Fasteners for Retail, Inc. v. Gerald Andersen et al
MEMORANDUM Opinion and Order signed by the Honorable Matthew F. Kennelly on 10/28/2011. (mk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
FASTENERS FOR RETAIL, INC.,
GERALD ANDERSEN and
K INTERNATIONAL INC.,
Case No. 11 C 2164
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Fasteners for Retail, Inc. (FFR) has sued K International (KI) and Gerald
Andersen. FFR asserts claims against KI for patent infringement, false advertising,
consumer fraud, unfair competition, and misappropriation of trade secrets. FFR also
asserts the latter claim against Andersen. KI asserts counterclaims of false patent
marking, false advertising, unfair competition, and deceptive business practices. FFR
has moved to dismiss KI’s false marking claim. For the reasons stated below, the Court
grants FFR’s motion in part and denies it in part.
The Court accepts the allegations in KI’s third amended counterclaim true for
purposes of the motion to dismiss. See Hallinan v. Fraternal Order of Police of Chi.
Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009).
FFR and KI are competitors that manufacture products used in retail shelving
and displays. To market its products, FFR distributes a catalog to customers and
potential customers and also makes the catalog available online. FFR states that its
product catalog “is nearly 600 pages and contains thousands of products, many of
which are covered by a variety of different patents.” FFR Mem. in Support of M. to
Dismiss at 2. More than 300 of these products, however, were falsely marked as
patented or patent pending in either the 2011 catalog or on the website. In its
counterclaim and attached exhibits, KI identifies products in the FFR catalog that were
marked as patented or patent pending even though “they had never been patented, the
patents had expired, the patent applications had been abandoned, and/or the patents
had never issued.” KI 3rd Am. Counterclaim ¶ 28.1
KI states, “[u]pon information and belief,” that FFR has a marketing department
that spends a substantial portion of its time preparing each annual version of the
catalog. Id. ¶ 19. The marketing department decides whether to mark each product in
the catalog as patented or patent pending. Id. The marketing department is informed
each year which products are covered by patents, which products are covered by
patent applications, and which products are covered by patents that have expired. Id. ¶
20. FFR sales staff also attend quarterly sales meetings where the expirations of
patents and strategies to promote patented products are discussed. Id. ¶ 21. Because
of all these facts, KI asserts that “FFR’s management and sales persons knew or
should have known” when patents covering their products had expired. Id. ¶ 22.
KI identifies some examples of falsely marked products in the body of its
counterclaim but lists the majority of the falsely marked products in attached exhibits A
KI alleges that instead of accurately marking its products, “FFR sought to gain a
competitive advantage by deceiving competitors into believing that they could not
manufacture these products without ‘infringing’ upon FFR’s ‘patent rights.’” Id. ¶ 27.
Beyond the inaccuracy of FFR’s patent statements, KI makes additional allegations to
support its contention that FFR intended to deceive its customers and competitors and
was not merely negligent. For example, in its 1996 catalog, FFR printed the specific
patent number for its SuperGrip Shelf Channel Sign Holders in the catalog. KI Ex. C.
The patent expired in 2003. In 2011, FFR’s catalog and website simply described the
SuperGrip products as patented and did not provide a patent number. KI Exs. D–E. KI
claims that FFR no longer displays patent numbers to make it difficult for competitors to
determine whether a particular unexpired patent covers the product. KI 3rd Am.
Counterclaim ¶ 17.
An additional example that KI provides is the description of another SuperGrip
product, the “119 SuperGrip Flush Sign Holder for Perforated Shelves.” In its 2003
catalog, FFR identified the product as patented. KI Ex. F. In the 2007 catalog, issued
after the patent had expired, the entry for the product did not describe it as patented.
KI Ex. G. In the 2008 catalog, however, FFR once again described the product as
patented, and FFR has continued to do so in every catalog since. KI Exs. H–K.
Finally, KI alleges that FFR’s intent to deceive through false patent marking is
evidenced by the fact that its catalog and advertising state that it owns more than ninety
patents and takes steps to protect its patent rights. KI 3rd Am. Counterclaim ¶ 30.
