Advanced Cartridge Technologies, LLC v. Lexmark International, Inc.
Filing
261
ORDER GRANTING 252 Motion to dismiss. Count II of the amended complaint 34 is DISMISSED for lack of Article III standing. Signed by Judge Steven D. Merryday on 12/21/2011. (TKD)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
ADVANCED CARTRIDGE
TECHNOLOGIES, LLC,
Plaintiff,
v.
CASE NO.: 8:10-cv-486-T-23TGW
LEXMARK INTERNATIONAL, INC.,
Defendant.
/
ORDER
Advanced Cartridge Technologies, LLC, (“ACT”) sues Lexmark International,
Inc., for patent infringement, and as a qui tam relator ACT sues Lexmark for false
patent marking. The Leahy-Smith America Invents Act, which repeals the False
Marking Statute’s qui tam privilege and limits recovery for false marking to a plaintiff
suffering a “competitive injury,” eliminates ACT’s qui tam action and leaves in doubt
ACT’s standing to pursue a false marking claim.
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Lexmark manufactures computer printers and printer toner cartridges. To
control the lucrative toner cartridge after-market, Lexmark designs printers that
operate only with a toner cartridge equipped with a compatible computer chip. See
generally Lexmark Intern., Inc. v. Static Control Components, Inc., 387 F.3d 522, 530 (6th
Cir. 2004); Static Control Components, Inc. v. Lexmark Intern., Inc., 615 F.Supp.2d 575,
577 (E.D. Ky. 2009); Arizona Cartridge Remanufacturers Ass’n v. Lexmark Intern., Inc.,
290 F.Supp.2d 1034, 1037, 1039 (N.D. Cal. 2003). The protective computer chip
ensures that a toner cartridge ceases to function after a single use.
“Re-manufacturers” of toner cartridges circumvent Lexmark protective chips by
means of a “replacement chip” that, if placed over a Lexmark chip, “fools” a
Lexmark printer into operating with the unauthorized toner cartridge.
ACT is one of many companies created by Steven Miller, who invents and
patents toner cartridge technology, including replacement chips. In early 2010, ACT
gained title to three patents that claim a replacement chip-blocking structure and a
toner cartridge thumb-handle. (Doc. 76, Exs. A-C) Six weeks later, ACT sued
Lexmark. The amended complaint (Doc. 34) alleges that Lexmark infringed the
three patents and that Lexmark labeled toner cartridges with expired, invalid, or
inapplicable patent numbers. Because of the alleged false patent labeling, ACT
asserts a claim under the False Marking Statute, 35 U.S.C. § 292(a), which requires a
fine of “not more than $500” for each article a defendant falsely marks as patented
“for the purpose of deceiving the public.”
Since enactment of the “Act of August 29, 1842,” 5 Stat. 544, § 5, the fine was
levied only once on each scheme to falsely mark, rather than once on each item
falsely marked. “Doubtless the statute has appealed to some informers as an open
road to great and sudden wealth,” states a late nineteenth century commentator, but
“the strictness of construction adopted by the courts . . . dissuade[s] a person from
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undertaking the expense and trouble of litigation merely for the sake of plunder.”
Odin B. Roberts, Actions Qui Tam Under the Patent Statutes of the United States, 10 Harv.
L. Rev. 265, 272-73 (1896). Therefore, the commentator concludes, “[i]t is more
than likely . . . that actions qui tam under the patent statutes will continue to be a
rarity in the Federal courts.” Roberts, supra, 10 Harv. L. Rev. at 273; see also Berkeley
Technology Law Journal Annual Review 2011, Patent Law: Additional Developments,
26 Berkeley Tech. L.J. 367, 368 (2011) (describing the False Marking Statute as
“largely dormant” until 2010). That rarity of claims vanished suddenly in late 2009
(less than three months before ACT sued) when Forest Group, Inc. v. Bon Tool Co., 590
F.3d 1295, 1301-04 (Fed. Cir. 2009), held that the False Marking Statute requires a
distinct fine for each falsely marked item.
After Forest Group and in response to a rapid increase in speculative and large
awards in qui tam actions for false marking, Congress passed the Leahy-Smith
America Invents Act, H.R. 1249, 112th Cong. (1st Sess. 2011), which retroactively
eliminates the False Marking Statute’s qui tam provision. Instead, the new 35 U.S.C.
