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The False Marking Gold Rush: A Case Study of the Private Enforcement of Public Laws

Published online by Cambridge University Press:  18 September 2024

Zachary D. Clopton
Zachary D. Clopton*
Affiliation:
Professor of Law, Northwestern Pritzker School of Law, Chicago, IL, United States
*
Email: [email protected]
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Abstract

Federal law prohibits deceiving the public by falsely marking an item as patented. The “false marking” prohibition has been enforced primarily by private lawsuits on behalf of the United States, with the party plaintiff and the government splitting the penalty. When a court decision dramatically increased the potential recovery for false marking claims, lawyers pounced immediately, filing more cases per week than had previously been filed in years. Indeed, many lawyers who did not previously work on patent cases joined the fray. Within two years, Congress eliminated this type of false marking suit and terminated all pending cases. Using empirical data, interviews with lawyers, legislative history, litigation documents, and news sources, this article tells the instructive history of false marking litigation. This history shows that the supply of private enforcement—lawsuits by private parties to enforce laws in the public interest—is sensitive to market forces. It also shows that, even when concentrated interests encourage Congress to cut back on private enforcement, Congress does not move as quickly as the bar. This matters because once Congress authorizes private enforcement, the maintenance of that system depends on judges and lawyers interpreting private enforcement statutes.

Keywords

Civil procedurelitigationintellectual property
Type
Articles
Information
Law & Social Inquiry , First View , pp. 1 - 18
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of American Bar Foundation

Introduction

Private enforcement describes the use of private civil lawsuits—rather than, for example, government litigation or taxes—to enforce laws that regulate private behavior. Private enforcement is a central mode of enforcing US laws on antitrust, securities, the environment, and more (Farhang Reference Farhang2011; Glover Reference Glover2012; Burbank, Farhang, and Kritzer Reference Burbank, Farhang and Kritzer2013). In recent times, private enforcement has been invoked as a tool of rights suppression—for example, in laws targeting abortion such as Texas’s so-called SB8 (Huq Reference Huq2023; Michaels and Noll Reference Michaels and Noll2023).Footnote 1 The qui tam is an early form of private enforcement (Krent Reference Krent1989, 290–92; Engstrom Reference Engstrom2013). For centuries, qui tam suits were brought on behalf of the monarch by the “relator” (or sometimes “informer”), with the recovery going to the Crown minus a bounty to the relator. This historical pedigree aided Justice Antonin Scalia in upholding Article III standing in a qui tam suit even when the private party did not suffer an injury in fact.Footnote 2 The qui tam suit remains a major vehicle for enforcing the Federal False Claims ActFootnote 3 and many state false claims acts as well.Footnote 4 It has attracted the interest of commentators as a potential tool in areas such as tax, privacy, employment discrimination, and more (Rapp Reference Rapp2007; Hertel Reference Hertel2013; Brinn Reference Brinn2019; Ormerod Reference Ormerod2022). And it has received recent and ignominious attention in those rights-suppressing laws mentioned above.

Private enforcement and qui tam are neither good nor bad. They are tools that can be used for whatever ends. Evaluating which tool is right for a particular job requires understanding how those tools work. And such evaluation depends on the study of actual private enforcement and qui tam regimes. A recurrent feature of the academic literature on private enforcement is a passing reference to an obscure qui tam provision buried in the patent laws. Leading articles on private enforcement give this provision no more than a footnote (Krent and Shenkman Reference Krent and Shenkman1993; Stephenson Reference Stephenson2005; Engstrom Reference Engstrom2014). Even an article about the potential for qui tam in patent law spent only a few paragraphs on the one actual qui tam in patent law (Golden Reference Golden2013).

This article is a case study of the qui tam provision in the federal statute prohibiting “false marking”: the labeling of a product as “patented” when it is not patented, when the patent is expired, or when the marker does not own the applicable patent.Footnote 5 The basic idea is that falsely labeling a product as patented is fraud on the consumer and might discourage others from developing competing products for fear of being sued for patent infringement. False marking, when intended to deceive the public, has been prohibited under US law since 1842.Footnote 6 Starting in that year, one way to enforce the false marking statute was through a qui tam action. Unlike under the False Claims Act, the false marking relator could proceed without any notice to, or involvement of, the government. Instead, the only necessary role for the government was to receive its share of the fine from the relator.

From its early days, the penalty for false marking was set at one hundred dollars. In 1952, Congress increased the penalty to a whopping five hundred dollars (maximum). The one-hundred-dollar and five-hundred-dollar penalties for this obscure violation did not seem to garner much attention—that is, until a Federal Circuit decision in December 2009 held that the penalty was to be assessed per marked item.Footnote 7 So, for example, when almost twenty-two million Solo cups—the red cups ubiquitous at college fraternity parties—were marked with an expired patent number, a potential relator might see dollar signs.Footnote 8 And, indeed, they did. Prior to that Federal Circuit decision, there had been a total of forty-four false marking cases over a period of seven years, roughly one case every other month.Footnote 9 The Federal Circuit decision was a “green light.”Footnote 10 During the less than two years that the Federal Circuit’s rule was in place, relators filed 953 false marking cases or roughly forty-five per month.Footnote 11 One lawyer, who eventually filed dozens of false marking qui tams, pitched his firm on the opportunity after determining that a consumer product he used was marked with an expired patent number.Footnote 12 The firm set up a company to serve as the plaintiff in these cases, and they offered bonuses to firm employees and some local high school students for finding falsely marked products.Footnote 13 These lawyers and their allies were not alone. It was, in the words of a lawyer interviewed for this project, a “gold rush.”Footnote 14 Congress, worried about “frivolous and vexatious litigation,”Footnote 15 quickly got into the act. Within two years, Congress removed the qui tam provision from the false marking statute, going so far as to apply this change to pending cases. After that law went into effect, false marking cases dried up.Footnote 16

Using empirical data, interviews with participants, legal filings, legislative history, and news reports, this article tells the story of the rise and fall of the false marking qui tam.Footnote 17 The long history of the false marking qui tam before 2011 may be increasingly important as the historically minded Supreme Court of the United States considers the interaction between standing and executive power, with the qui tam action as a central character.Footnote 18 More theoretically, the story of the false marking qui tam adds evidence to the claim that the market for private enforcement works as predicted. An increase in the size of the penalty may induce parties and attorneys to seek out and file more enforcement actions. This is consistent with the findings of a leading study on private enforcement markets, in which Sean Farhang (Reference Farhang2009) demonstrated that Congress self-consciously increased the enforcement of civil rights laws by increasing the potential recovery available to private enforcers.

