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Selling goods in the US: the importance of correct patent marking

A recent United States appellate court decision is a reminder of the importance of correctly marking goods sold in the United States with any relevant patent numbers. Potential penalties or potential loss of damages are extremely high for incorrectly marking or failure to mark goods sold in the United States.

Patent marking is the inclusion on a product (or in some circumstances, the packaging or instruction manual for the product) of the patent number for any patents that cover the goods. An example marking for the United States is “U.S. Pat. No. 6,543,210”.

United States law has two key requirements for patent marking of goods sold or imported into the United States:

  • It is an offence to mark an unpatented article with the word “patent” or a patent number with the intent of deceiving the public.

  • Where there is a failure to mark a patented article with the patent number, the patent owner will be unable to claim damages for patent infringement, unless it can be proved that the infringer was notified of the infringement.

Thus, it is extremely important to correctly mark goods sold in the United States with the relevant patent numbers. This is not as easy as it sounds. Sometimes it is difficult to determine which patents apply to certain goods, and so it is hard to decide which patent numbers to list on the goods. Or a patent may issue after the goods have been placed on sale, requiring a change to the marking (from “Patent Pending” to, for example, “U.S. Pat. No. 6,543,210”.)

False patent marking in the United States

In the United States, it is an offence to mark an unpatented article with the word “patent” or a patent number with the intent of deceiving the public. A person who falsely marks their goods can be “fined not more than $500 for every such offense”.

If goods sold in the United States are marked “patented” because there is an Australian patent, but there is no United States patent, this may be an offense in the United States.

A recent United States appellate court decision, The Forest Group, Inc., v Bon Tool Company (Court of Appeals for the Federal Circuit, 28 December 2009) decided that the $500 fine is per article sold. Thus, if 20,000 identical articles are sold in the United States with the word “patent” marked on the goods when in fact there is no United States patent, then the potential fine could be as high as US$10 million.

Previous decisions involving this offense had resulted in either a single fine for each decision to mark the goods (regardless of how many goods were sold) or a time based fine, determined by the number of days, weeks or months the goods were falsely marked. In Forest Group, the Court moved away from these interpretations and found that the Patent Act clearly required a per article fine.

This new interpretation increases the financial risk connected with false marking. However, the Court noted that the issue of “disproportionately large penalties for small, inexpensive items” was addressed by the fact that the fine was for an amount “not more than $500” - the law set a maximum fine, not a required fine. Where large numbers of goods were sold, the “court has a discretion to determine that a fraction of a penny per article is a proper penalty.”

Due to the financial consequences that could occur as a result of this decision, patentees, whose goods are being sold in the United States, should:

  • ensure that all goods that are marked as patented are actually covered by one of the claims in a United States patent;

  • ensure that all goods are only marked as patented if this is truly the case; and

  • have a system to ensure that goods are not continually marked as patented once the United States patent expires.

False patent marking in Australia

In Australia, it is an offence for a person to falsely represent that an article sold by him or her is patented in Australia or is the subject of an application for a patent in Australia. The penalty for this offence is currently $6,000. There is no recent case law involving this offence in Australia. The recommendations above are also relevant to goods sold in Australia.

Failure to mark in the United States

While it is important to ensure that goods are not falsely marked as patented it is equally important to ensure that goods sold in the United States are marked as patented where a valid patent is in existence. All goods should be marked with the word “patent” or the abbreviation “pat” together with the relevant patent number e.g. “U.S. Pat. No. 6,543,210”.

Where there is a failure to mark the goods, the patent owner will be unable to claim damages in an infringement action, except where it can be shown that the alleged infringer was notified of the infringement and continued to infringe the patent after such notification.

If the goods are not marked with the applicable United States patent number, then the patent owner will not be entitled to damages for infringement until the infringer is actually notified of the infringement, and only for the period of infringement after receiving the notification.

Therefore failure to mark the goods has significant financial implications, as no damages will be recoverable unless and until the alleged infringer receives notice of the infringement. As such, it is possible that no damages will be recoverable at all if the alleged infringer ceases the infringing conduct soon after receiving notice of the infringement.

Failure to mark in Australia

In Australia, there is no direct equivalent to this law; however Australian legislation includes an innocent infringement defence. Under this defence, a court may refuse to award damages if the defendant satisfies the court that, at the date of the infringement, the defendant was not aware that there was a patent for the invention. Thus, marking the goods with the Australian patent number makes it much harder for the defendant to rely on this defence.

Who does this affect?
Financiers and investors in Australian resource projects.
What do you need to do?
Consider possible impacts on timing and financial returns.

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