§ 292(b) permits “[a] person who has suffered competitive injury as a result of a [false
marking] violation” to sue “for recovery of damages adequate to compensate for the
injury.” The same day the President signed into law the America Invents Act,
Lexmark moved to dismiss (Doc. 252) ACT’s claim for false marking on the ground
that ACT is a shell corporation that suffered no Section 292(b) competitive injury
from Lexmark.
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Lexmark ultimately succeeds, although without offering a tidy analysis. To
explain the disorder requires first a word on the meanings of “standing.”
Constitutional (Article III) standing, prudential standing, and statutory standing are
distinct concepts that arise from distinct sources. Article III imposes constitutional
standing, an “irreducible [] minimum” requirement to sue in federal court, consisting
of an injury-in-fact that is fairly traceable to an act of the defendant and that is likely
redressed by a favorable judicial decision. Lujan v. Defenders of Wildlife, 504 U.S. 555,
560-61 (1992). The judiciary imposes prudential standing, a limit to federal
jurisdiction that preserves the “properly limited [] role of the courts in a democratic
society.” Bennet v. Spear, 520 U.S. 154, 162 (1997). Congress can eliminate
prudential standing (although prudential standing “applies [to a statute] unless it is
expressly negated,” 520 U.S. at 163), and, conversely, Congress can impose a
requirement of statutory standing, a stricter standing requirement that is analogous
to, and not neatly distinguishable from, the injury element of a legal claim. Roberts v.
Hamer, 655 F.3d 578, 580-81 (6th Cir. 2011); Alliance for Environmental Renewal, Inc. v.
Pyramid Crossgates Co., 436 F.3d 82, 85-87 (2d Cir. 2006); Abecassis v. Wyatt, 704
F.Supp.2d 623, 645 (S.D. Tex. 2010); see also William A. Fletcher, The Structure of
Standing, 98 Yale L.J. 221 (1988).
Lexmark argues that ACT lacks a (statutory) competitive injury but supports
the argument with legal authority pertaining to the (constitutional) Article III
standing requirement. The result is a jumble. In confusion Lexmark seeks dismissal
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for lack of subject matter jurisdiction under the Constitution even though Lexmark’s
argument is effectively that ACT fails to state a claim under the amended False
Marking Statute. Further, the competitive injury that Section 292(b) requires differs
from the injury-in-fact that Article III requires. Black’s Law Dictionary 302 (8th ed.
2004) defines a “competitive injury” as “[a] wrongful economic loss at the hands of a
commercial rival . . . .” Formulated differently, a competitive injury is a business loss
caused by a competitive means, including false patent marking, that the law forbids.
Cf. Ely-Norris Safe Co. v. Mosler Safe Co., 7 F.2d 603, 604 (2d Cir. 1925) (L. Hand, J.),
rev’d on other grounds, 273 U.S. 132 (1927). In contrast, the minimum injury-in-fact
necessary for standing under Article III is a mere “identifiable trifle.” Common
Cause/Georgia v. Billups, 554 F.3d 1340, 1351 (11th Cir. 2009).
Lexmark’s misunderstanding aside, the false marking claim suffers dismissal
for straightforward reasons. First, ACT fails to allege an injury-in-fact and therefore
fails to meet the “irreducible minimum” of Article III standing. Second, even
assuming ACT suffered an injury, the injury is too remote for ACT to maintain
prudential standing. (Because ACT lacks Article III standing, this order need not
address the obvious corollary of ACT’s suffering no injury-in-fact, i.e., that ACT
lacks a competitive injury and therefore lacks statutory standing under the amended
False Marking Statute.)
Although Lexmark addresses competitive injury, Lexmark’s underlying point
is that ACT suffered no injury, competitive or otherwise. A plaintiff’s initial
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obligation is to plead facts that confer Article III standing, beginning with an injury
in fact that is “concrete and particularized.” Lujan, 504 U.S. at 560-61; Dermer v.
Miami-Dade County, 599 F.3d 1217, 1220 (11th Cir. 2010); El Paso Natural Gas Co. v.
F.E.R.C., 50 F.3d 23, 28 (D.C. Cir. 1995). ACT promises to “identify numerous
re[-]manufacturers who [] declined to buy third party cartridges, including [ACT’s]
licensed cartridges , . . as a result of [Lexmark’s false] marking” (Doc. 257 at 6), but
no re-manufacturer is identified. ACT sued Lexmark promptly after qui tam liability
expanded, ACT formed and acquired the three patents immediately before this
action, and ACT provides not a single fact to suggest that ACT operated as more
than an ad hoc corporate vehicle for prosecuting this action. Slight or severe; past,
present, or future; no injury is to be found.*
Alternatively, prudential standing is absent because ACT is not a suitable
plaintiff to sue Lexmark for false marking. Phillips Petroleum Co. v. Shutts, 472 U.S.