Similarly, the political economy of legislation also worked as expected. Once the potential fines ballooned, and concentrated interests felt threatened, it was not long until Congress stepped in. Congress responded by eliminating the qui tam and terminating pending cases twenty-one months after the Federal Circuit decision, which was relatively quick for the federal legislature but still much slower than the speed with which the private bar assimilates new information. Taken together, these findings demonstrate that, once Congress sets an enforcement regime out into the world, courts and lawyers take on a policy-making role. Prior research has focused on courts making private enforcement more difficult (Burbank and Farhang Reference Burbank and Farhang2017), but, for false marking, the courts were the policy makers that dramatically increased the enforcement incentives.

This article begins with a brief background on private enforcement and associated literatures. It then tells the history of the false marking qui tam from its origins to its demise. In its final part, this article offers some reflections on the economies of litigation and legislation and on how the division of institutional authority can lead to unexpected changes to private enforcement regimes.

Background

Private enforcement typically refers to the use of private civil litigation to enforce or induce compliance with substantive laws, often those that in many systems would be enforced by the state (Farhang Reference Farhang2011; Glover Reference Glover2012; Burbank, Farhang, and Kritzer Reference Burbank, Farhang and Kritzer2013). Common topics addressed by private enforcement in the United States include civil rights and civil liberties, antitrust, environmental, labor and employment, securities, and consumer protection (Farhang Reference Farhang2009; Clopton Reference Clopton2016). In his path-marking book on the topic, Sean Farhang (Reference Farhang2011) found that, at the US federal level, Congress was more likely to turn to private enforcement when a pro-enforcement Congress was paired with an anti-enforcement executive, though at least one study does not find similar results at the state level (Zambrano et al. Reference Zambrano, Guha, Peters and Xia2023). Federal courts, too, seem to infuse their judgments of procedural issues related to private enforcement with their substantive preferences on enforcement levels (Burbank and Farhang Reference Burbank and Farhang2017, Reference Burbank and Farhang2021). These latter findings also remind that Congress’s use of private enforcement enlists judges, who may or may not be faithful agents.

The reasons why pro-enforcement policy makers might favor private enforcement have been well studied. According to one review, private enforcement has several advantages, including the ability to “(1) multiply resources devoted to prosecuting enforcement actions; (2) shift the costs of regulation off of governmental budgets and onto the private sector; [and] (3) take advantage of private information to detect violations” (Burbank, Farhang, and Kritzer Reference Burbank, Farhang and Kritzer2013, 662). The literature assumes that the pro-enforcement legislators can engage private enforcers through legislation. They do so not only with the creation of a private right of action but also through litigation subsidies, typically provisions on fee shifting and extra-compensatory damages (Resnik Reference Resnik2000; Farhang Reference Farhang2011; Zambrano et al. Reference Zambrano, Guha, Peters and Xia2023). As mentioned above, Sean Farhang (Reference Farhang2009) found evidence of this effect in the Civil Rights Act of 1991, though at least one prior study found no effect on enforcement from changing the fee-shifting rules (Schwab and Eisenberg Reference Schwab and Eisenberg1987–88). Other evidence is limited.

While these studies inquired into whether Congress can increase levels of private enforcement through incentives, the theoretical model also would suggest that Congress could reduce enforcement levels by eliminating or reducing those incentives. Such an approach would not entirely eliminate private enforcement (for example, by eliminating the private cause of action) but make it harder or less remunerative to bring private enforcement actions.Footnote 19

The false marking qui tam

The Pre-History

The false marking statute began in the Patent Act of 1842.Footnote 20 Section 5 of the Act prohibited the false labeling of a product with the name of the patent holder or as “patented,” with the intent to deceive the public.Footnote 21 According to the statute, doing so was punishable by “a penalty of not less than one hundred dollars, with costs, … one half of which penalty, as recovered, shall be paid to the patent fund, and the other half to any person or persons who shall sue for the same.”Footnote 22 In other words, the statute employed the qui tam mechanism to allow a private party to sue for false marking, splitting the recovery with the US government. The legislative history of the 1842 Act was spare, suggesting that “the bill was intended to … protect the rights of patentees.”Footnote 23 Published case law under the Act was limited as well. In 1853, in Nichols v. Newell, the District of Massachusetts explained that the false marking statute had three elements, to be proven beyond a reasonable doubt: (1) the defendant marked the article as patented; (2) the defendant had no applicable patent; and (3) the marking was done with the intent to deceive the public.Footnote 24

With respect to damages, the Nichols court stated that damages would be assessed at a minimum of $100 per count.Footnote 25 But two years later, in Stimpson v. Pond, the same court in an opinion by Circuit Justice Curtis held that damages should not exceed $100, even though the statute said “not less than one hundred dollars.”Footnote 26 The court reasoned that, as a penal statute, the provision should be read narrowly, and there was no indication that Congress authorized any particular penalty greater than $100.Footnote 27 The court also observed that because it is a penalty statute, the jury could not simply look to the plaintiff’s injury.Footnote 28

