Trolls Target Patent Markings with a Trillion Dollar Lawsuit

(MoneyWatch)  Technicalities may seem banal, but when they could cost millions -- or even billions -- they take on new importance. The latest legal bugaboo facing manufacturers of all sorts is the false patent marking suit. Using what has been until recently an obscure type of legal action, individuals and enterprising law firms have targeted large manufacturers with lawsuits that can easily run million of dollars -- in one case, over $10 trillion -- all for including patent numbers incorrectly on products.

The type of suit is called a qui tam action and is part of the False Claims Act, 31 U.S.C. § 3729:

The statute, first passed in 1863, includes an ancient legal device called a "qui tam" provision (from a Latin phrase meaning "he who brings a case on behalf of our lord the King, as well as for himself"). This provision allows a private person, known as a "relator," to bring a lawsuit on behalf of the United States, where the private person has information that the named defendant has knowingly submitted or caused the submission of false or fraudulent claims to the United States. The relator need not have been personally harmed by the defendant's conduct.

And putting a non-pertinent or expired patent claim on a product technically counts as a false or fraudulent claim:

Under 35 U.S.C. 292, false marking includes marking unpatented product as "patented" or marking a product as "patent pending" when no patent is pending. These false marking activities are only actionable if done "for the purpose of deceiving the public."

The problem for companies is that they might have lost track of what patents cover a given product, or might have forgotten to update packaging to remove numbers of patents that had expired. How bad can it get? Under the law, the maximum amount a judge could award would be $500 per incident. Every product inaccurately labeled would be an incident. In the Pequignot v. Solo Cup case, patent attorney Matthew Pequignot is suing the Solo Cup Company for selling 21 billion lids that were falsely marked. Simple multiplication tells you that the total would be over $10 trillion. With a T. That stands for trouble.

Solo argued that because the patents were previously valid, it wasn't a case of false marking. But a U.S. district court ruled against the company. Most manufacturers don't ship billions of products, but millions? That's pretty common. Qui tam actions have already become a cottage industry, with Thomas Simonian filing at least 27 complaints through the Chicago firm Vanek, Vickers & Masini. Some of the targets:

• Pfizer, Inc. (PFE)
• Kimberly-Clark Corporation (KMB)
• Global Instruments, Ltd.
• Monster Cable Products
• Merck & Co. (MRK)
• 3M Company (MMM)
• Pella Corporation
• Cisco Systems, Inc. (CSCO)
• Mead Westvaco Corporation
• Hunter Fan Company

Just this partial list includes companies making high tech goods, pharmaceuticals, thermostats, windows, and envelopes. That's just in one guy's suits, and he's not the only one.

I doubt that any judge in his or her right mind would award a multi-trillion amount against a company. But what if you've sold a million widgets? At $500 each, that would be $500 million. Get to 10 million and you're at $1 billion. Even at $1 each, that would be $10 million. The amounts scale quickly and generate enough potential reward to interest all sorts of individuals, as well as lawyers willing to take the cases. Even if the intent wasn't to deceive the public, it still costs real money to mount a defense. And you thought normal patent trolls were bad.

Troll image: Flickr user Torley, CC 2.0. Modifications by Erik Sherman.