KI’s claim arises under 35 U.S.C. § 292. Section 292(a) currently states, in
Whoever marks upon, or affixes to, or uses in advertising in connection
with any unpatented article, the word ‘patent’ or any word or number
importing that the same is patented for the purpose of deceiving the
Whoever marks upon, or affixes to, or uses in advertising in connection
with any article, the words ‘patent applied for,’ ‘patent pending,’ or any
word importing that an application for patent has been made, when no
application for patent has been made, or if made, is not pending, for the
purpose of deceiving the public—
Shall be fined not more than $500 for every such offense.
Only the United States may sue for the penalty authorized by this
Id. § 292(a). Section 292(b), recently added to the statute, states that “[a] person who
has suffered a competitive injury as a result of a violation of this section may file a civil
action in a district court of the United States for recovery of damages adequate to
compensate for the injury.”
“The two elements of a § 292 false marking claim are (1) marking an unpatented
article and (2) intent to deceive the public.” Forest Group, Inc. v. Bon Tool Co., 590
F.3d 1295, 1300 (Fed. Cir. 2009). FFR argues that the Court should dismiss KI’s false
marking counterclaim because it is barred by recent amendments to the false marking
statute and because KI has failed to plead intent to deceive with sufficient particularity.
Initially, FFR also argued that the qui tam provisions of section 292 were
unconstitutional. Because the recent amendment to section 292(a) has eliminated qui
tam actions, the Court need not address this argument.
Amendments to 35 U.S.C. § 292
The recently enacted Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125
Stat. 284 (Sept. 16, 2011), made two changes to the false marking statute that are
relevant to this case.2 First, it eliminated the qui tam provisions of the statute by
providing that only the United States may sue for the civil fine that each false marking
incurs. 35 U.S.C. § 292(a). As noted earlier, private plaintiff such as KI now may
recover damages only if it “has suffered a competitive injury.” Id. § 292(b).
Second, the Leahy-Smith Act eliminates liability concerning products that are
falsely marked because a patent has expired. New subsection (c) states “The marking
of a product . . . with matter relating to a patent that covered that product but has
expired is not a violation of this section.” Due to this new provision, the Court must
dismiss KI’s false marking claim to the extent it concerns products that were once
patented by FFR but no longer were at the time of the false marking because the patent
KI argues that section 292(c) was not intended to protect violations like FFR’s
but only a more narrow category. It argues that the Leahy-Smith Act’s legislative history
shows that Congress “was concerned with the cost of removing marked products from
commerce or changing the labels after the patent expired.” KI Supp. Br. at 4. But
courts “need not resort to legislative history when a statute is unambiguous.” Pequignot
The Leahy-Smith Act amendments to section 292 “apply to all cases, without
exception, that are pending on, or commenced on or after,” September 16, 2011. Pub.
L. 112-29 § 16(b)(4), 125 Stat. at 329. KI has not argued that retroactive application of
the amendments to its already-pending claims is improper.
v. Solo Cup Co., 608 F.3d 1356, 1361–62 (Fed. Cir. 2010) (refusing to consult
legislative history to determine if an earlier version of section 292 covered expired
patents). The false marking statute’s language, as recently amended, unambiguously
provides an exception for any items covered by an expired patent.
Sufficiency of pleading
KI’s claims that FFR marked items as patented or patent pending when they had
never been covered by a patent or were no longer covered by a pending patent
application are still allowed under amended section 292. FFR contends, however, that
KI has failed to plead intent to deceive with sufficient particularity.
“The bar for proving deceptive intent [in false marking cases] is particularly high .
. . . Because the statute requires that the false marker act for the purpose of deceiving
the public, a purpose of deceit, rather than simply knowledge that a statement is false,
is required.” Pequignot, 608 F.3d at 1363 (internal quotation marks omitted). For
pleading purposes, because section 292 claims “condemn fraudulent or false
marking,” they are subject to the heightened pleading requirements of Federal Rule of
Civil Procedure 9(b). In re BP Lubricants USA Inc., 637 F.3d 1307, 1311 (Fed. Cir.