In 1870, Congress revised the patent laws.Footnote 29 Section 39 of the Patent Act of 1870 restated the false marking statute in slightly different language but with no major substantive changes.Footnote 30 The new statute provided for “a penalty of not less than one hundred dollars, with costs; one moiety [half] of said penalty to the person who shall -sue for the same, and the other to the use of the United States.”Footnote 31 The congressional debates said essentially nothing about the false marking provision, instead being mostly preoccupied with patent officials’ salaries, patent fees, and other pecuniary matters, plus some florid language about inventing.Footnote 32 An 1896 article in the Harvard Law Review, written by patent attorney Odin Roberts (Reference Roberts1896–97), reviewed the law of false marking under the 1870 Act.Footnote 33 Roberts described the tension between protecting patent holders and over-enforcement. On the one hand, “the intent of Congress in enacting [the false marking provision] was presumably to throw a healthful restraint in the way of unscrupulous persons who might be tempted to deceive the public” 268). But, on the other hand, “[d]oubtless many such actions have been brought for the sake of intimidation, not to say black-mail, in cases where the facts did not warrant an information” 268).

Perhaps in light of this concern, courts construed the false marking law narrowly,Footnote 34 though some courts relaxed the reasonable doubt standard of earlier cases.Footnote 35 The reported cases continued to treat the “not less than one hundred dollars” language as a maximum. Some early cases applied the penalty to each article falsely marked,Footnote 36 but courts then pulled back. In Hotchkiss v. Samuel Cupples Wooden-Ware Company, the Eastern District of Missouri explained in 1891 that the penalty should apply only to each episode of false marking.Footnote 37 The Southern District of Ohio agreed in the 1899 case Hoyt v. Computing Scale Company. Footnote 38 And the First Circuit, citing Hotchkiss and Hoyt, followed suit in 1910, in order to avoid “the accumulation of an enormous sum of penalties, entirely out of proportion to the value of the articles.”Footnote 39

Congress stepped in again in 1952 with the Patent Law Codification and Revision Act, a large bill addressing many patent issues.Footnote 40 The Act reauthorized the false marking statute with a few small changes,Footnote 41 including changing the penalty to a fine of “not more than $500 for every such offense.”Footnote 42 This language conformed to judicial interpretation of the penalty as a maximum, and it increased the amount to five hundred dollars. The legislative history provides that “[t]his change is believed to be desirable in that it will aid the policing of false marking. With the present law the informant bringing a qui tam action rarely receives more than $50, which does not pay him for his time and trouble.”Footnote 43 Published cases under the 1952 Act consistently interpreted the provision in line with prior versions (Chisum [Reference Chisum1944] 1978, 97–103). With respect to the penalty provision, most courts declined to fine defendants five hundred dollars per marking. Some courts, tracking the 1910 First Circuit decision, treated multiple markings as a single continuous offense.Footnote 44 Others, tracking nineteenth-century decisions, fined defendants based on the timing of the marks.Footnote 45 I was able to locate one decision that imposed a fine for each item falsely marked.Footnote 46

In any event, the overall volume of cases was not great. As discussed in more detail below, a database that purports to include “nearly all” patent cases in the relevant period shows only single-digit false marking cases in each year from 2003 to 2008.Footnote 47 The numbers crept up in 2009. In October of that year, two patent attorneys wrote an article for the Federalist Society’s legal journal, then called Engaged,Footnote 48 about what they termed an “explosion” in false marking actions (Copeland and Lydigsen Reference Copeland and Lydigsen2009).Footnote 49 They suggested that “enterprising attorneys” brought suits based on expired patents to “exploit[] an arcane provision of the Patent Act” 86). Instead of McDonald’s coffee, the authors pointed to the Solo cup. The article highlighted litigation in a Virginia federal court in Pequignot v. Solo Cup Company,Footnote 50 brought by a patent attorney proceeding pro se against Solo Cup based on an expired patent (Copeland and Lydigsen Reference Copeland and Lydigsen2009). The Engaged authors justified their claim of an “explosion” with citations to fourteen cases (Copeland and Lydigsen Reference Copeland and Lydigsen2009); the database showed eighteen cases in 2009.Footnote 51 The authors, it turns out, were right too soon. There would be an explosion but not just yet.

The Decision

Things would change because of stilts. Construction workers and artisans sometimes use stilts to increase their reach. William Armstrong and Joe Lin developed a new stilt design for which they received a patent in 1997.Footnote 52 The patented stilt made a number of improvements over existing designs of string-loaded parallelogram stilts. Among them was a “resiliently lined yoke,” the yoke being the clamp that attaches the shoe platform to the leg support (see Figure 1, no. 50).Footnote 53 Armstrong and Lin each created a company to sell stilts covered by the patent.Footnote 54 For a while, Bon Tool purchased stilts from Armstrong’s company. Eventually, it switched to buying and reselling replica stilts made by Cibon and Honest Tool. Upon learning that Bon Tool was buying and reselling replica stilts, Lin’s company (Forest Group) sued Bon Tool and the two manufacturers on December 7, 2005, in the Southern District of Texas.Footnote 55 Bon Tool counterclaimed for false marking, among others, asserting that Forest Group’s stilts did not conform to the original patent for which they were marked.

Figure 1. Armstrong and Lin Stilt.

The federal court in Texas determined that the patent covered only stilts with resiliently lined yokes, as did a second federal court around the same time.Footnote 56 Bon Tool’s stilts did not include this feature, so they did not infringe the patent.Footnote 57 Interestingly, the court also concluded that Forest Group’s stilts, though marked with the relevant patent number, did not have resiliently lined yokes either.Footnote 58 The court found that Forest Group placed at least one order for production of these stilts after two courts had determined that the yoke was an essential element of the patent, at which point Forest Group should have known not to mark them as patented. The district court found that this order constituted one instance of false marking and fined Forest Group five hundred dollars.Footnote 59

Bon Tool appealed and, on appeal, argued (among others) that the five-hundred-dollar fine was too low. Supporting Bon Tool as amicus curiae in the Federal Circuit was a patent attorney who, one year earlier, had formed Heathcote Holdings Corporation for the purpose of enforcing the false marking statute through qui tam actions.Footnote 60 Heathcote had filed an unrelated false marking action in the Eastern District of Texas,Footnote 61 and it was mentioned in the Federalist Society article (Copeland and Lydigsen Reference Copeland and Lydigsen2009).