797, 804 (1985); Joint Stock Soc’y v. UDV N. Am., Inc., 266 F.3d 164 (3d Cir. 2001)
(Alito, J.) (affirming a dismissal for lack of Article III standing and, in the alternative,
ACT complains about a lack of discovery directed at competitive injury. The protest might
persuade if Lexmark was allowed (as it asks) to factually attack ACT’s standing. Because Lexmark’s
argument that ACT lacks a competitive injury addresses the false marking claim’s merits as much as
ACT’s standing, a ruling on a factual attack would require summary judgment and its attendant
procedure. See Odyssey Marine Exploration, Inc. v. Unidentified Shipwrecked Vessel, 657 F.3d 1159, 116970 (11th Cir. 2011); Morrison v. Amway Corp., 323 F.3d 920, 925 (11th Cir. 2003). However, ACT’s
failure to allege and identify an injury-in-fact obviates the need to conduct discovery about an injuryin-fact. See Lujan, 504 U.S. at 561; Cornerstone Christian Schools v. Univ. Interscholastic League, 563 F.3d
127, 134 (5th Cir. 2009) (“on a motion to dismiss, [a] plaintiff[] must allege facts that give rise to a
plausible claim of [] standing”); see also Bochese v. Ponce Inlet, 405 F.3d 964, 974-75 (11th Cir. 2005).
Discovery would wastefully confirm what is already palpable from ACT’s silence – that ACT is a
shell which competed with neither Lexmark nor anyone else.
*
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prudential standing). Nothing in the America Invents Act “expressly negates” the
prudential standing requirement, which therefore applies in some form. Bennet, 520
U.S. at 163; Phoenix of Broward, Inc. v. McDonald’s Corp., 489 F.3d 1156, 1162-63 (11th
Cir. 2007). A false patent marking both misrepresents a product’s attributes and
abuses a patent monopoly; the former redolent of a false advertisement, the latter of
an antitrust abuse. Although prudential standing limits are not uniform across
statutes, the harm caused by false marking is sufficiently similar to the harm caused
by unfair competition (i.e., false advertising) and anti-competitive behavior (i.e., an
antitrust violation) that the prudential standing rule for those two business torts
provides a ready and proper limit for the False Marking Statute. For unfair
competition and anti-competitive behavior, prudential standing serves mainly to deny
a plaintiff standing to sue for a speculative or remote harm. Natural Answers, Inc. v.
SmithKline Beecham Corp., 529 F.3d 1325, 1330-32 (11th Cir. 2008) (false advertising);
Associated General Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S.
519, 532-45 (1983) (antitrust); Florida Seed Co., Inc. v. Monsanto Co., 105 F.3d 1372,
1374 (11th Cir. 1997) (same). A claim for false marking invites the same prudential
limitation.
An absence of competitive injury strongly disfavors a plaintiff’s claim to enjoy
prudential standing to sue for unfair competition or anti-competitive behavior.
However, the prudential standing inquiry is broader than whether a plaintiff suffered
a statutory competitive injury. A falsely marked product, like a falsely advertised
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product, can harm a broad class of competitors, distributors, retailers, customers, and
so on. In consequence, a victim of a competitive injury can for prudential reasons
lack standing to sue. Phoenix, 489 F.3d at 1167. Although this separates prudential
standing to sue for false marking from statutory standing, nevertheless, a plaintiff’s
failure to compete directly with the defendant remains a strong reason to deny
prudential standing. See, e.g., Natural Answers, 529 F.3d at 1331; Stanfield v. Osborne
Industries, Inc., 52 F.3d 867, 873 (10th Cir. 1995). ACT sells no product and
competes not at all with Lexmark.
But the trouble for ACT is as much a lack of direct harm as a lack of direct
competition. The issue is analogous (although not identical) to proximate cause.
Bond v. United States, 131 S.Ct. 2355, 2362 (2011) (“if [] the person alleging injury is
remote from the zone of interests a statute protects, whether there is a legal injury at
all and whether the particular litigant is one who may assert it can involve similar
inquiries”); Williams v. Mohawk Industries, Inc., 465 F.3d 1277, 1287 & n.4 (11th Cir.
