May 4, 2014: Skumar v. Nautilus (False Marking)

Today, the Federal Circuit issued its opinion in Skumar v. Nautilus interpreting the new "competitive injury" standard for the first time in the Post-AIA "False Marking" section of the patent law. Surprisingly, the Federal Circuit found for Nautilus while accepting Skumar's suggested interpretation of the new false marking statute.

I find bitlaw has the most useful pre-and-post-aia comparison interface, but I'll quote the new statute below:

35 U.S.C. 292 False marking.

(a) Whoever, without the consent of the patentee, marks upon, or affixes to, or uses in advertising in connection with anything made, used, offered for sale, or sold by such person within the United States, or imported by the person into the United States, the name or any imitation of the name of the patentee, the patent number, or the words "patent," "patentee," or the like, with the intent of counterfeiting or imitating the mark of the patentee, or of deceiving the public and inducing them to believe that the thing was made, offered for sale, sold, or imported into the United States by or with the consent of the patentee; or 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 the same is patented, for the purpose of deceiving the public; or 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 subsection.

(b) 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.

(c) The marking of a product, in a manner described in subsection (a), with matter relating to a patent that covered that product but has expired is not a violation of this section.

This is a modification of the pre-AIA "qui tam" style section, which left out the final sentence of (a), the entirety of new (b) and (c), and stated instead:

(b) Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.

Issue

Skumar was a potential competitor intending to enter the market- can a potential competitor suffer a competitive injury under the AIA?

Holding

We hold that a potential competitor may suffer competitive injury if it has attempted to enter the market. An attempt is made up of two components: (1) intent to enter the market with a reasonable possibility of success, and (2) an action to enter the market.

The Federal Circuit focuses on the policy underlying the change in the law; the surge in qui tam actions by largely unaffected third parties on products that remained marked after the patent expired which Congress thought undermined the purpose of protecting fair competition. Nautilus argued for a narrow construction of the rule, foreclosing on anyone not an active competitor in the industry.

The Federal Circuit grabs ahold of antitrust concepts to explore that "injury to competition" can include creating barriers to entry of new competitors. The Court concludes that a competitive injury should include the barrier to entry into a market altogether. In order to establish this, the Federal Circuit has created a two-part test: there must be an intent on the potential competitor to enter the market, and acts to enter the market.

Proving intent should be routine to most litigators, but the acts that qualify as "actions to enter the market" remain unclear. In its decision against Skumar, the Federal Circuit laments that Skumar failed to take these "basic steps":

Sukumar did not develop a business plan.

Sukumar did not attempt to design a prototype.

Sukumar did not hire any employees.

Sukumar did not gain engineering knowledge.

Sukumar did not investigate developing manufacturing capacity.

It's unclear whether any one of these acts would trigger an "action" for the purposes of the new two-part test. Certainly, some of them are investments of time and others requiring committing substantial money. A wise planner would try to establish each, plus ensure that any objective, concrete numbers or other facts that would conclusively establish an active "attempt" to enter a market were accessible.

Finally, the opinion's final section serves to caution attorneys against uncited assertions. Conclusory statements without evidence don't win cases.

Cited Authority

Antitrust

  • Razorback Ready Mix Concrete Co. v. Weaver, 761 F.2d 484, 488 (8th Cir. 1985)
  • Midwest Underground Storage, Inc. v. Porter, 717 F.2d 493, 498 (10th Cir. 1983)
  • Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 14 (1984)
  • Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006)
  • Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1198 (9th Cir. 2012)
  • Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 912 (9th Cir. 2008)

False marking

  • Forest Grp., Inc. v. Bon Tool Co., 590 F.3d 1295, 1303 (Fed. Cir. 2009)

Pleading Standards

  • Moore U.S.A., Inc. v. Standard Register Co., 229 F.3d 1091 (Fed. Cir. 2000) (“A party may not overcome a grant of summary judgment by merely offering conclusory statements.”)
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