The Federal Circuit sided with Bon Tool. It explained (with emphasis) that the statute prohibited the false marking of “any unpatented article” subject to a fine for “every such offense.”Footnote 62 The court rejected precedent interpreting prior versions of the Patent Act in favor of what it deemed the plain meaning of the statute,Footnote 63 repeating the phrase “plain meaning” four times throughout the opinion.Footnote 64 In short, the court explained that “the statute clearly requires that each article that is falsely marked with intent to deceive constitutes an offense.”Footnote 65

This does not mean, however, that every act of false marking would be fined the full five hundred dollars. According to the court, the statute’s five-hundred-dollar maximum “provides district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities.”Footnote 66 On remand, the district court entered judgment for Bon Tool and fined Forest Group “at the per article rate of $180.00 for each of the 38 stilts for which there was evidence at trial of false marking, for a total fine of $6,840.00.”Footnote 67

The Explosion

Forest Group, Inc. v. Bon Tool Company was decided on December 28, 2009. The explosion followed almost immediately thereafter. The best source for information about recent patent litigation is the Patent Litigation Database.Footnote 68 Coverage includes “nearly all” patent cases since 1999. I identified all false marking cases in the database from 2003 to 2016. The results are striking. As noted above, 2009 had been the highwater mark with eighteen false marking cases in the dataset. In 2010, the first year after Forest Group, 661 false marking cases were filed, on average almost two per day. Another 292 were filed in 2011 before the law changed in September. Many of these cases, it seems, related to the marking of goods with a valid but expired patent number.Footnote 69

Documents made available by the Department of Justice under the Freedom of Information Act show that the government received $3.4 million for false marking cases in 2010 and $7.8 million in 2011.Footnote 70 Because the government was entitled to one-half of the penalties, these figures suggest that false marking cases resulted in more than $22 million in penalties during the twenty-one months of the Forest Group era.Footnote 71 Although fifty-three districts heard at least one case, more than half of the cases—514 to be precise—were filed in the Eastern District of Texas, a hotspot of patent litigation more generally (Klerman and Reilly Reference Klerman and Reilly2016). The Northern District of Illinois, which includes Chicago, was second on the list with seventy-nine.

Who filed these cases?Footnote 72 Numerous law firms got into the game, with twenty-four firms filing ten or more false marking cases under the Forest Group regime. Only one of those twenty-four firms had filed even a single false marking case before that decision, having filed three in late 2009. Only one of those firms would file any false marking case after this period, just one more, the same month Congress changed the law. Many of the firms were not major players in patent litigation generally. For example, two of the firms with the most false marking cases under Forest Group—Kent Good Anderson & Bush, PC with sixty-five cases, and Martin Walker, PC with fifty-two cases—do not even list intellectual property as a practice area on their websites.Footnote 73 These firms had no patent cases in the database prior to 2010, and only a few patent cases after (see Table 1).

Table 1. Law firm cases after Forest Group

The named plaintiffs were mostly LLCs and individuals. My best efforts suggest that many of the LLCs were set up for the purpose of bringing these cases, some set up by patent lawyers themselvesFootnote 74 and others by what one interview subject called “regular folks.”Footnote 75 Kilts Resources, LLC, for example, was registered under Texas law on November 15, 2010, by “landman” Chase Florio.Footnote 76 Four days later, it filed its first case in the Eastern District of Texas, ultimately filing thirty false marking cases there. Individuals also filed suits, such as Tom Simonian who filed forty-five cases, mostly in the Northern District of Illinois. Some of the individual plaintiffs were patent lawyers themselves or learned about these cases from patent lawyers they knew.Footnote 77

How exactly the plaintiffs and lawyers learned of this opportunity is hard to pin down. Most likely, lawyers who followed Federal Circuit decisions were the first to notice. One lawyer interviewed for this project reported that it was the earlier Solo Cup case, rather than Forest Group, that tipped them off,Footnote 78 and, of course, the lawyers in the Solo Cup case got there another way.Footnote 79 But almost all of the lawyers interviewed—and the data—point to Forest Group as the “green light.”Footnote 80 One lawyer said that he got into these cases because he “randomly learned about the Federal Circuit decision” from another lawyer in a hallway conversation.Footnote 81 The Forest Group decision was publicized in sources that target lawyers, in general, or patent lawyers, in particular, so this could have contributed as well (Crouch Reference Crouch2010; W. Olson Reference Olson2010).

The geographic distribution of cases suggests that the decision garnered more attention in certain districts, especially those with large patent practices. It seems likely that an obscure Federal Circuit decision about patent law might resonate more in legal communities with a larger concentration of patent lawyers, such as the Eastern District of Texas. It is also possible that there was a network effect. Lawyers in the Eastern District of Texas might be more aware of one another so that, when one lawyer found a new business, others followed. In any event, however they learned about the opportunity, plaintiffs and lawyers seized upon it in droves. Interviews suggested that lawyers and their friends and family members would “scour the shelves” of stores looking for products with expired patent numbers.Footnote 82 A lawyer recalled a step-child sending a photo of a shampoo bottle to ask if the patent marking was false.Footnote 83 One firm offered bonuses to firm employees (lawyers and non-lawyers) who found offending products, and the firm even recruited local high-school students to work part-time checking patent numbers on consumer goods in stores.Footnote 84 Some firms focused on what they considered egregious cases, while others were less discerning.Footnote 85

Defendants, of course, did not sit on their hands. Defendants raised constitutional challenges to the statute under the Take Care Clause, arguing that it impermissibly transferred executive power to private parties. Most courts rejected this argument.Footnote 86 Judge Dan Polster in the Northern District of Ohio briefly held that the statute was unconstitutional.Footnote 87 Then the US government intervened to argue the statute’s constitutionality, and Judge Polster vacated his prior opinion in favor of a new decision upholding the statute.Footnote 88 Courts also exercised their discretion to impose fines of less than five hundred dollars per item.Footnote 89 But the cases kept rolling in. The solution would have to come from elsewhere.

