Be Careful When Marking Products as Patented. It Can Cost All Your Profits.

Pandora’s Box of Horrors has been opened!

The Court of Appeals for the Federal Circuit (CAFC) created a new cause of action for mismarking a product. This ruling opens a Pandora’s box when it comes to patent mis-marking. The Court held that you can bring an action for false marking under the Lanham Act. This is a big decision because the potential damages are huge.

The Case

The case is Crocs v Efferscent, et. al. Crocs promoted exclusive, proprietary and patented shoe material, which was false. They didn’t have a patent on the material. Furthermore, it wasn’t exclusive or proprietary. Patent false marking law prohibits false marking products as patented. If there’s competitive injury, the injured party can recover its damages from the injury.

One of the defendants in the case, sandal company, Dawgs Inc., accused Crocs of false advertising under the Lanham Act. Dawgs argued that the promotions suggested that the Crocs shoe material was superior. Crocs claims that they had a patented product suggested that other products were inferior.

The CAFC held that a cause of action arises under the Lanham Act if:

1. a party falsely claims that it possesses a patent on a product feature, and

2. advertises that feature to mislead consumers about the nature, characteristics, or quality of its product.

The Lanham Act states in pertinent part that:

Any person who, on or in connection with any goods or services uses in commerce… false or misleading representation of facts, which…

in commercial, advertising or promotion, misrepresents the nature, characteristics, [or] qualities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

Under the Lanham Act the court can award damages to recover:

(1) defendant’s profits,

(2) any damages sustained by the plaintiff, and

(3) the costs of the action and at its discretion can award treble damages.

(4) in exceptional cases, the court can also award reasonable attorney fees.

The plaintiff only must prove the defendant’s sales. The defendant must prove all elements of cost or deduction.

Discussion

Damages under the Lanham Act are easier to prove than false marking. All the Plaintiff has to prove is sales, which is much easier than proving how the false marking caused injury. Also, the injury isn’t limited to competitive injury. Anyone who believes they were or likely will be injured can bring an action.

The case now goes back to the District Court for further proceedings. The District had denied Dawg’s ability to bring the claim. If successful, Dawg could receive an award of Croc’s profits from the sales of its product. This award could even be trebled at the Court’s discretion, and the Court could award attorney’s fees. That’s why Dawg alleged a violation under the Lanham Act.

It will be interesting to see if other courts follow this lead. But, since the CAFC is the exclusive court for all patent matters, any patent appeal goes to this court.

The other issue will be how courts interpret advertising to mislead consumers about the nature, characteristics, or quality of its product. In the Crocs case, the advertising was more than false marking. They gilded the Lilly with other statements. The unanswered question is whether only false indications of patent protection will be enough.

The Takeaway

This case is a warning to all. Exercise great care in marking your products. Damages can be huge. They can be your profits, the potential of three times that amount, plus paying the other side’s attorney fees. This may also open new troll litigation. Since anyone can take action, trolls will likely be looking for violations.

In next week’s article, I’ll review the proper steps to ensure your products are properly marked.

To help you identify your intellectual property, I have created a Guide and Checklist. Click the button below to download a free copy.

About the Author:

Bill Honaker, “The IP Guy” is a former USPTO Examiner, a partner with Dickinson-Wright, and author of the new book, Invisible Assets – How to Maximize the Hidden Value in Your Business.

To get answers to your questions schedule a time to talk, you can access my calendar by clicking here, email [email protected], or call me at 248-433-7381.