Thursday, July 8, 2010

Recent District Court Decisions Hold False Marking to Heightened Pleading Requirements

Recent decisions from the Federal Circuit have not provided defendants with any “silver bullets” to obtain early dismissal of cases alleging false patent marking. To the contrary, these decisions (which established that the fine for false marking is based on each article marked and confirmed that a product marked with an expired patent number is indeed an unpatented article), may serve to embolden relators and result in them bringing additional false marking cases. Although the standard for pleading false marking cases has not yet been addressed by the Federal Circuit, recent district court decisions have been holding false marking allegations to a higher pleading standard under Fed. R. Civ. P. 9(b) and dismissing cases that fail to meet this standard. These district court cases may provide some hope to defendants in false marking cases.

In a Memorandum Opinion dated June 17, 2010 in Simonian v. Cisco Systems, 10-CV-1306 (N.D. Ill), Judge Der-Yeghiayan dismissed Mr. Simonian’s complaint on Cisco’s motion to dismiss under Rule 12(b)(6). In dismissing the complaint, the Court acknowledged that there was no binding precedent on point, but reasoned that false marking allegations are fraud-based claims and therefore “are subject to the heightened pleading requirements of Rule 9(b).” Opinion at 6. With respect to the intent prong of the false marking claims, Mr. Simonian alleged, upon information and belief, that Cisco is “a sophisticated company and has many decades of experience applying for, obtaining, and/or litigating patents.” The court found that this general allegation was “unsupported by specific facts,” and that “Simonian has failed to plead specific facts showing Cisco’s knowledge of the mismarking or its intent to deceive the public.” Opinion at 8. As such, the Court held that “Simonian’s complaint does not meet the heightened pleading requirements of Rule 9(b)” and dismissed the complaint. The court dismissed Simonian’s claims without prejudice, however, and specifically provide that Mr. Simonian may file a motion for leave to file an amended complaint. (Simonian has since filed a motion seeking leave to file an amended complaint and Cisco has filed are opposition to this motion, which is now before the court.)

Similarly, in Advanced Cartridge Technologies v. Lexmark, Int’l., Judge Merryday dismissed Advanced Cartridge Technologies’ false marking allegations for failing to meet the pleading requirements with respect to intent under Rule 9(b).  Advanced Cartridge Technologies v. Lexmark, Int’l, 10-CV-486 (M.D. Fl.), see Order dated June 30, 2010 (“Order”).   In this case, the complaint simply stated that “defendant knows, or reasonably should know, that marking the Cartridge Products with patents that do not cover the Cartridge Products, or patents that are invalid or expired, will deceive the public.” See Order at 2. As to this allegation, the court concluded that “[p]roviding only sparse factual detail, the complaint utterly fails to ‘state with particularity the circumstances constituting fraud.’” Order at 2.  As with the Simonian case, the plaintiff/relator was given leave to file an amended complaint to attempt to remedy the inadequate pleadings.

Because these cases were dismissed without prejudice, the plaintiff/relator has been given a second bite at the apple. It remains to be seen whether these plaintiff’s will be able to plead sufficient facts, even upon information and belief, to meet the heightened pleading requirement under Rule 9. It will also be interesting to see if other courts follow these cases in holding false marking cases to the heightened pleading standards under Fed. R. Civ. P. 9(b) and whether this will provide a substantial change in litigating false marking cases.