The America Invents Act

Congress was fairly quick to take notice of the boom in false marking suits. As early as March 2010, less than three months after Forest Group, Representative Darrell Issa introduced legislation to limit the false marking provision to parties who suffered a competitive injury.Footnote 90 The big move happened in the Senate when the false marking issue was included as a small part of a much larger patent reform bill that had been percolating for years (Anderson Reference Anderson2014). False marking joined this legislation in progress when Senator Patrick Leahy of Vermont introduced the Patent Reform Act of 2011, later renamed the America Invents Act.Footnote 91 With respect to false marking, the bill limited enforcement of the penalty provision to the US government and created a cause of action for private parties only based on a competitive injury.Footnote 92 These changes would apply to all pending and future cases.Footnote 93

Leahy’s bill would pass ninety-five for and five against in the Senate.Footnote 94 With respect to the false marking provision, some senators took the opportunity to inveigh against “frivolous and vexatious litigation,”Footnote 95 “abusive litigation,”Footnote 96 and “litigat[ion] … that is far out of proportion.”Footnote 97 The only pushback on the false marking provision came with respect to the question of retroactivity. Senator Claire McCaskill thought it should apply to new cases only.Footnote 98 Soon after the Senate passed the bill, Representative Lamar Smith introduced the House’s version of the Act. Smith’s bill treated false marking much like the Senate did, except it also provided that there would be no liability based on an expired patent for three years after expiration.Footnote 99

The legislative history in the House related to false marking is relatively scant, though it included Representative Bob Goodlatte connecting the bill to the broader litigation reform agenda: “The bill also ensures that abusive false markings litigation is put to an end.”Footnote 100 A late arriving amendment from Representative Lamar Smith extended the “expired patent” defense indefinitely, providing that false marking with an expired patent “is not a violation of this section.”Footnote 101 The House passed the amended bill 304 for and 117 against.Footnote 102 The Senate then passed the House bill on September 8 by a vote of eighty-nine for and nine against,Footnote 103 and President Barack Obama signed it on September 16, 2011.Footnote 104

The effects of the Act were sudden. Because the law applied to pending cases, more than two hundred pending false marking actions disappeared with the stroke of a pen. The new limits on false marking suits also dramatically shrunk the pool of potential plaintiffs and the scope of potential recovery. The data are stark: four false marking cases were filed in the remainder of 2011, nine in 2012, and four or fewer for each of the next four years.Footnote 105 The boom had ended (see Figure 2).

Figure 2. False Marking Cases By Year 2003–2016.

Analysis

The story of the false making qui tam is not just a curio, but it is also a case study in how litigation and legislation work. This section of the article teases out some of its lessons, starting with what this experience tells us about the markets for litigation and legislation. This section then uses this episode to demonstrate the unpredictability inherent in private enforcement laws.

The Market for Litigation

Private enforcement and qui tam rely on the private provision of enforcement resources. Unsurprisingly, the private provision of these resources is subject to market forces. When the expected recovery is increased, the supply of enforcement should increase too. This is consistent with the classic law-and-economics models of litigation—here, with an emphasis on policy makers managing the market (Landes and Posner Reference Landes and Posner1987). Policy makers can manage litigation markets through subsidies. In private enforcement, extra-compensatory damages and attorney fee shifting are subsidies for private enforcers, subsidies that come out of defendants’ pockets (Burbank and Farhang Reference Burbank and Farhang2017, Reference Burbank and Farhang2021). In his study of the Civil Rights Act of 1991, for example, Sean Farhang (Reference Farhang2009) found that Congress’s decision to increase the potential recovery for certain civil rights claims increased the number of claims brought by private enforcers.

For false marking, the qui tam penalty subsidized private enforcement. When the size of that subsidy increased, it was followed by an avalanche of new cases—a thirty-six-fold increase over the previous year and more than one hundred times as many cases than the average over the prior seven years. The market worked. Indeed, the dramatic increase of the subsidy seemed to lead attorneys (and non-attorneys) to enter the market who had not been there before. Most of the firms had not filed false marking cases, and many had not filed patent cases at all. One attorney interviewed suggested that this episode helped make a primarily defense-side firm more open to plaintiff-side work.Footnote 106 At least one law firm, it seems, was established with the proceeds of false marking cases in order to prosecute more of them.Footnote 107

Here, too, this experience builds on the existing theoretical and empirical literature on the way in which private enforcement incentives can affect the supply of private enforcers. In addition to Farhang’s evidence on the 1991 Civil Rights Act, the enactment of Title VII of the Civil Rights Act of 1964 is credited with the development of an employment-discrimination bar (Epp Reference Epp1998). A similar phenomenon has been noted in national security law following a turn toward private enforcement in that area (Jamshidi Reference Jamshidi2023). False marking is another entry on this list.

