embody the patent inventions.
Faced with these two different approaches, the Federal Circuit panel found the former approach most reasonable. Accordingly, the panel held that an alleged infringer bears an initial burden of production to set forth which products it believes are: (i) covered by the relevant patents; and (ii) unmarked. The panel made clear that this burden is merely one of production, not persuasion or proof. The panel found this approach most reasonable because without notice of which covered products were allegedly unmarked, Arctic Cat would be left combing through its licensee's entire product catalog to establish compliance with the marking statute.
After the alleged infringer meets its initial burden of production by identifying which products allegedly were unmarked, the burden shifts to the patentee to show that the identified products either: (i) are properly marked; or (ii) do not practice the patent(s). The court did not describe the minimum showing necessary to meet this burden of production, but nevertheless found that Bombardier had satisfied its burden by identifying the fourteen unmarked Honda PWCs, citing the licensing agreement between Arctic Cat and Honda, and submitting expert testimony that the identified Honda PWCs operated in substantially the same way as the Bombardier PWCs Arctic Cat had accused of infringing its patents. The panel directed that on remand, in order to be entitled to pre-notice damages, Arctic Cat must establish that the identified Honda PWCs do not practice the patents, putting Arctic Cat in the awkward position of arguing that Honda didn't need a license from Arctic Cat in the first place.
The Arctic Cat case emphasizes the importance to a patent owner of accurately tracking product marking for its own products and for those of its licensees. Here, Arctic Cat could have saved a considerable amount of attorneys' fees had it simply required Honda mark its products, assuming Honda's PWCs did practice the patented inventions. That said, many (if not most) licensees will object to a marking provision in a license agreement, as it appears to constitute a near-admission of infringement. Thus, when patented products are manufactured by a licensee, a patent owner should carefully balance its desire for pre-notice damages with the willingness of the licensee to mark its products. If the licensee refuses to mark its products, the patent owner may wish to employ a more aggressive marketplace monitoring strategy to more quickly learn of the introduction of potentially infringing goods.
Additionally, in view of the "virtual marking" options now available to patent owners and licensees, the burden of marking is minimal and the excuses for a patent owner to not mark virtually non-existent. A simple but robust marking tracking system, maintained either internally or by a company's outside IP counsel, would be an invaluable tool to show compliance with the marking statute. As Benjamin Franklin succinctly put it, "an ounce of prevention is worth a pound of cure," and a patent marking tracking system is the prevention that patentees need.
[1] Damages in patent cases are also subject to a six year pre-lawsuit limitation. See 35 U.S.C. § 286.
[2] The false marking statute, 35 U.S.C. § 292, was amended by the AIA limiting private actions for false marking to those entities that have "suffered a competitive injury" as a result of the false marking. 35 U.S.C. § 292(b). The AIA further amended false marking statute to limit the availability of statutory damages to actions brought by the United States.
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