District Court Finds Qui Tam Provision in Patent False Marking Law Unconstitutional: Unique Product Solutions v. Hy-Grade Valve

35 U.S.C. § 292 is known as the Patent False Marking Statute and contains two subsections.  Subsection (a) says that it is unlawful, without the consent of the patentee, “to mark a product with, or use in advertising, a patent number in connection with products that are not patented” or no longer patented.  Subsection (a) further states that the penalty for violating the statue is a fine of “not more than $500 for every such offence.”

Subsection (b) contains the qui tam provision.  It plainly states that “[a]ny 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.”  Subsection (b) is the only relevant language in the Patent False Marking Statute that authorizes a private party to sue for penalty and split the proceeds with the government.  By this single brief sentence, Congress delegates the authority to enforce § 292 to private parties, and does not provide the Department of Justice (DOJ) with statutory rights anywhere in § 292 to intervene in or control private § 292 actions.

Neither the Supreme Court nor the Federal Circuit have weighed in on the constitutionality of the qui tam provision in 35 U.S.C. § 292(b).[1] In 2009, a district court in the Eastern District of Virginia (Pequignot v. Solo Cup Co.) held that § 292(b) is constitutional in part because the statute is “civil rather than criminal,” thus giving the government the right to intervene under Rule 24 of the Federal Rules of Civil Procedure.  But in last week’s Unique Product Solutions v. Hy-grade Valve decision (PDF), Judge Polster in the Nothern District of Ohio held that the qui tam provision in § 292(b) is unconstitutional because 1) the Federal Circuit noted that §292(b) is a criminal statute, and therefore 2) Morrison v. Olson’s “sufficient control” analysis applies, thus 3) the application of Morrison analysis requires a finding of unconstitutionality for a clear lack of sufficient executive branch control of law enforcement.

Unique Product Solutions sued Hy-Grade Valve for marking industrial valves with expired patent numbers.  Hy-Grade moved to dismiss the suit, arguing that the qui tam provision of 35 U.S.C. § 292 (Patent False Marking Statute) is unconstitutional.  Judge Polster dismissed Unique Product Solutions’ complaint on the ground that the qui tam provision of § 292(b) is  “unconstitutional under the Take Care Clause of the United States Constitution, U.S. Const. Art. II § 3.”   The statute does not give the government “sufficient control” in the enforcement action because the statute does not require the private plaintiff to notify the DOJ, or give the DOJ the right to intervene, among other procedural rights for the government.  In a single brief sentence, § 292(b) essentially delegates “wholesale” law enforcement power to private parties without procedural and supervisory safeguards.  By contrast, the most well known and commonly invoked qui tam provision in the United States Code, the False Claims Act (31 U.S.C. §§ 3729-33) (FCA), devotes over 2000 words in § 3730 to describe the detailed procedural requirements that private parties must follow in a qui tam action.  FCA’s qui tam provisions require close government monitoring of the private party and possible intervention in any FCA action.

For his analysis, Judge Polster relied on Morrison, which concerns the constitutionality of the Ethics in Government Act of 1978 (EGA).  EGA authorized Congressional appointment of independent counsels to investigate and prosecute “high-ranking Government officials,” including the President, “for violation of federal criminal laws.”  The independent counsel’s chief duties fall within executive branch powers.  The Supreme Court held that EGA gave the “Executive Branch sufficient control over the independent counsel to ensure that the president is able to perform his constitutionally assigned duties.”  Morrison is relevant to the constitutionality of qui tam actions because whether the Executive Branch retains “sufficient control” over a private plaintiff in a qui tam action goes to the heart of the action’s constitutionality.  For example, the Sixth Circuit relied in part on Morrison to find the qui tam provisions in the FCA constitutional because the FCA provides many statutory safeguards to ensure government oversight of private party initiated qui tam actions.

One caveat as to the applicability of Morrison to the present analysis is whether the Patent False Marking Statute is civil or criminal; Morrison’s constitutional analysis would be more appropriate where the statute at issue is criminal because civil matters enjoy procedural government intervention rights from the Federal Rules of Civil Procedure Rule 24.  Importantly, the Federal Circuit deems the False Marking Statute a criminal rather than civil law.  Pequignot v. Solo Cup Co., 608 F.3d 1356, 1363 (Fed. Cir. 2010) (citing S.Rep. No. 83-1979, 1952 U.S.C.C.A.N. 2394, 2424 (1952)).  As such, Judge Polster found § 292(b)’s delegation of enforcement power to private parties without any executive branch oversight problematic.  The court held that it was proper to apply the Morrison “sufficient [executive] control” analysis, rather than the analysis from the Pequignot district court decision, which presumed the civil nature of § 292.

Could this decision be the beginning of the end for the recent rash of patent false marking cases? The rash began with the Federal Circuit’s 2009 decision in The Forest Group, Inc. v. Bon Tool Co. which allowed a penalty of up to $500 for each article that is falsely marked.  Suddenly, private enforcement of § 292 became potentially lucrative.  Indeed, Unique Product Solutions filed over a dozen lawsuits in qui tam false marking actions in the Northern District of Ohio in 2010.  Other prolific § 292 plaintiffs include Thomas Simonian, Promote Innovation, LLC, and Patent Group, LLC.  Judge Polster’s decision here is almost certainly going to be appealed.  In the meantime, perhaps this decision will give false marking plaintiffs some pause before filing yet another § 292 lawsuit.