The Market for Legislation

The market for legislation is also on display in this story. When the damages were capped at one hundred dollars or five hundred dollars, there was little interest in the law. The legislative history of the relevant statutes spent little if any time on this provision. There was virtually no news coverage. The late nineteenth-century review article suggested that false marking cases “will continue to be a rarity,” and they were (Roberts Reference Roberts1896–97). But things changed when we started talking about real money. Congress got interested quickly. One lawyer remarked that because false marking was so widespread that every member of Congress probably had a company in their district that could be sued.Footnote 108 In Congress, there was testimony from Chief Intellectual Property Counsel of General Electric on behalf of an industry group, the Coalition for Twenty-first Century Patent Reform,Footnote 109 and from a partner at Mayer Brown, a law firm that represented many potential defendants in false marking cases.Footnote 110 The General Electric lawyer, for example, called these cases “the worst recent example of truly wasteful litigation.”Footnote 111

This experience is consistent with the classic story of political economy, in which concentrated interests are well positioned to lobby for legislation (M. Olson Reference Olson1971). Also consistent with this story is the fact that more diffuse interests are less effective. The masses of consumers do not lobby. Even the plaintiffs’ bar, which presumably benefited directly from the old law, was unable to mount resistance. One attorney who brought false marking cases remarked that they wanted to lobby Congress but lacked the resources of their concentrated opposition.Footnote 112 Another said that they tried a little lobbying, but “you can’t stand up very well to the Chamber of Commerce.”Footnote 113 The asymmetry was exacerbated by the fact that these cases were not brought by the organized plaintiffs’ patent bar but, rather, by disparate and seemingly unconnected attorneys, who took up these cases. If anything, the organized bar stayed away.

Not only did concentrated interests get this issue on Congress’s agenda, but they also got results quickly, at least by Congress’s standards. The false marking law was changed in under two years, which is well below the four-year median found by a leading study of congressional overrides of judicial decisions (Christiansen and Eskridge Jr. 2014, 1355–56). But recall that litigation began almost immediately after Forest Group. More than eighty cases were filed before the first bill was proposed in Congress. More than eight hundred cases were filed before the law was changed. And this situation was perhaps the best-case scenario for swift legislative reform: a simple and intuitive argument for the particular change; concentrated interests supporting reform; no serious opposition; related legislation already in progress; and more than 150 years of experience before the recent change in law. Yet it still took close to two years to make it happen.

Congress and the Courts

Finally, the false marking statute highlights the variable roles of institutions in private enforcement. Farhang’s (2010) book on private enforcement focused on situations in which Congress sought to encourage private enforcement. Burbank and Farhang’s (Reference Burbank and Farhang2017) book focused on situations in which the courts sought to push back on Congress’s efforts. In the false marking story, the roles are reversed. The courts were the primary drivers of the enforcement boom. The legislative history suggests that Congress created and reauthorized an enforcement scheme that, it seems, was expected to play a minor role in the patent world. It was a one-hundred-dollar or five-hundred-dollar fine that might be tacked on a larger infringement suit or that could serve as a modest penalty in a small number of cases. Once the statute was adopted, however, it was out of Congress’s hands. Private enforcement necessarily involves judges. Judges may or may not enforce the law exactly as Congress intended. Burbank and Farhang (Reference Burbank and Farhang2017) observed how procedural decisions can cut back on private enforcement. Here, a remedial decision dramatically increased the incentives for private enforcement, and the market followed. Congress then played the role of Burbank and Farhang’s courts, cutting back on a booming market for litigation.

The false marking episode reveals that Congress and the courts may not always play the same roles. Burbank and Farhang (Reference Burbank and Farhang2021), in other work, have observed that the partisan alignment of private enforcement may have flipped recently. False marking is less likely a partisan story and more likely about what happens when diffuse and unsupervised agents (courts) may diverge from their principals (Congress). This experience also complicates some narratives about the occasionally mentioned democratic legitimacy of private enforcement regimes (Norris Reference Norris2022). It is true that a democratically elected Congress may seek to democratize enforcement—by supplementing executive enforcement with the option for public participation—but it must be acknowledged that the unelected courts remain as integral parts, with their own (potentially undemocratic) policy preferences.

Footnotes

Thank you to Kevin Clermont, John Golden, Paul Gugliuzza, William Hubbard, Megan La Belle, Mark Lemley, Avery Malinski, Greg Reilly, Sarah Reis, Dave Schwartz, Michael Volkert, and the many attorneys willing to be interviewed for this project.

1 Texas Health and Safety Code § 171.201.

2 Vermont Agency of Natural Resources v. US ex rel. Stevens, 529 U.S. 765 (2000).

3 31 U.S.C. §§ 3729–33.

4 For example, 740 ILCS 175/1 et seq.

5 28 U.S.C. § 292.

6 For a general theory of private attorneys general in intellectual property, see Van Houweling Reference Houweling and Shaffer2009.

7 Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1298 (Fed. Cir. 2009).

8 Pequignot v. Solo Cup Co. 608 F.3d 1356 (Fed. Cir. 2010) (finding that Solo had marked the cups with expired patent numbers but concluding that there was no liability because there was no intent to deceive the public, as required by the statute).

9 These data are drawn from a dataset compiled by the Patent and Trademark Office in collaboration with academic researchers. “Patent Litigation Docket Reports Data,” accessed August 29, 2024, https://www.uspto.gov/ip-policy/economic-research/research-datasets/patent-litigation-docket-reports-data.

10 Anonymous, interview with author, June 28, 2022.

11 Anonymous, interview with author, June 28, 2022.

12 Anonymous, interview with author, June 23, 2022.

13 Anonymous, interview with author, June 23, 2022.

14 Anonymous, interview with author, June 14, 2022.

15 157 Cong. Rec. S1368 (March 8, 2011) (Senator Grassley).

16 “Patent Litigation Docket Reports Data.”

17 All interviews were conducted anonymously and are on file with the author. Interview subjects were identified by relying on the quantitative data on which lawyers filed the most false-marking cases, supplemented by snowball sampling of interview subjects recommended in the initial interviews.

18 See United States, ex rel. Polansky v. Executive Health Resources, Inc., 143 S.Ct. 1720 (2023) (Thomas J. dissenting). For more, see Leitner, Reference Farhangforthcoming. Critics of private enforcement sometimes suggest that such statutes intrude on executive authority. Defenders of Congress’s power to authorize private enforcement then point to the long history of qui tam statutes as private enforcement’s “history and tradition.” Critics fire back that qui tams like the False Claims Act are different because they involve government injury and government supervision. But the false marking qui tam, since 1842, has neither. This example thus might be relevant to the judicial future of private enforcement.