Rule 9(b) states, “In alleging fraud or mistake, a party must state with particularity
the circumstances constituting fraud or mistake.” “Although ‘knowledge’ and ‘intent’
may be averred generally, [Federal Circuit] precedent, like that of several regional
circuits, requires that the pleadings allege sufficient underlying facts from which a court
may reasonably infer that a party acted with the requisite state of mind.” Exergen v.
Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009).
The primary specific examples that KI identifies in its counterclaim concern
products covered by expired patents. Putting those aside, however, KI has alleged
facts sufficient to give rise to a plausible inference that FFR knew it had falsely marked
unpatented items and that it acted with intent to deceive the public. Ki states that FFR’s
marketing department is told about the patent status of the products in the catalog, that
the department uses this information to decide whether to mark any particular item as
patented or patent pending, and that the marketing staff “knew or should have known”
the products’ patent status because creating FFR’s catalog was such a large part of
their jobs. KI 3rd Am. Counterclaim ¶ 19–22.
KI also alleges that FFR has chosen to simply list products as patented without
including a patent number and that its catalog and advertising state that it has many
patents and defends its patent rights. These allegations, combined with the facts
suggesting FFR’s knowledge of which items were patented, contribute to an inference
that FFR falsely marked its products with intent to deceive the public.
KI included with its response to the motion to dismiss an affidavit by Michael A.
DeJohn, a former FFR sales executive. The Court may appropriately consider the facts
set forth in the affidavit, because “once the plaintiff pleads sufficient factual material to
state a plausible claim . . ., nothing . . . precludes the plaintiff from later suggesting to
the court a set of facts, consistent with the well-pleaded complaint, that shows that the
complaint should not be dismissed.” Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143,
1147 (7th Cir. 2010).
In his affidavit, DeJohn states that FFR’s “marketing department usually was
advised by product development personnel as to which products listed in the catalog
are patented, patent pending, or no longer patented since the patent covering the
product had expired, and also discussed which products might be considered to be
patented in the future.” DeJohn Decl. ¶ 3. He “belie[ves] that personnel in the
marketing and product development departments would know which FFR patents were
expired, and the products that were no longer covered by a valid patent or were no
longer patent pending.” Id. ¶ 5. He also states that patent issues were be discussed at
the quarterly sales meeting. Id. ¶ 6. Because DeJohn left FFR in 2008 (he now
consults for KI), he cannot say from personal knowledge that any of the alleged false
marking in FFR’s 2011 catalog was done deliberately and with intent to deceive the
public. Id. ¶ 1. But the factual allegations in his affidavit and KI’s amended
counterclaim give rise to a plausible the inference that FFR’s marketing department
knew which products were covered by patents. KI has therefore pled sufficient facts to
activate the presumption of intent to deceive.
FFR cites numerous cases in which courts dismissed false marking claims that
contained insufficient allegations. The allegations in those cases, however, were not as
detailed as here and did not provide enough facts to infer intent to deceive. Several
cases involved complaints that only alleged that the defendant was sophisticated or had
an in-house legal department that monitored patents. See Meridian Elec. Co. v.
Energizer Holdings, Inc., No. 11-cv-35-DRH, 2011 WL 2693292, at *1 (S.D. Ill. Jul. 12,
2011) (allegation that defendant was a sophisticated company that used in-house and
outside counsel to monitor patents); Turek v. Merck & Co., No. 3:10-cv-00907-MJR,
2011 WL 2470066, at *1 (S.D. Ill. Jun. 20, 2011) (complaint alleged that Merck was a
sophisticated company that had an in-house legal department that monitored its
patents); United States ex rel. Alchemy Asset Servs., Inc. v. GlaxoSmithKline
Consumer Healthcare, LP, No. 10-680, 2011 WL 2470595, at *3 (W.D. Pa. May 3,
2011) (allegation that defendant was a sophisticated company and employed numerous
patent attorneys); Buehlhorn v. Marv-O-Lus Mfg. Co., No. 10-0567-DRH, 2011 WL
1379814, at *7 (S.D. Ill. Apr. 12, 2011) (complaint alleged that “Defendant has an inhouse legal department (or otherwise retains attorneys) that is/are responsible for
Defendant’s intellectual property.”). These decisions largely track BP Lubricants, in
which the Federal Circuit held that an allegation that a defendant is sophisticated and
has patent experience is insufficient to give rise to a plausible inference of intent to
deceive. BP Lubricants, 637 F.3d at 1312. None of them cases involved allegations as
particularized as those that KI has made.