2006) (RICO); Illinois Brick Co. v. Illinois, 431 U.S. 720, 760 (1977) (Brennan, J.,
dissenting) (antitrust). “[W]e cannot trace the effect of an act to the end, if end there
is,” Palsgraf v. Long Is. R.R. Co., 248 N.Y. 339, 352 (1928) (Andrews, J., dissenting),
and so, to the contrary, “[t]he general tendency of the law, in regard to damages at
least, is not to go beyond the first step.” Southern Pac. Co. v. Darnelltaenzer Co., 245
U.S. 531, 533 (1918) (Holmes, J.). In ACT’s one theory of competitive injury,
Lexmark’s patent labeling intimidates cartridge re-manufacturers into refusing to
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transact with a company that licenses patents from ACT. Cf. Douglas Laycock,
Modern American Remedies 105-07 (4th ed. 2010) (“Many cases fit this pattern – A
injures B, who is then unable to perform obligations to C, but C does not thereby get a
claim against A”). If everyone touched by the same outward rippling of harm could
recover, fashioning a legal remedy would entail both identifying a distinct statutory
component of harm commingled with other causes of business loss and apportioning
damages among primary, secondary, and tertiary victims, while avoiding duplicative
damages – a daunting if not insuperable task. See Holmes v. Securities Investor Protection
Corp., 503 U.S. 258, 268-69 (1992); Associated General Contractors, 459 U.S. at 532-45;
Verizon Comm. Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 416-18 (2004)
(Stevens, J., concurring).
In the words of Judge Posner (writing on antitrust):
[A] patentee who licenses the manufacture of the patented product and
whose royalties are keyed to his licensee’s sales or profits cannot obtain
damages caused by an anti-competitive scheme that is directed at the
licensee, injures the licensee’s business, and by so doing reduces the
licensor’s royalties. []
This is the application of the age-old tort principle of remoteness of
damages to the novel statutory tort created by the federal antitrust laws.
The tort principle serves the practical goals of preventing duplicative
recovery of damages and proliferation of lawsuits . . . . [For] if the
licensor were allowed to sue, why not everyone else whose fortunes are
linked to the victimized licensee – or, if not everyone, at least the
licensee’s employees, his (other) suppliers, and the merchants who sell
to his employees? None of these is more remote from the antitrust
violation than the licensor.
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Grip-Pak, Inc. v. Illinois Tool Works, Inc., 694 F.2d 466, 473-74 (7th Cir. 1982) (citation
omitted), disapproved on other grounds, Prof’l Real Estate Investors, Inc. v. Columbia
Pictures Indus., Inc., 508 U.S. 49 (1993). (Perhaps the remoteness would close if
Lexmark placed ACT’s patent numbers on a product, but that is not alleged. See
(Doc. 34, Ex. 7))
Hence, even if ACT could prove lost licensing money because of false marking
by Lexmark, the harm is still too derivative or indirect to support prudential standing.
A re-manufacturer attempting to design and sell a toner cartridge that competes
directly with a falsely marked Lexmark toner cartridge is perhaps a proper plaintiff.
Even then, a direct competitor often struggles to prove a competitive injury with the
requisite, reasonable certainty. Palmyra Park Hosp. v. Phoebe Putney Mem. Hosp., 604
F.3d 1291, 1299-1300 (11th Cir. 2010) (antitrust); SEC v. Texas Gulf Sulphur Co., 401
F.2d 833, 868 (2d Cir. 1968) (Friendly, J., concurring) (securities fraud); California
Apparel Creators v. Wieder of Cal., 162 F.2d 893, 902 (2d Cir. 1947) (L. Hand, J.,
dissenting) (false advertising); Restatement (Third) of Unfair Competition § 36 cmt. b
(1995). Yet the alternative, injunctive relief, is unavailable under the amended False
Marking Statute. The abstruse computation and proof necessary to specify a precise
value of a competitive injury provides an additional reason that standing to sue for
false marking is foreclosed to a plaintiff that is two or more steps removed from direct
competition with the defendant.
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Miller wants to shuffle the plaintiffs and try again on the false marking claim
with a different company, Platinum Manufacturing International, Inc. Perhaps
Miller’s luck will improve with Platinum, but not here. This action is almost two
years old, both extensively litigated and already delayed. Joining Platinum means
starting afresh. The best place for that, if anywhere, is a new lawsuit.
Lexmark’s motion (Doc. 252) is GRANTED. Count II of the amended
complaint (Doc. 34) is DISMISSED for lack of Article III standing. The court
adjudges that ACT lacks standing to assert the claim for relief putatively alleged in
Count II and fails to state a claim for relief in Count II, in each instance because
ACT incurred no judicially cognizable injury.
ORDERED in Tampa, Florida, on December 21, 2011.
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