19 For example, see 15 U.S.C. § 78u–4 (Private Securities Litigation Reform Act).

20 Patent Act, 1842, 5 Stat. 543, 544, ch. 263 § 5.

21 Patent Act, 1842.

22 Patent Act, 1842.

23 Cong. Globe, 27th Cong., 2d Sess. 833 (August 6, 1842).

24 Nichols v. Newell, 18 F.Cas. 199 (D. Mass. 1853).

25 Nichols, 18 F.Cas.

26 Stimpson v. Pond, 2 Curt.C.C. 502 (D. Mass. 1855).

27 Stimpson, 2 Curt.C.C.

28 Stimpson, 2 Curt.C.C.

29 Patent Act, 1870, 16 Stat. 198, 203, ch. 230 § 39.

30 Patent Act, 1870.

31 Patent Act, 1870.

32 See, for example, Cong. Globe, 41st Cong., 2nd Sess. 2679–84 (April 14, 1870); Cong. Globe, 41st Cong., 2nd Sess. 2854–57 (April 20, 1870); Cong. Globe, 41st Cong., 2nd Sess. 2872–80 (April 21, 1870).

33 Odin Roberts’s New York Times obituary described him as “one of the foremost patent lawyers in the United States” (New York Times 1934, 7).

34 See, for example, Wilson v. Singer, 12 F.57 (N.D. Ill. 1882) (no liability when patent was expired); Hotchkiss v. Samuel Cupples Wooden-Ware Co., 53 F.1018 (E.D. Mo. 1891) (requiring intent at time of marking and discussing requirements of corporate liability); Smith v. Walton, 51 F.17 (SDNY 1892) (requiring the false mark to be on the article, not the shipping crate).

35 Compare Nichols v. Newell, 18 F.Cas. 199 (D.Mass. 1853) (reasonable doubt) and Tompkins v. Butterfield, 25 F.556 (D. Mass. 1885) (reasonable doubt) with Howloetz v. Kass, 25 F.765 (SDNY 1885) (“if the jury are reasonably satisfied upon the evidence as to all material facts”) and Hotchkiss v. Samuel Cupples Wooden-Ware Co., 53 F.1018 (E.D. Mo. 1891) (preponderance of the evidence).

36 Pentlarge v. Kirby, 19 F.501 (SDNY 1884) (“a penalty of $100 for each article so stamped”); Winne v. Snow, 19 F.507 (SDNY 1884) (one hundred dollars for each of five hundred falsely marked basket-cover fastenings requested); Tompkins v. Butterfield, 25 F.556 (D. Mass. 1885) (permitting one penalty per article, though nothing that plaintiff requested only three penalties even though alleging that fifty articles were falsely marked).

37 Hotchkiss v. Samuel Cupples Wooden-Ware Co., 53 F.1018 (E.D. Mo. 1891).

38 Hoyt v. Computing Scale Co., 96 F.250 (S.D. Ohio 1899).

39 London v. Everett H. Dunbbar Corp., 179 F.506 (1st Cir. 1910).

40 Patent Act Codification and Revision Act, 1952, 66 Stat. 792.

41 Patent Act Codification and Revision Act § 292; see also S. Rep. no. 82–1979, 31 (1952).

42 Patent Act, 1952, ch. 950 § 292.

43 Patent Law Codification and Revision, Hearings before the Subcommittee no. 3 of the House Judiciary Committee on H.R. 3760, 82nd Cong. 98 (1951).

44 See, for example, A. G. Design & Assocs., LLC v. Trainman Lantern Co., No. C07–5158RBL, 2009 WL 168544, *3 (W.D. Wash. January 23, 2009); Undersea Breathing Sys., Inc. v. Nitrox Techs., Inc., 985 F.Supp. 752, 782 (N.D. Ill.1997); Sadler–Cisar, Inc. v. Com. Sales Network, Inc., 786 F.Supp. 1287, 1296 (N.D. Ohio 1991); Joy Mfg. Co. v. CGM Valve & Gauge Co., 730 F.Supp. 1387, 1399 (S.D. Tex. 1989); Precision Dynamics Corp. v. Am. Hosp. Supply Co., 241 F.Supp. 436, 447 (S.D. Cal. 1965).

45 See, for example, Icon Health & Fitness, Inc. v. Nautilus Group, Inc., No. 1:02 CV 109 TC, 2006 WL 753002, *16 (D. Utah, March 23, 2006) (one penalty per week); Krieger v. Colby, 106 F.Supp. 124, 131 (S.D.Cal. 1952) (one penalty per day); see also Brose v. Sears, Roebuck & Co., 455 F.2d 763, 766, n. 4 (5th Cir. 1972) (commenting that the fine could be per day, week, or month).

46 Enforcer Products, Inc. v. Birdsong, 1996 WL 592161, *1, n. 1 (Fed. Cir. 1996) (mentioning in passing the district court’s decision).

47 “Patent Litigation Docket Reports Data.”

48 The publication is now called the Federalist Society Review, https://fedsoc.org/federalist-society-review.

49 The authors were not alone, with other writings including Poplin Reference Poplin2009; Rupert Reference Rupert2009; Winston Reference Winston2009.

50 Pequignot v. Solo Cup Co., Case no. 1:07-cv-897 (E.D. Va.).

51 “Patent Litigation Docket Reports Data.”

52 Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1298 (Fed. Cir. 2009).

