Cadwalader, Wickersham & Taft LLP: Rule 9(b) Applies To The False Marking Statute

Cadwalader, Wickersham & Taft LLP: Rule 9(b) Applies To The False Marking Statute

By Karen J. Axt Ph.D.

Resolving an issue that has become increasingly important since the Federal Circuit set-off an avalanche of suits under 35 U.S.C. § 292 for false patent marking by ruling in December 2009 that the statutory penalty of up to "$500 for every such offense" applies to each individual item falsely marked, the court has now raised the bar on such cases by ruling that the allegations of intent to deceive the public necessary to support a false marking claim must be pled with the high level of particularity required by Rule 9(b) of the Federal Rules of Civil ProcedureIn re BP Lubricants, Misc. No. 960 (Fed. Cir.  Mar. 15, 2011) [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law]. 


A patent attorney named Thomas A. Simonian filed a qui tam relator complaint on behalf of the United States under 35 U.S.C. § 292, which provides:

(a) . . . .  Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word "patent" or any word or number importing that the same is patented for the purpose of deceiving the public. . . [s]hall be fined not more than $500 for every such offense.

(b)        Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.

35 U.S.C. §292(a)-(b).

The complaint alleged that BP Lubricants (BP) violated this statute by continuing to mark bottles of Castrol® lubricants with the number of a patent that expired in 2005.  The complaint attempted to show that this mismarking was done "for the purpose of deceiving the public" by alleging on information and belief that "(1) BP knew or should have known that the patent expired; [and] (2) BP is a sophisticated company and has experience applying for, obtaining, and litigating patents."  On the basis of those assertions, the complaint alleged that "BP marked the Castrol products with the patent numbers for the purpose of deceiving the public and its competitors into believing that something contained or embodied in the products is covered or protected by the expired patent."

Unlike some other district courts, the district court in this case concluded that Fed. R. Civ. P. 9(b) is applicable to false marking claims.  However, the district court applied that rule in a very liberal manner.  Rule 9(b) provides:

In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.  Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.

Relying on Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009) [enhanced version / unenhanced version], in which the Federal Circuit held that Rule 9(b) requires a plaintiff to plead in detail "the specific who, what, when, where, and how" of the alleged fraud, the district court held that Simonian's complaint set forth the circumstances constituting the intent to deceive with adequate particularity.  The court explained that in addition to alleging that BP knew or should have known the patent expired, it was enough under Rule 9(b) for Simonian to allege that BP (the "who") had deliberately and falsely marked (the "how") at least one line of its motor oil products (the "what") with an expired patent and continues to falsely mark its products (the "when") throughout the United States (the "where") with the intent to deceive its competitors and the public.

BP moved for a writ of mandamus.  The Federal Circuit noted that the district court's ruling that the complaint satisfied Rule 9(b) was the type of interlocutory order that is generally not reviewable until after entry of final judgment.  Citing older Supreme Court case law, the Federal Circuit also pointed out that "extraordinary writs cannot be used as substitutes for appeals . . . even though hardship way result from delay and perhaps unnecessary trial."  Nonetheless, the Federal Circuit ruled that mandamus was appropriate here because the applicability of Rule 9(b) to false marking claims was a "basic and undecided question" on which "trial courts have been in considerable disagreement . . ., resulting in inconsistent results across the country."

Rule 9(b) Applies to False Marking Claims

The Federal Circuit first addressed the threshold issue of whether Rule 9(b)'s particularity requirement applies to false marking claims.  The court explained that the rule "acts as a safety value to assure that only viable claims alleging fraud or mistake are allowed to proceed to discovery.  By eliminating insufficient pleadings at the initial stage of litigation, Rule 9(b) prevents relators using discovery as a fishing expedition."

The Federal Circuit reasoned that § 292 is analogous to the False Claims Act, which has been construed to allow suits claiming fraud against the government, but not negligent errors or omissions.  Every regional circuit has held that a relator must meet the requirements of Rule 9(b) when bringing complaints under the False Claims Act on behalf of the government.  The same concerns that led the regional circuits to apply Rule 9(b) to pleadings under the False Claims Act apply with equal force to false marking claims, the court explained:

We see no sound reason to treat § 292 actions any differently.  Like the False Claims Act, § 292 condemns fraudulent or false marking.  Rule 9(b)'s gatekeeping function is also necessary to assure that only viable § 292 claims reach discovery and adjudication.  Permitting a false marking complaint to proceed without meeting the particularity requirement of Rule 9(b) would sanction discovery and adjudication for claims that do little more than speculate that the defendant engaged in more than negligent action.