Similarly, the plaintiffs in other cases that FFR cites did not make allegations
similar to those in KI’s counterclaim. In Promote Innovation LLC v. Roche Diagnostics
Corp., No. 1:10-cv-964-TWP-TAB, 2011 WL 2181243 (S.D. Ind. Jun. 3, 2011), the only
factual allegations the plaintiff made were that the defendant had licensed the patent
and the license agreement probably stated the patent’s expiration date. Id. at *7. In
Frank’s Elec. Serv. v. Phillips Elec. N. Am. Corp., No. 11-cv-145-DRH, 2011 WL
2838184 (S.D. Ill. Jul. 18, 2011), the court determined that allegations that Phillips had
been involved in a prior lawsuit, its brochures and website threatened litigation, and its
annual report indicated that it tracked its patents were not sufficient to create an
inference of knowledge. Id. at *3. Hollander v. Hospira, Inc., No. 10 C 8151, 2011 WL
1811637 (N.D. Ill. May 12, 2011), involved allegations that Hospira was sophisticated,
that it had experience with patents, had a practice of reviewing its patent portfolio, had
stated in SEC filings that most of its products were unpatented, and had adjusted the
markings on some of its falsely marked products. Id. at *1, 4.
Each of the dismissed cases involved allegations that someone, usually an inhouse attorney, was in a position to know that certain products were unpatented. But in
none of the cases was there a basis for a plausible inference of a connection between
that knowledge and knowledge that products were falsely marked, or a plausible
inference that the person claimed to have known the products were unpatented had
participated in the decision to mark them as patented. By contrast, KI has alleged that
the marketing department of FFR knew that various products were unpatented and then
nevertheless made the decision to describe the products are patented in its catalog and
website. KI does not identify specific individuals, but it cannot be expected to do so at
this early stage of the proceedings. See Luka v. Proctor and Gamble Co., 785 F. Supp.
2d 712, 718 (N.D. Ill. 2011) (citing BP Lubricants, 637 F.3d at 1312).
FFR also argues that KI has not sufficiently alleged prohibited false marking
related to the products that it did not discuss in the body of its counterclaim but only
listed in two exhibits. The Court concludes that the lists, combined with the allegations
in the counterclaim, are sufficient. The exhibits sufficiently allege that FFR has marked
unpatented items. For example, KI’s list sufficiently alleges that FFR’s catalog falsely
describes the “Data Strip Supergrip Label Holder for Shelf Channel” as patented. KI
Ex. AA. KI provides the name of the product, the item numbers, and the page of FFR’s
catalog on which the product appears. Id. KI also alleges that the product is “[n]ot
covered by an FFR patent.” Id. As discussed above, the body of KI’s counterclaim
sufficiently alleges that FFR’s marketing department knew that the product was
unpatented and, with intent to deceive, described it in the catalog as patented.
Finally, FFR argues that KI has not alleged that it suffered any competitive injury
and that under amended section 292, KI can recover damages only to compensate for
a competitive injury. The Court agrees with KI’s contention that it has alleged
competitive damages by stating that FFR’s false marking “is likely to, or at least has the
tendency to, discourage and deter persons and companies, such as K International,
from commercializing competing products and deters consumers from using competing
products.” KI 3rd Am. Counterclaim ¶ 35.
For the reasons stated above, the Court grants FFR’s motion to dismiss KI’s
counterclaim in part and denies it in part [docket no. 72]. The Court dismisses Count 1
of KI’s third amended counterclaim to the extent it concerns products covered by
expired patents. The Court also strikes KI’s request for civil fines under 35 U.S.C. §
292(a). The Court otherwise denies the motion.
MATTHEW F. KENNELLY
United States District Judge
Date: October 28, 2011