53 Forest Group, 590 F.3d.

54 Forest Group, 590 F.3d.

55 Forest Group, Inc. v. Bon Tool Co., 2008 WL 2962206 (S.D. Tex.).

56 Warner Mfg. Co. v. Armstrong, 504 F.Supp.2d 589 (D. Minn. 2007); Forest Group, 2008 WL 2962206.

57 Warner Mfg. Co. v. Armstrong, 2007 WL 3521249 (D. Minn. 2007); Forest Group, 2008 WL 2962206.

58 Forest Group, 2008 WL 2962206.

59 Forest Group, 2008 WL 2962206.

60 Brief of Amicus Curiae Paul Hletko in Support of Defendant-Appellant Bon Tool Company Urging Reversal, 2009 U.S. Fed. Cir. Briefs LEXIS 691 (Fed. Cir. Feb. 2. 2009).

61 Brief of Amicus Curiae Paul Hletko (citing United States ex rel. Heathcote Holdings Corp., Inc. v. Church & Dwight Co., Inc., 2:08-cv-349).

62 Forest Group, 590 F.3d, 1301 (quoting section 292) (emphasis in original).

63 Forest Group, 590 F.3d, 1301–2.

64 Forest Group, 590 F.3d, 1301–2, 1304.

65 Forest Group, 590 F.3d, 1301.

66 Forest Group, 590 F.3d, 1304.

67 Forest Group, 2010 WL 1708433, *1.

68 “Patent Litigation Docket Reports Data.”

69 See, for example, America Invents Act, June 1, 2011, H. Rep. no. 112-98, Part 1, 53.

70 “Settlement Payments Received for Section 292 Cases: 2010” (on file with author); “Settlement Payments Received for Section 292 Cases: 2011” (on file with author).

71 “Settlement Payments Received: 2010”; “Settlement Payments Received: 2011.”

72 The following information on attorneys is derived from the “Patent Litigation Docket Reports Data.”

73 Kent, Anderson, Bush, Frost & Metcalf, PC, accessed August 29, 2024, https://www.kabfmlaw.com; Martin Walker Attorneys at Law, accessed August 29, 2024, https://martinwalkerlaw.com.

74 Anonymous, interview with author, June 22, 2022.

75 Anonymous, interview with author, June 14, 2022.

76 For more on this profession, see Eisenberg Reference Eisenberg2016.

77 Anonymous, interview with author, June 28, 2022.

78 Anonymous, interview with author, June 23, 2022.

79 Anonymous, interview with author, June 28, 2022.

80 Anonymous, interview with author, June 28, 2022.

81 Anonymous, interview with author, June 22, 2022.

82 Anonymous, interview with author, June 22, 2022.

83 Anonymous, interview with author, June 14, 2022.

84 Anonymous, interview with author, June 23, 2022.

85 Anonymous, interview with author, June 22, 2022.

86 Ford v. Hubbell Inc., No. 10–513, 2011 WL 1259707, *3 (S.D. Ill. March 31, 2011); Luka v. Procter & Gamble Co., 785 F.Supp.2d 712, 720–21, 2011 WL 1118689, *7 (N.D., Ill. March 28, 2011); Public Patent Found., Inc. v. GlaxoSmithKline Consumer Healthcare, L.P., No. 09–5881, 2011 WL 1142917, *4 (S.D.N.Y. March 22, 2011); Hy Cite Corp. v. Regal Ware, Inc., No. 10–168, 2011 WL 1206768, *4 (W.D. Wis. March 15, 2011).

87 Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc., 765 F.Supp.2d 997 (N.D. Ohio 2011).

88 Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc., 813 F.Supp.2d 854 (N.D. Ohio 2011).

89 See, for example, Presidio Components Inc. v. American Tech. Ceramics Corp., 723 F.Supp.2d 1284 (S.D. Cal. 2010); King Tuna, Inc. v. Anova Food, Inc., 2011 WL 839378 (C.D. Cal.). For a proposal on calculating damages, see Cotter Reference Cotter2010.

90 H.R. 4954 (2010).

91 Patent Reform Act, 2011, s. 23.

92 Patent Reform Act, s. 2.

93 Patent Reform Act, s. 2.

94 157 Cong. Rec. 1381 (March 8, 2011).

95 157 Cong. Rec. S1368 (March 8, 2011) (Senator Grassley).

96 157 Cong. Rec. S951 (February 28, 2011) (Senator Grassley).

97 157 Cong. Rec. S1372 (March 8, 2011) (Senator Kyl).

98 157 Cong. Rec. S1545 (March 10, 2011) (Senator McCaskill).

99 H.R. 1249 (2011).

100 157 Cong. Rec. H4426 (June 22, 2011).

101 H. Rep. to accompany H. Res. 316 at 15 (June 21, 2011), adopted 157 Cong. Rec. H4480 (June 23, 2011).

102 157 Cong. Rec. H4505 (June 23, 2011).

103 157 Cong. Rec. S5442 (September 8, 2011).

104 This episode is an example of dialogue between Congress and the courts. Using Matthew Christiansen and William Eskridge’s (2014, 1374–75) taxonomy of congressional overrides of Supreme Court decisions, this legislation combines a restorative override (returning the law to the status quo before a court’s intervention) and a policy updating override (reaching a new policy judgment contrary to the court’s).

105 “Patent Litigation Docket Reports Data.”

106 Anonymous, interview with author, June 23, 2022.

107 Anonymous, interview with author, June 22, 2022.

108 Anonymous, interview with author, June 28, 2022.

109 “Crossing the Finish Line on Patent Reform: What Can and Should Be Done,” Hearing before the Subcommittee on the Courts, the Internet, and Intellectual Property of the House Judiciary Committee, February 11, 2011.

110 “Review of Recent Decisions on Patent Law,” Hearing before the Subcommittee on Intellectual Property, Competition, and the Internet of the House Judiciary Committee, March 10, 2011.

111 “Crossing the Finish Line on Patent Reform.”

112 Anonymous, interview with author, June 23, 2022.

113 Anonymous, interview with author, June 28, 2022.

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Figure 0

Figure 1. Armstrong and Lin Stilt.

Figure 1

Table 1. Law firm cases afterForest Group

Figure 2

Figure 2. False Marking Cases By Year 2003–2016.