"Sophisticated Company" Allegations Inadequate

Although the district court was correct in deciding that false marking pleadings must satisfy Rule 9(b), the lower court misapplied the rule, the Federal Circuit concluded.  Under Exergen, pleadings of fraud or mistake must "allege sufficient underlying facts from which a court may reasonably infer that a party acted with the requisite state of mind."  Further, Exergen held that in claims sounding in fraud or mistake, Rule 9(b) is not satisfied where a pleading merely avers the substantive elements of a claim without setting forth the particularized factual bases for the allegation.  Thus, the lower court erred by failing to require Simonian to plead facts from which it could reasonably be inferred that BP knew the patent had expired: 

In denying BP's motion to dismiss, which was based on Exergen, the district court here did not find relevant that the complaint failed to allege any facts inferring that BP was aware of the patent's expiration.  To the contrary, the district court expressly relied on the relator's general allegation that BP knew or should have known that the patent expired.

This is clearly incorrect.  A plaintiff is not empowered under the Rules "to plead the bare elements of his cause of action, affix the label 'general allegation,' and expect his complaint to survive a motion to dismiss."  Ashcroft v. Iqbal, 129 S. Ct. 1937, 1954 (2009) [enhanced version / unenhanced version].  Instead, a complaint must in the § 292 context provide some objective indication to reasonably infer that the defendant was aware that the patent expired.

The Federal Circuit expressly rejected Simonian's argument that his "sophisticated company" allegation provided the basis to reasonably infer that BP knew its patent had expired:

[R]elator contends that asserting in the complaint that BP is a "sophisticated company and has experience applying for, obtaining, and litigating patents" is enough under Rule 9(b).  This court disagrees.  That bare assertion provides no more of a basis to reasonably distinguish a viable complaint than merely asserting the defendant should have known the patent expired.  Conclusory allegations such as this are not entitled to an assumption of truth at any stage in litigation.  Ashcroft, 129 S. Ct. at 1952.

The Federal Circuit also rejected the argument that false marking is an "anonymous" and not an individualized fraud, making the district court's application of Rule 9(b) reasonable even though the complaint failed to identify any individual at BP who knew the patent had expired.  The Federal Circuit pointed out that naming individuals who knew the patent expired is not the only way of establishing knowledge of that fact:

Overlooked by the relator is that the naming of specific individuals is not the only way to set forth facts upon which intent to deceive can be reasonably inferred.  In an amicus brief, the United States points out that a relator can, for example, allege that the defendant sued a third party for infringement of the patent after the patent expired or made multiple revisions of the marking after expiration.  None of these or similar assertions are present in the complaint here.

Finally, the court noted that scienter in false marking, unlike in inequitable conduct, is determined through use of a rebuttable presumption.  Pequignot v. Solo Cup Co., 608 F.3d 1356, 1362-63 (Fed. Cir. 2010) [enhanced version / unenhanced version], held that "the combination of a false statement and knowledge that the statement was false creates a rebuttable presumption of intent to deceive the public, rather than irrebuttably proving such intent."  The BP court agreed "that the Pequignot presumption informs the determination of whether a false marking plaintiff has met Rule 9(b)."  However, Pequignot had noted that "[t]he bar for proving deceptive intent [in false marking cases] is particularly high," requiring that false marking plaintiffs show "a purpose of deceit, rather than simply knowledge that a statement is false."  The BP court concluded that whether a plaintiff alleging false marking has "pled the facts necessary to activate the Pequignot presumption is simply a factor in determining whether Rule 9(b) is satisfied; it does not, standing alone, satisfy Rule 9(b)'s particularity requirement."

Accordingly, the Federal Circuit directed the district court to dismiss Simonian's complaint with leave to amend to attempt to satisfy the pleading requirements set forth in the Federal Circuit's opinion.

The views expressed in this article are those of the individual authors and do not necessarily represent the views of Cadwalader, Wickersham & Taft LLP or its clients


For more information about LexisNexis products and solutions connect with us through our corporate site.